-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M8W7ffuIwoiicG/eQHxe4fD8dYY9OxucpPQkFY1lyT8hxd8SxxCRrFCbsisJh4Xh /qqhWY+qcaongkeMoaP5uw== 0001144204-04-013936.txt : 20040907 0001144204-04-013936.hdr.sgml : 20040906 20040907150412 ACCESSION NUMBER: 0001144204-04-013936 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040831 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Changes in Control of Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20040907 DATE AS OF CHANGE: 20040907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARGAN INC CENTRAL INDEX KEY: 0000100591 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 131947195 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31756 FILM NUMBER: 041018618 BUSINESS ADDRESS: STREET 1: ONE CHURCH STREET STREET 2: SUITE 302 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 301 315-0027 MAIL ADDRESS: STREET 1: ONE CHURCH STREET STREET 2: SUITE 302 CITY: ROCKVILLE STATE: MD ZIP: 20850 FORMER COMPANY: FORMER CONFORMED NAME: PUROFLOW INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ULTRA DYNAMICS CORP DATE OF NAME CHANGE: 19830522 8-K 1 v06469.txt 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): August 31, 2004 ARGAN, INC. (Exact Name of Registrant as Specified in Charter) Delaware 001-31756 13-1947195 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) One Church Street, Suite 302, Rockville Md 20850 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (301) 315-0027 Not Applicable (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: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. The information set forth in Item 2.01 and Item 2.03 of this Current Report on Form 8-K is incorporated by reference herein. ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS. On August 31, 2004, Argan, Inc., a Delaware corporation ("Argan"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of August 31, 2004, with Kevin J. Thomas ("Thomas"), Vitarich Laboratories, Inc., a Florida corporation ("Vitarich"), and AGAX/VLI Acquisition Corporation, a Delaware corporation ("VLI"), acquired Vitarich by way of a merger (the "Merger") of Vitarich with and into VLI, with VLI as the surviving company of the Merger. Vitarich (now VLI) is in the business of formulating, packaging and distributing whole food dietary, herbal and nutritional supplements and related products, which are marketed globally to retail, wholesale and private label customers, including network marketing companies, health food stores, mass merchandisers, drug stores, food stores, and Internet and mail-order companies. A copy of a press release announcing the Merger is attached hereto as Exhibit 99.1. In connection with the Merger, Argan and Thomas entered into a certain Registration Rights Agreement (the "Registration Rights Agreement"), dated as of August 31, 2004; VLI and Thomas entered into a certain Employment Agreement (the "Employment Agreement"), dated as of August 31, 2004; and VLI and Vitarich Farms, Inc ("Farms"), a Florida corporation, entered into a certain Supply Agreement (the "Supply Agreement"), dated as of August 31, 2004. Also in connection with the Merger, Argan effected certain changes to its existing credit facility with Bank of America ("BOA"), pursuant to a certain Third Amendment to Financing and Security Agreement (the "Third Amendment"), dated as of August 31, 2004, by and among Argan, Southern Maryland Cable, Inc., a Delaware corporation that is a wholly-owned subsidiary of Argan ("SMC"), and VLI, as borrowers, and BOA, as lender; a certain Amended and Restated Revolving Credit Note (the "Amended Revolving Note"), dated August 31, 2004, in the amount of $3,500,000, by and among Argan, SMC and VLI, as borrowers, in favor of BOA, as lender; a certain First Amendment to Term Note (the "First Amendment to Term Note"), dated as of June 29, 2004, by and among Argan and SMC, as borrowers, and BOA, as lender; and an Additional Borrowers Joinder Supplement (the "Supplement" and together with the Third Amendment, the Amended Revolving Note and the First Amendment to Term Note, the "Financing Document Amendments"), dated as of August 31, 2004, by and among Argan, the other Existing Borrowers (as such term is defined in the Supplement) and VLI, as borrowers, and BOA, as lender. Pursuant to the Merger Agreement, each outstanding share of Vitarich's common stock ("Stock") was exchanged for the Merger Consideration (as described below) and, upon receipt of the Merger Consideration, such shares of Vitarich common stock were cancelled. Thomas owned all of the outstanding shares of Vitarich common stock before the Merger. Following the Merger, the officers of VLI are as follows: Rainer Bosselmann, Chairman of the Board; Kevin J. Thomas, Senior Operating Executive; Gerry David, President; Craig Woldinger, Executive Vice President; Haywood Miller, Vice President and Secretary; Arthur Trudel, Vice President, Treasurer and Chief Financial Officer; and Steve Ashkinos, Vice President--Finance. Under the Merger Agreement, the total merger consideration to be paid by Argan to Thomas (the "Merger Consideration") is an amount equal to the sum of the Initial Consideration and the Additional Consideration (each as described below), determined and paid in accordance with the terms of the Merger Agreement, and each share of Stock is entitled to receive a sum equal to the Merger Consideration divided by the total number of shares of the Stock. The Merger Agreement provides that the Initial Consideration (the "Initial Consideration") shall be an amount equal to $12,443,750, paid at Closing (i) $6,050,000 in cash (the "Initial Cash Consideration"); and (ii) through the issuance of 825,000 shares of Argan common stock (the "Initial Stock Consideration"), subject to adjustment as provided in the Merger Agreement. Pursuant to the Merger Agreement, notwithstanding the fact that the closing price of Argan's common stock on August 30, 2004 was $6.00 per share, for purposes of calculating the consideration due under the Merger Agreement, the value of each share of Argan common stock was deemed to be $7.75, subject to adjustment as set forth in the Merger Agreement. The Merger Agreement further provides that, in the event the net worth of Vitarich as of the closing date of the Merger is less than $1,200,000, then such deficiency will reduce, dollar for dollar, the Initial Consideration paid to Thomas, which reduction, if any, shall be allocated proportionately to the Initial Cash Consideration and the Initial Stock Consideration. Upon the determination of the adjustment to the Initial Consideration, the amount by which the Initial Consideration has been reduced, if any, shall be repaid by Thomas to Argan in proportionate amounts of cash and Argan common stock (with the value of the Argan common stock deemed to be $7.75). The Merger Agreement provides that, in addition to the Initial Consideration, Thomas shall have the right to receive additional consideration (the "Additional Consideration") equal to (a) 5.5 times the Adjusted EBITDA of Vitarich for the 12 months ended February 28, 2005, (b) less the Initial Consideration (provided, however, that in no event shall the Additional Consideration be less than zero or require repayment by Thomas to Argan of any portion of the Initial Consideration), such amount to be paid 50% in cash (the "Additional Cash Consideration") and 50% through issuance of Argan common stock (the "Additional Stock Consideration"). For purposes of determining the number of shares of Argan common stock to be issued to Thomas as Additional Stock Consideration, the value of each share of Argan common stock shall be deemed to be $7.75. The Merger Agreement also provides that, if between the closing date and the Additional Consideration payment date (which is expected to be on or before June 1, 2005), Argan raises additional capital by issuance of Argan stock pursuant to a public or private offering for a price less than $7.75 per share (the "Additional Capital Subscription Price"), then the number of shares of Argan common stock issued to Thomas as the Initial Stock Consideration pursuant to the Merger Agreement shall be adjusted to the number of shares of Argan common stock that would have been issued at the closing of the Merger had the value of each share of Argan common stock been the Additional Capital Subscription Price, and Argan shall issue to Thomas on the Additional Consideration payment date the number of additional shares of Argan common stock that would have been issued as a part of the Initial Stock Consideration at closing had the value of Argan common stock been the Additional Capital Subscription Price. In addition to the foregoing, pursuant to the Merger Agreement, Argan also paid Thomas $507,514 at closing, such amount in full satisfaction of all loans made by Thomas to Vitarich prior to the closing. Argan also agreed to grant options to purchase 25,000 shares of Argan common stock to certain employees of Vitarich (now VLI) in the future. Pursuant to the Registration Rights Agreement, Argan agreed to use its best efforts to file a registration statement with the Commission under the Securities Act of 1933 to effect the registration of the shares of Argan common stock issued in the Merger. Pursuant to the Employment Agreement, VLI agreed to employ Thomas as its Senior Operating Executive for an initial term of 3 years. The agreement provides for successive automatic one year renewal terms after the initial term, unless either party provides three months prior written notice of its election not to renew. The agreement provides for Thomas to receive during the employment period an annual base salary of $150,000, subject to increase in the discretion of the board of VLI, and an annual bonus (commencing with the fiscal year of VLI ended January 31, 2006) of up to $250,000 based upon the Pre-Tax Earnings of VLI (as defined and described in the agreement). The agreement also provides that Thomas may receive such additional bonuses as the board of directors of VLI may determine in its discretion. The agreement also provides for Thomas to receive severance in the event that Thomas is terminated by the Company without "cause" (as defined in the agreement) or in the event that Thomas quits with "good reason." Pursuant to the Supply Agreement, Farms, which harvests and processes powdered vegetable grains, agreed to supply to VLI, and VLI agreed to purchase from Farms, the products produced by Farms as and to the extent required by VLI in the conduct of its business. The term of the agreement is one year. The price of products to be purchased under the agreement shall be as agreed upon by the parties, but shall not exceed the market price for the products at the time of purchase, subject to a 10% quality control premium, as applicable, on account of products being grown and processed in accordance with the specifications set forth in the agreement. Thomas owns approximately 60% of Farms and also serves as its President. Pursuant to the Financing Document Amendments, Argan's existing credit facility with BOA was principally amended to (i) increase the amount available for borrowing under the revolving credit facility from $1,750,000 to $3,500,000, (ii) extend the maturity date of the revolving credit facility to May 31, 2005, (iii) increase the interest rate on the revolving credit facility to LIBOR plus 3.25% for the remaining term of the facility, (iv) increase the interest rate on the term loan facility to LIBOR plus 3.45% from July 1, 2004 to the maturity date (July 31, 2006), and (v) subject borrowings under the revolving credit facility to a borrowing base calculation based upon eligible accounts receivable and eligible inventory. The Financing Document Amendments also amended certain covenants to require the ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") to not exceed 2.5 to 1 (the first test date being January 31, 2005) and to require a fixed charge coverage ratio of not less than 1.25 to 1 (the first test date being January 31, 2005). The Financing Document Amendments also deleted covenants which had required Argan to maintain certain minimum levels of liquidity and positive net income during the Company's fiscal quarters ended July 31, 2004 and October 31, 2004. The BOA credit facility, as amended, is discussed further in Item 2.03 of this Current Report of Form 8-K, which further discussion is incorporated by reference herein. Argan drew approximately $2.1 million under the BOA revolving credit facility in connection with the Merger and for working capital for the newly acquired business. Copies of the Merger Agreement, the Registration Rights Agreement, the Employment Agreement, the Third Amendment, the Amended Revolving Note, the First Amendment to Term Note and the Supplement are attached hereto as Exhibits 2.1, 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6. The foregoing descriptions of the Merger Agreement, the Registration Rights Agreement, the Employment Agreement, the Third Amendment, the Amended Revolving Note, the First Amendment to Term Note and the Supplement are qualified in their entirety by reference to the complete copies of the agreements attached hereto as exhibits. ITEM 2.03. CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF THE REGISTRANT. The information set forth in Item 2.01 of this Current Report on Form 8-K is incorporated by reference herein. As discussed in Item 2.01 above, the Financing Document Amendments effected certain amendments to Argan's existing BOA credit facility. As amended, the BOA credit facility: o Provides for a revolving loan facility in the amount of $3,500,000 (of which approximately $2,100,000 was outstanding as of September 1, 2004), which bears interest at a rate of LIBOR plus 3.25%, which requires interest to be paid monthly commencing on September 30, 2004, which limits borrowings under the facility based upon eligible accounts receivable and eligible inventory, which has a maturity date of May 31, 2005, and which requires all outstanding principal, interest and other amounts due to be paid on the maturity date; o Provides for a term loan in the amount of $1,200,000 (of which approximately $767,000 was outstanding as of September 1, 2004), which bears interest at a rate of LIBOR plus 3.45%, which requires interest to be paid monthly, which has a maturity date of July 31, 2006, and which requires all outstanding principal, interest and other amounts due to be paid on the maturity date; o Is secured by substantially all of Argan's and its subsidiaries' property and assets; o Contains certain affirmative and negative covenants including: requiring the ratio of funded debt to EBITDA to not exceed 2.5 to 1 (the first test date being January 31, 2005); requiring a fixed charge coverage ratio of not less than 1.25 to 1 (the first test date being January 31, 2005); and requiring BOA consent for acquisitions and divestitures; and o Provides that BOA may accelerate the entire amount due under the facility in the event of default. In connection with the Merger, VLI assumed certain financial obligations of Vitarich, including the following capital lease: Master Lease Agreement, dated as of November 26, 2003, by and between Key Equipment Finance, a Division of Key Corporate Capital Inc., and Vitarich Laboratories, Inc., together with the Schedules thereto dated December 3, 2003 (the "December 3, 2003 Key Capital Lease") and March 22, 2004 (the "March 22, 2004 Key Capital Lease") (the December 3, 2003 Key Capital Lease and the March 22, 2004 Key Capital Lease being collectively referred to as the "Key Capital Leases"); and the following real estate leases: Lease Agreement, dated as of April 25, 2000, by and between Ogden Manor Partnership, Ltd., a Colorado limited partnership, as landlord (as subsequently assigned to Naples Hawaii, LLC, as landlord), and Vitarich Laboratories, Inc., as tenant, with respect to premises at 4365 Arnold Avenue, Collier County, Florida (the "4365 Arnold Lease"); Lease Agreement, dated as of August 18, 2004, by and between Kevin J. Thomas, as landlord, and Vitarich Laboratories, Inc., as tenant, with respect to premises at 4206 Arnold Avenue, Collier County, Florida (the "4206 Arnold Lease"); and Lease Agreement, dated as of January 1, 2003, by and between Kevin J. Thomas, as landlord, and Vitarich Laboratories, Inc., as tenant, with respect to premises at 4327 Arnold Avenue, Collier County, Florida (the "4327 Arnold Lease"). The December 3, 2003 Key Capital Lease provides for total financing of $234,525 (of which approximately $211,920 remained outstanding as of August 31, 2004); provides for the amortization of principal and interest over a period of 60 months in equal monthly installments of $4,682; and provides for the acceleration of the entire amount due under the lease in the event of default. The March 22, 2004 Key Capital Lease provides for total financing of $59,434 (of which approximately $55,355 remained outstanding as of August 31, 2004); provides for the amortization of principal and interest over a period of 60 months in equal monthly installments of $1,210; and provides for the acceleration of the entire amount due under the lease in the event of default. The 4365 Arnold Lease, as amended, expires on July 31, 2008; provides for monthly base rent of $10,600 during the period August 2004 to July 2005, $10,812 during the period August 2005 to July 2006, $11,028 during the period August 2006 to July 2007, and $11,248 during the period August 2007 to July 2008; and provides that tenant shall pay, as additional rent, all expenses relating to the operation, use and maintenance of the property including taxes, utilities and insurance. The 4206 Arnold Lease provides for an initial term of five years, commencing on August 18, 2004 (subject to earlier termination at the option of tenant upon 18 months prior written notice to landlord); provides for two successive one year renewal terms at tenant's option; provides for monthly base rent of $13,250 during the initial term (other than for approximately the first four months of the lease, during which the base rent is $6,625 per month) and the renewal terms (subject to possible increases of not more than 10% per renewal); and provides that tenant shall pay, as additional rent, all expenses relating to the operation, use and maintenance of the property including taxes, utilities and insurance. The 4327 Arnold Lease provides for an initial term of three years, commencing on January 1, 2003; provides for two successive one year renewal terms at tenant's option; provides for monthly base rent of $5,500 during the initial term and the renewal terms (subject to possible increases of not more than 10% per renewal); and provides that tenant shall pay, as additional rent, all expenses relating to the operation, use and maintenance of the property including taxes, utilities and insurance. ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES. The information set forth in Item 2.01 of this Current Report on Form 8-K is incorporated by reference herein. The shares of Argan common stock that were issued to Thomas in connection with the Merger were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933. ITEM 5.01. CHANGE IN CONTROL OF REGISTRANT. The information set forth in Item 2.01 of this Current Report on Form 8-K is incorporated by reference herein. Following the consummation of the Merger, Thomas beneficially owns approximately 31% of Argan's outstanding voting shares. As a result of the Merger, Thomas may be deemed to have assumed control of Argan from the existing shareholders of Argan, including officers and directors of Argan who beneficially owned, in the aggregate, approximately 45% of Argan's outstanding voting shares prior to the Merger and who own approximately 32% of Argan's outstanding voting shares after the Merger. Except as described in Item 2.01 above, there are no material arrangements between Argan and Thomas with respect to the election of directors of Argan or other matters. Except as described in Item 2.01 above, to the best of Argan's knowledge, there are no material arrangements between Thomas and any of Argan's shareholders with respect to the election of directors of Argan or other matters. On December 31, 2002, Argan executed a non-binding term sheet with a group consisting of Rainer H. Bosselmann, H. Haywood Miller III and Arthur F. Trudel, setting forth terms for a private placement of common stock of Argan. Pursuant to the term sheet, the group and/or its affiliates agreed to invest not less than $2 million in the private placement. Mr. Bosselmann was appointed to Argan 's Board of Directors as Vice Chairman upon execution of the term sheet. Mr. Miller and Mr. Trudel were appointed as corporate officers of Argan, each at a nominal annual salary of $1.00, upon execution of the term sheet. In addition, Argan granted to the group warrants to purchase an aggregate of 180,000 shares of common stock at an exercise price of $7.75 per share upon execution of the term sheet. These warrants could only be exercised in the event that the private placement was consummated. On April 29, 2003, Argan completed the private placement. In the private placement, Argan sold 1,303,974 shares of common stock to a group of accredited investors (including Messrs. Bosselmann, Miller and Trudel) at a price of $7.75 per share. Argan raised a total of $10,106,000 in the private placement (before giving effect to offering expenses of approximately $472,000 and 230,000 warrants). Pursuant to the terms of the private placement, Mr. Bosselmann received the right to designate four members of Argan's Board of Directors (including himself) upon consummation of the private placement. Following the closing of the private placement, four existing directors of Argan resigned and were replaced by Mr. Bosselmann and three new directors designated by Mr. Bosselmann (DeSoto S. Jordan, James W. Quinn and Daniel A. Levinson). These new directors were appointed by the remaining members of Argan 's Board of Directors. Also upon the consummation of the private placement, each of Messrs. Bosselmann, Miller and Trudel became senior officers of Argan. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Businesses Acquired: Argan will file the financial statements required by Item 9.01(a) of Form 8-K within the time period specified in Item 9.01(a)(4) of Form 8-K. (b) Pro Forma Financial Information: Argan will file the pro forma financial information required by Item 9.01(b) of Form 8-K within the time period specified in Item 9.01(b)(2) of Form 8-K.
(c) Exhibits. Exhibit No. Description ----------- ----------- 2.1 Agreement and Plan of Merger, dated as of August 31, 2004, by and between Kevin J. Thomas, Vitarich Laboratories, Inc., Argan, Inc. and AGAX/VLI Acquisition Corporation (exhibits and schedules to the Agreement and Plan of Merger are omitted from this filing, but will be filed with the Commission supplementally upon request) 10.1 Registration Rights Agreement, dated as of August 31, 2004, by and among Argan, Inc. and Kevin J. Thomas 10.2 Employment Agreement, dated as of August 31, 2004, by and between AGAX/VLI Acquisition Corporation and Kevin J. Thomas 10.3 Third Amendment to Financing and Security Agreement, dated as of August 31, 2004, by and among Argan, Inc., Southern Maryland Cable, Inc. and AGAX/VLI Acquisition Corporation, as borrowers, and Bank of America, N.A., as lender 10.4 Amended and Restated Revolving Credit Note, dated August 31, 2004, in the amount of $3,500,000, by Argan, Inc., Southern Maryland Cable, Inc. and AGAX/VLI Acquisition Corporation, as borrowers, in favor of Bank of America, N.A., as lender 10.5 First Amendment to Term Note, dated as of June 29, 2004, by and among Argan, Inc. and Southern Maryland Cable, Inc., as borrowers, and Bank of America, N.A., as lender 10.6 Additional Borrowers Joinder Supplement, dated as of August 31, 2004, by and among Argan, Inc., the other Existing Borrowers (as such term is defined in the agreement) and AGAX/VLI Acquisition Corporation, as borrowers, and Bank of America, N.A., as lender 99.1 Press Release of Argan, Inc., dated September 1, 2004, announcing the acquisition of Vitarich Laboratories, Inc.
SIGNATURES 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. ARGAN, INC. By: /s/ Rainer Bosselmann --------------------- Rainer Bosselmann Chairman of the Board and Chief Executive Officer Date: September 7, 2004
EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1 Agreement and Plan of Merger, dated as of August 31, 2004, by and between Kevin J. Thomas, Vitarich Laboratories, Inc., Argan, Inc. and AGAX/VLI Acquisition Corporation (exhibits and schedules to the Agreement and Plan of Merger are omitted from this filing, but will be filed with the Commission supplementally upon request) 10.1 Registration Rights Agreement, dated as of August 31, 2004, by and among Argan, Inc. and Kevin J. Thomas 10.2 Employment Agreement, dated as of August 31, 2004, by and between AGAX/VLI Acquisition Corporation and Kevin J. Thomas 10.3 Third Amendment to Financing and Security Agreement, dated as of August 31, 2004, by and among Argan, Inc., Southern Maryland Cable, Inc. and AGAX/VLI Acquisition Corporation, as borrowers, and Bank of America, N.A., as lender 10.4 Amended and Restated Revolving Credit Note, dated August 31, 2004, in the amount of $3,500,000, by Argan, Inc., Southern Maryland Cable, Inc. and AGAX/VLI Acquisition Corporation, as borrowers, in favor of Bank of America, N.A., as lender 10.5 First Amendment to Term Note, dated as of June 29, 2004, by and among Argan, Inc. and Southern Maryland Cable, Inc., as borrowers, and Bank of America, N.A., as lender 10.6 Additional Borrowers Joinder Supplement, dated as of August 31, 2004, by and among Argan, Inc., the other Existing Borrowers (as such term is defined in the agreement) and AGAX/VLI Acquisition Corporation, as borrowers, and Bank of America, N.A., as lender 99.1 Press Release of Argan, Inc., dated September 1, 2004, announcing the acquisition of Vitarich Laboratories, Inc.
EX-2.1 2 v06469_ex2-1.txt AGREEMENT AND PLAN OF MERGER Table of Contents
Page INTRODUCTORY STATEMENT............................................................................................1 DEFINITIONS ......................................................................................................2 SECTION 1 - THE MERGER............................................................................................8 1.1 Effective Time..................................................................................8 1.2 Certificate of Merger...........................................................................8 1.3 Effect of the Merger............................................................................9 1.4 Certificate of Incorporation, By-Laws...........................................................9 1.5 Officers........................................................................................9 SECTION 2 - MERGER CONSIDERATION.................................................................................10 2.1 Conversion of Stock of Company.................................................................10 2.2 Merger Consideration...........................................................................10 2.3 Initial Consideration..........................................................................10 2.4 Additional Consideration.......................................................................12 2.5 Registration...................................................................................12 2.6 Stock Certificates.............................................................................12 2.7. Shareholder Loans..............................................................................12 2.8 Adjustment to Initial Stock Consideration......................................................13 SECTION 3 - CLOSING..............................................................................................13 3.1 Cancellation...................................................................................13 3.2 Delivery of Cash and Certificates..............................................................14
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3.3 Supply Agreement...............................................................................15 3.4 Circulation of Documents.......................................................................15 SECTION 4 - REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF THOMAS AND THE COMPANY..........................15 4.1 Organization, Qualifications and Corporate Power...............................................15 4.2 Authorization of Agreement.....................................................................16 4.3 Capital Stock..................................................................................17 4.4 Financial Statements...........................................................................17 4.5 Absence of Changes.............................................................................18 4.6 Legal Actions..................................................................................20 4.7 Business Property Rights.......................................................................21 4.8 Liabilities....................................................................................21 4.9 Ownership of Assets and Leases.................................................................21 4.10 Taxes..........................................................................................24 4.11 Contracts, Other Agreements....................................................................26 4.12 Governmental Approvals.........................................................................26 4.13 Lack of Defaults; Compliance with Law..........................................................26 4.14 Employees and Employee Benefit Plans...........................................................27 4.15 Insurance; Bonds...............................................................................28 4.16 Labor and Employment Matters...................................................................28 4.17 Brokers and Finders............................................................................29 4.18 Accounts Receivable............................................................................29 4.19 Conflicts of Interests.........................................................................29
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4.20 Environmental Compliance.......................................................................30 4.21 Ownership of the Stock.........................................................................30 4.22 [Intentionally omitted.].......................................................................31 4.23 Approval of Merger; Related Matters............................................................31 4.24 Withholding....................................................................................31 SECTION 5 - REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF PARENT AND SUBSIDIARY...........................31 5.1 Organization, Qualifications and Corporate Power...............................................32 5.2 Authorization, etc.............................................................................32 5.3 Absence of Changes.............................................................................33 5.4 Governmental Approvals.........................................................................35 5.5 Brokers Fees...................................................................................35 5.6 Authorized Shares of Stock.....................................................................35 5.7 Survival of Company............................................................................35 5.8 No Section 338 Election........................................................................35 5.9 Taxes..........................................................................................36 5.10 Employees and Employee Benefit Plans...........................................................37 5.11 Releasing Thomas From Personal Guaranties......................................................37 SECTION 6 - CONDITIONS TO CLOSING FOR PARENT.....................................................................38 6.1 Performance of Agreements......................................................................38 6.2 Lack of Material Liabilities...................................................................38 6.3 Financial Statements...........................................................................38 6.4 [Intentionally omitted]........................................................................39
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6.5 [Intentionally omitted]........................................................................39 6.6 Employment Agreements..........................................................................39 6.7 Opinion of Counsel.............................................................................39 6.8 Compliance Certificate.........................................................................39 6.9 [Intentionally omitted.].......................................................................39 6.10 [Intentionally omitted]........................................................................39 6.11 [Intentionally omitted]........................................................................39 6.12 Release from Thomas; Payment of Amounts Owed by Thomas.........................................39 6.13 Corporate Documents............................................................................40 6.14 Corporate Filings..............................................................................40 6.15 Trustee of Plans...............................................................................40 6.16 Assignment and Assumption of Real Property Leases..............................................41 6.17 Assignment and Assumption of Equipment Leases..................................................41 6.18 Supply Agreement...............................................................................41 6.19 Registration Rights Agreement..................................................................41 6.20 Cancellation of David Agreement................................................................42 SECTION 7 CONDITIONS TO CLOSING FOR THE COMPANY AND THOMAS...............................................42 7.1 Performance of Agreements......................................................................42 7.2 Lack of Material Liabilities...................................................................42 7.3 Employment Agreements..........................................................................42 7.4 Opinion of Counsel.............................................................................42 7.5 Compliance Certificate.........................................................................43 7.6 Employee Stock Options.........................................................................43
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7.7 Corporate Documents............................................................................43 7.8 Corporate Filings..............................................................................44 7.9 Assignment and Assumption of Real Property Leases..............................................44 7.10 Assignment and Assumption of Equipment Leases..................................................44 7.11 Supply Agreement...............................................................................44 7.12 Registration Rights Agreement..................................................................44 SECTION 8 - RESTRICTIVE COVENANTS................................................................................44 8.1 Covenant Not to Compete........................................................................45 8.2 Confidentiality................................................................................45 8.3 Non-Solicitation...............................................................................46 8.4 Acknowledgment by Thomas.......................................................................47 8.5 Reformation by Court...........................................................................47 8.6 Extension of Time..............................................................................48 8.7 Injunction.....................................................................................48 8.8 Survival.......................................................................................48 SECTION 9 - INDEMNIFICATION BY THOMAS............................................................................48 9.1 Indemnification by Thomas......................................................................49 9.2 No Circular Recovery...........................................................................52 9.3 Thomas's Indemnification Threshold Cap.........................................................53 SECTION 10 INDEMNIFICATION BY PARENT......................................................................54 10.1 Indemnification by Parent......................................................................54 10.2 Broker Fee.....................................................................................54 10.3 Costs and Expenses.............................................................................54
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10.4 Termination of Parent's Obligations............................................................55 10.5 Parent's Indemnification Threshold; Cap........................................................55 10.6 Indemnification for Personal Guaranties by Thomas..............................................55 SECTION 11 - DEFAULT.............................................................................................56 [Intentionally omitted].................................................................................56 SECTION 12 - MISCELLANEOUS.......................................................................................56 12.1 Costs..........................................................................................56 12.2 Attorneys Fees.................................................................................56 12.3 Relationships to Other Agreements..............................................................56 12.4 Titles and Captions............................................................................56 12.5 Exhibits.......................................................................................56 12.6 Applicable Law.................................................................................57 12.7 Binding Effect and Assignment..................................................................57 12.8 Notices........................................................................................57 12.9 Severability...................................................................................58 12.10 Acceptance or Approval.........................................................................58 12.11 Survival.......................................................................................58 12.12 Entire Agreement...............................................................................59 12.13 Counterparts...................................................................................59 12.14 Securities Matters.............................................................................59 12.15 Preparation and Filing of SEC Documents........................................................60 12.16 Further Assurances.............................................................................60
vi AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, made as of this 31st day of August, 2004, by and between KEVIN J. THOMAS ("Thomas"), VITARICH LABORATORIES, INC., a Florida corporation (the "Company"), ARGAN, INC., a Delaware corporation ("Parent"), and AGAX/VLI ACQUISITION CORPORATION ("Subsidiary"), a Delaware corporation and a 100% subsidiary of Parent. INTRODUCTORY STATEMENT A. Thomas collectively owns one hundred (100) shares of capital stock of the Company, which shares constitute all of the issued and outstanding capital stock (the "Stock") of the Company. B. The Company is in the business of formulating, packaging and distributing whole food dietary, herbal and nutritional supplements and related products, which are marketed globally to retail, wholesale and private label customers, including network marketing companies, health food stores, mass merchandisers, drug stores, food stores, and Internet and mail-order companies. C. Parent has agreed with Thomas for Parent to acquire the Company by means of a merger of the Company with and into Subsidiary, upon the terms and subject to the conditions set forth herein. D. In furtherance of such acquisition, the Boards of Directors of Parent, Subsidiary and the Company have each approved the plan of merger to merge the Company with and into Subsidiary (the "Merger") in accordance with the applicable provisions of the Delaware General Corporation Law (the "DGCL") and the Florida General Corporation Law ("FGCL"), and upon the terms and subject to the conditions set forth here in. 1 E. Pursuant to the Merger, the record holders of each outstanding share of the Company's common stock shall be entitled to receive the Merger Consideration (as defined in Section 2) so that upon receipt of the Merger Consideration, such share of the Stock shall be cancelled, all upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, for and in consideration of the premises and the mutual representations, warranties, covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties do agree as follows: DEFINITIONS The following terms when used in this AGREEMENT AND PLAN OF MERGER shall have the following meanings: "Accounts Receivable" means accounts receivable, notes due from all sources of the Company, and credits for returned or damaged merchandise. "Act" shall mean the Securities Act of 1933, as the same has been and shall be amended from time to time. "Additional Capital Subscription Price" shall have the meaning set forth in Section 2.8 hereof. "Additional Cash Consideration" shall have the meaning set forth in Section 2.4 hereof. "Additional Consideration" shall have the meaning set forth in Section 2.4 hereof. "Additional Consideration Payment Date" shall have the meaning set forth in Section 2.4 hereof. 2 "Additional Stock Consideration" shall have the meaning set forth in Section 2.4 hereof. "Adjusted EBITDA of the Company" means earnings of the Company for the designated period determined in accordance with GAAP, adjusted by (i) adding back all deductions taken in determining such number, if any, for (A) interest expense, (B) income taxes, (C) depreciation, (D) amortization, (E) total compensation payable to Thomas, and (F) certain non-recurring expenses that are presented by the Company and approved by Parent, as confirmed by audited financials statements, and by (ii) subtracting the annual base salary agreed to by Thomas for the three year term of the Thomas Employment Agreement (as defined below). "Adverse Consequences" means all material actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, liabilities, obligations, taxes, liens, losses, expenses, and fees, including court costs and attorneys' fees and expenses, net of all tax savings and insurance proceeds actually received by an Indemnitee with respect to any of the foregoing. "Agreement" means this AGREEMENT AND PLAN OF MERGER. "Ancillary Facilities" and "Ancillary Facilities Leases" shall have the meanings set forth in Section 4.9 hereof. "Argan" shall mean Parent, Argan, Inc., a Delaware corporation, with its principal offices located at One Church Street, Suite 302, Rockville, Maryland 20850, and its successors and assigns. 3 "Argan January 2005 Audit" shall mean the audited financial statements of Argan for the twelve (12) month period ending January 31, 2005, prepared in accordance with GAAP by the accounting firm of Ernst & Young, or such other accounting firm designated by Parent. "Argan Stock" shall mean the authorized capital stock of Argan. "Certificate of Merger" has the meaning set forth in Section 1.2 below. "Closing" means the transfer of the Stock to Subsidiary and the payment of the Initial Consideration to Thomas pursuant to this Agreement. "Closing Balance Sheet" shall mean the audited balance sheet and profit and loss statement of the Company for the period ending as of the Closing Date, presented on an accrual basis for a C corporation, prepared in accordance with GAAP by the Company's Regular CPA, and accepted by the accounting firm of Ernst & Young. "Closing Date" means the date of Closing, established under Section 3 of this Agreement. "Code" means the United States Internal Revenue Code of 1986, as amended. "Company" means Vitarich Laboratories, Inc., and all of its subsidiaries (unless the context clearly indicates otherwise), for all references prior to the Merger, and the Subsidiary, which will conduct the business of Vitarich Laboratories, Inc., after the Merger. "Company's Regular CPA" means the accounting firm of Davidson & Nick, Certified Public Accountants, the Company's regular independent certified public accountant "DGCL" has the meaning set forth in the introductory statement. "December 2003 Audit" shall mean the audited financial statements of the Company for the twelve (12) month period ending December 31, 2003, presented on an accrual basis for a C corporation, prepared in accordance with GAAP by the Company's Regular CPA, and acceptable to the accounting firm of Ernst & Young. 4 "Environmental, Health, and Safety Laws" means the United States Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, and judicial decisions thereunder of federal, state, local, and foreign governments and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of Hazardous Materials into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials. "Equipment Lease Assignments" shall have the meaning set forth in Section 6.17 hereof. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "FGCL" has the meaning set forth in the introductory statement above. "Filing Date" shall have the meaning set forth in Section 1.2 hereof. "Financial Statements" means collectively (i) the December 2003 Audit, (ii) the audited consolidated financial statements of the Company for the Company's fiscal year ending December 31, 2002, (iii) the internally generated consolidated financial statements of the Company for the three (3) month period ending as of March 31, 2004 and the six (6) month period ending as of June 30, 2004, including appropriate adjustments of balance sheet reserves for accounts receivable and tax accruals, and to properly value inventory, to appropriate operating levels, as reviewed by the Company's Regular CPA, and accepted by the accounting firm of Ernst & Young, or such other accounting firm designated by Parent, and (iv) the Closing Balance Sheet, including in all cases the notes thereto, prepared by the Company's Regular CPA, and accepted by the accounting firm of Ernst & Young, or such other accounting firm designated by Parent. The Financial Statements shall be prepared in accordance with GAAP and shall be presented on an accrual basis for a C corporation. 5 "February 28, 2005 Financial Statements" shall mean the consolidated financial statements of the Company for the twelve (12) month period ending February 28, 2005, prepared no later than May 1, 2005 in accordance with GAAP by the Company's Regular CPA and accepted by the accounting firm of Ernst & Young, or other accounting firm designated by Parent, and presented on an accrual basis for a C corporation, which financial statements shall be audited (the cost of which shall be borne one-half by Thomas and one-half by Parent) unless Thomas and Parent otherwise agree. "GAAP" shall mean generally accepted accounting principles, consistently applied. "Guaranteed Equipment Leases" shall have the meaning set forth in Section 5.11 hereof. "Hazardous Materials" shall include, without limitation, any pollutants or other toxic or hazardous substances or any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste (including materials to be recycled, reconditioned or reclaimed), oil or petroleum flammable materials, explosives, radioactive materials, hazardous waste, hazardous or toxic substances, or related materials, asbestos requiring treatment as a matter of law, or any other substance or materials defined as hazardous or harmful, or requiring special treatment or special handling by any federal, state or local environmental law, ordinance, rule or regulation including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901 et seq.), the Occupational Safety and Health Act of 1970 and the regulations adopted and publications promulgated pursuant thereto. 6 "Initial Consideration" shall have the meaning set forth in Section 2.3 hereof. "Initial Cash Consideration" shall have the meaning set forth in Section 2.3(a) hereof. "Initial Stock Consideration" shall have the meaning set forth in Section 2.3(a) hereof. "Main Facility" and "Main Facility Lease" shall have the meanings set forth in Section 4.9(b) hereof. "Main Facility Lease Assignment" shall have the meaning set forth in Section 6.16 hereof. "Manley Stock Purchase Agreement" shall have the meaning set forth in Section 4.5(h). "Merger" means the merger of the Company into Subsidiary. "Merger Consideration" means the aggregate consideration set forth in Section 2 hereof. "Net Worth" shall mean the total assets of the Company, reduced by any value placed on the intangible assets of the Company, including, but not limited to, goodwill, less the total liabilities of the Company as those terms are shown on the Closing Balance Sheet. "Parent's Indemnification Threshold" shall have the meaning set forth in Section 10.5. "Restrictive Period" shall have the meaning set forth in Section 8.1. "SEC" shall have the meaning set forth in Section 2.5. "Stock" shall mean all of the authorized issued and outstanding capital stock of the Company, including all warrants, options, convertible securities or rights (contingent or otherwise) to purchase or acquire stock of the Company. "Surviving Corporation" has the meaning set forth in Section 1.1 below. 7 "Subsidiary" has the meaning set forth in the preface above. "Supply Agreement" shall have the meaning set forth in Section 3.3 hereof. "Thomas" shall mean Kevin J. Thomas, a stockholder, officer and director of the Company and a signatory to this Agreement. "Thomas Employment Agreement" shall mean the employment agreement to be entered into by Thomas and the Company pursuant to Section 6.6 below. "Thomas's Indemnification Threshold" shall have the meaning set forth in Section 9.3. SECTION 1 THE MERGER 1.1 Effective Time. On the Closing Date (as defined in Section 3), and subject to and upon the fulfillment or waiver of the terms and conditions of this Agreement, the DGCL and the FGCL, Parent shall acquire the Company by means of the Company being merged with and into Subsidiary, whereby the separate corporate existence of the Company shall cease, and Subsidiary shall continue as the surviving corporation. Subsidiary as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." 1.2 Certificate of Merger. On the Closing Date, assuming satisfaction or waiver of the conditions set forth in Section 6, the parties hereto shall cause the Merger to be consummated by filing Certificates of Merger as contemplated by the DGCL and the FGCL (the "Certificates of Merger"), together with any required related certificates, with the Secretary of State of the State of Delaware and the Secretary of State of the State of Florida, respectively, in such form as required by, and executed in accordance with the relevant provisions of, the DGCL and the FGCL. The date of filing of the respective Certificates of Merger shall be deemed the "Filing Date." 8 1.3 Effect of the Merger. Upon the consummation of the Merger, the effect of the Merger shall be as provided in this Agreement, the Certificates of Merger and the applicable provisions of the DGCL and the FGCL. Without limiting the generality of the foregoing, and subject thereto, upon the consummation of the Merger all the property, rights, privileges, powers and franchises of the Company and Subsidiary shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Subsidiary shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Certificate of Incorporation, By-Laws. (i) Certificate of Incorporation. Unless otherwise determined by Parent prior to the Closing Date, upon the consummation of the Merger, the Certificate of Incorporation of Subsidiary, as in effect immediately prior to the consummation of the Merger, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended in accordance with the DGCL and such Certificate of Incorporation. (ii) By-Laws. Unless otherwise determined by Parent prior to the consummation of the Merger, the By-Laws of Subsidiary, as in effect immediately prior to the Closing Date, shall be the By-Laws of the Surviving Corporation until thereafter amended in accordance with the DGCL, the Certificate of Incorporation of the Surviving Corporation and such By-Laws. 9 1.5 Officers. The officers of the Surviving Corporation shall be: Rainer Bosselmann Chairman of the Board Kevin J. Thomas Senior Operating Executive Gerry David President Craig Woldinger Executive Vice President Haywood Miller Vice President and Secretary Arthur Trudel Vice President, Treasurer and Chief Financial Officer, and Steve Ashkinos Vice President--Finance, in each case until their respective successors are duly elected or appointed and qualified. SECTION 2 MERGER CONSIDERATION 2.1 Conversion of Stock of Company. As of the Filing Date, each share of Stock issued and outstanding as of the Closing Date, shall by virtue of the merger and without any action on the part of the holder thereof, be converted into the right to receive an amount per share in Argan Stock and in cash, without interest, determined in accordance with the following provisions of this Section 2. 2.2 Merger Consideration. The total merger consideration to be paid by Parent to Thomas (the "Merger Consideration") shall be an amount equal to the sum of the Initial Consideration, determined and paid in accordance with Section 2.3, and the Additional Consideration, determined and paid in accordance with Section 2.4; and each share of Stock shall be entitled to receive a sum equal to the Merger Consideration divided by the total number of shares of the Stock. 2.3 Initial Consideration. (a) The Initial Consideration shall be an amount equal to $12,443,750, which shall be paid at Closing (i) $6,050,000 in cash, wire transfer or certified funds (the "Initial Cash Consideration"); and (ii) through the issuance of 825,000 shares of Argan Stock (the "Initial Stock Consideration"), subject to adjustment in accordance with Section 2.3(b). The parties acknowledge and agree that the closing price of Argan Stock on August 30, 2004 was $6.00 per share. Notwithstanding that fact, for purposes of this Section 2.3(a), the value of each share of Argan Stock shall be Seven and 75/100 Dollars ($7.75), subject to adjustment as set forth in Section 2.8 below. 10 (b) Notwithstanding anything to the contrary contained in Section 2.3(a), in the event the Net Worth of the Company as of the Closing Date, as set forth on the Closing Balance Sheet, is less than $1,200,000, then such deficiency shall reduce, dollar for dollar, the Initial Consideration paid to Stockholders pursuant to Section 2.3(a) hereof, which reduction, if any, shall be allocated proportionately to the Initial Cash Consideration and the Initial Stock Consideration. To enable all parties to determine the Net Worth of the Company as of the Closing Date, Thomas shall cause a preliminary unaudited version of the Closing Balance Sheet to be delivered to Parent within ten (10) business days of Closing and the Closing Balance Sheet to be delivered to Parent within sixty (60) calendar days of Closing. Upon the determination of the adjustment to the Initial Consideration pursuant to this Section 2.3(b), the amount by which the Initial Consideration has been reduced, if any, shall be repaid by Thomas to Parent in proportionate amounts of cash and Argan Stock, with the value of the Argan Stock as set forth in Section 2.3(a) within ten (10) days of Parent's written notice to Thomas of such determination. In addition, Parent shall have the right to charge any such unpaid amounts against the Additional Consideration otherwise payable to Thomas pursuant to Section 2.4 in equal amounts of cash and Argan Stock, with the value of the Argan Stock as set forth in Section 2.3(a). 11 2.4 Additional Consideration. In addition to the Initial Consideration, Thomas shall have the right to receive additional consideration (the "Additional Consideration") equal to (a) 5.5 times the Adjusted EBITDA of the Company based on the February 28, 2005 Financial Statements, (b) less the Initial Consideration (provided, however, that in no event shall the Additional Consideration be less than zero or require repayment by Thomas to Parent of any portion of the Initial Consideration), which Additional Consideration, if any, shall be paid by Parent on or before the date that is thirty (30) days following the completion of (i) the Argan January 2005 Audit, and (ii) the February 28, 2005 Financial Statements (the "Additional Consideration Payment Date"), such amount to be paid fifty percent (50%) in cash, wire transfer or certified funds (the "Additional Cash Consideration"), and fifty percent (50%) through issuance of Argan Stock (the "Additional Stock Consideration"). For purposes of determining the number of shares of Argan Stock to be issued to Thomas pursuant to this Section 2.4, the value of each share of Argan Stock shall be Seven and 75/100 Dollars ($7.75). 2.5 Registration. Parent and Thomas shall enter into a registration rights agreement in substantially similar form as attached hereto as Exhibit 2.5, with respect to (i) Argan Stock issued as a part of the Initial Consideration, and (ii) Argan Stock issued as a part of the Additional Consideration (the "Registration Rights Agreement"). 2.6 Stock Certificates. Stock certificates issued as part of the Initial Stock Consideration or as part of the Additional Stock Consideration shall be accompanied by any documents necessary to permit the transfer agent to transfer shares of Argan Stock as directed by the selling Stockholder. 2.7. Shareholder Loans. Parent shall pay to Thomas in cash at Closing, in full satisfaction of all loans made by Thomas to the Company, the then full outstanding balance of all such loans, which amount shall be not greater than $507,514 as of the Closing Date. Such loans are evidenced by a promissory note, a full and complete copy of which is attached hereto as a part of Schedule 4.19(a). 12 2.8 Adjustment to Initial Stock Consideration. Notwithstanding anything to the contrary contained in Section 2.3(a), in the event that, between the Closing Date and the Additional Cash Consideration Payment Date, Parent raises additional capital by issuance of Argan Stock pursuant to a public or private offering for a price less than Seven and 75/100 Dollars ($7.75) per share (the "Additional Capital Subscription Price"), then the number of shares of Argan Stock issued to Thomas as the Initial Stock Consideration pursuant to the Section 2.3(a) above shall be adjusted to the number of shares of Argan Stock that would have been issued at Closing had the value of each share of Argan Stock been the Additional Capital Subscription Price, and Parent shall issue to Thomas on the Additional Consideration Payment Date the number of additional shares of Argan Stock that would have been issued as a part of the Initial Stock Consideration at Closing had the value of Argan Stock been the Additional Capital Subscription Price. SECTION 3 CLOSING The Closing of the Merger shall occur at the offices of Parent, One Church Street, Suite 302, Rockville, Maryland 20850, at 2:00 p.m. on the 31st day of August, 2004, or at such other time, date and place as Parent and Stockholders may agree (the "Closing Date"). At the Closing: 3.1 Cancellation. 13 (a) Upon filing of the Certificates of Merger, each share of the Stock shall be canceled and shall thereafter evidence only the right to receive a pro rata share of the Merger Consideration. (b) Upon filing of the Certificates of Merger, each share of the Stock held in the treasury of the Company and each share of Stock owned directly or indirectly by any wholly owned subsidiary of the Company immediately prior to the consummation of the Merger shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, be canceled and retired without payment of any consideration therefor and cease to exist. 3.2 Delivery of Cash and Certificates. (a) Exchange Procedures. As of the Filing Date, upon surrender of the certificates representing shares of the Stock (the "Certificates") for cancellation to Parent together with such other customary documents as may be required to transfer the Stock, subject to the provisions of Section 2.3 above, the holders of such Certificates shall be entitled to receive in exchange therefor their pro rata share of the Merger Consideration, and the Certificates so surrendered shall forthwith be canceled. Each outstanding Certificate that, prior to the Closing Date, represented shares of the Stock will be deemed from and after the Closing Date, for all corporate purposes, to evidence the right to receive a pro rata share of the Merger Consideration into which such shares of the Stock shall have been so converted. (b) No Liability. Neither Parent, Subsidiary, nor the Company shall be liable to any holder of the Stock for any Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 14 3.3 Supply Agreement. In addition, at the Closing, Subsidiary shall enter into a product supply agreement with Vitarich Farms, Inc., a Florida corporation ("Vitarich Farms"), which harvests and processes powdered vegetable grains, such supply agreement to contain mutually agreeable terms and conditions (the "Supply Agreement"). 3.4 Circulation of Documents. Notwithstanding anything to the contrary herein contained, the parties anticipate that they will conduct the Closing by circulation of faxed copies of executed documents with hard copies to follow. SECTION 4 REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF THOMAS AND THE COMPANY As a material inducement to induce Parent and Subsidiary to consummate the Merger under this Agreement, Thomas and Company represent and warrant that each of the matters set forth in this Section 4 are true and correct as of the date hereof (or, in the case of Financial Statements and the February 28, 2005 Financial Statements to be provided hereafter in accordance with the following provisions of this Section 4 below, will be true and correct as of the date said Financial Statements and the February 28, 2005 Financial Statements are provided), and acknowledge that Parent and Subsidiary's entry into this Agreement and the performance of their obligations hereunder are made in reliance upon the completeness and accuracy of each of the matters set forth herein. The representations and warranties being made by Thomas shall survive as set forth in Section 12.11, herein. 4.1 Organization, Qualifications and Corporate Power. (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida. The Company is duly qualified as a foreign corporation in each other jurisdiction in which qualification is required. The Company has the corporate power and authority to own and hold its properties and to conduct its businesses as currently conducted and as proposed to be conducted, and to execute, deliver and perform this Agreement and all other agreements and instruments related hereto or contemplated hereby to which the Company is a signatory. 15 (b) The Company does not own of record or beneficially, directly or indirectly, (i) any shares of outstanding capital stock or securities convertible into capital stock of any other corporation, or (ii) any participating interest in any partnership, joint venture, limited liability company, or other non-corporate business enterprise. (c) The Company is a C corporation pursuant to applicable provisions of the Code. 4.2 Authorization of Agreement. The execution, delivery and performance by the Company of this Agreement and any other instruments or documents required to be executed and delivered hereby, have been duly authorized by all requisite corporate action and will not (a) violate any applicable provision of law, any order, writ, injunction, decree, judgment, or ruling of any court or other agency of government, the Articles of Incorporation or Bylaws of the Company, or violate any provision of any indenture, agreement, insurance policy, bond or other instrument by which the Company, or any of its properties or assets is bound or affected, (b) conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, insurance policy, bond, agreement or other instrument, (c) result in being declared void, voidable or without further binding effect any license, governmental permit or certification, employee plan, note, bond, mortgage, indenture, deed of trust, franchise, lease, contract, agreement, or other instrument or commitment or obligation to which Company is a party, or by which Company, or any of its assets, may be bound, subject or affected, or (d) except as otherwise provided in this Agreement, result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever not arising in the ordinary course of business upon any of the properties or assets of the Company. 16 4.3 Capital Stock. The authorized capital stock of the Company and the holders of the issued and outstanding shares of such capital stock are set forth in Schedule 4.3 hereto. There is no (i) subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of any class of capital stock of the Company, which is authorized or outstanding, (ii) the Company has no commitments to issue any shares, warrants, options or other such rights or to distribute to holders of any class of its capital stock any evidence of indebtedness or assets, (iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof, and (iv) the Company has no obligation or commitment to register under the Act any securities issued or to be issued by it. All of the issued and outstanding shares of the capital stock of the Company have been validly issued in compliance with all federal and state securities laws and are fully paid and non-assessable. 4.4 Financial Statements. The Company has delivered the Financial Statements to Parent, or will timely deliver the Financial Statements and the February 28, 2005 Financial Statements to Parent in accordance with the terms of this Agreement. The Financial Statements and the February 28, 2005 Financial Statements are, or will be, as the case may be, complete and correct, and do or will fairly present in all material respects the consolidated financial position of the Company as of such respective dates, and the results of operations for the respective periods then ended. Except as or as will be set forth in such Financial Statements and the February 28, 2005 Financial Statements, or as incurred in the ordinary course of business, to the knowledge of Thomas and the Company, the Company has or will have, as the case may be, no material obligation or liability, absolute, accrued or contingent, including without limitation any liability which might result from an audit of its tax returns by any appropriate authority. 17 4.5 Absence of Changes. Except as listed in Schedule 4.5 and since the time period covered by the Financial Statements, the Company has not: (a) Transferred, assigned, conveyed or liquidated any of its assets or entered into any transaction or incurred any liability or obligation which affects the assets or the conduct of its business, other than in the ordinary course of business; (b) Incurred any change that is materially adverse to the business, operations, or financial condition of the Company, taken as a whole, or become aware of any event which may result in any such material adverse change; (c) Suffered any material destruction, damage or loss relating to its assets or the conduct of its business whether or not covered by insurance; (d) Suffered, permitted or incurred other than in the ordinary course of business the imposition of any lien, charge, encumbrance (which as used herein includes, without limitation, any mortgage, deed of trust, conveyance to secure debt or security interest) whether or not contingent in nature, or claim upon any of its assets, except for any current year lien with respect to personal or real property taxes not yet due and payable: (e) Committed, suffered, permitted or incurred any default in any liability or obligation of the Company; (f) Made or agreed to any change in the terms of any contract or instrument to which it is a party; (g) Knowingly waived, canceled, sold or otherwise disposed of, other than in the ordinary course of business, for less than the face amount thereof, any claim or right relating to its assets or the conduct of its business, which it has against others; 18 (h) Declared, promised or made any distribution from its assets or other payment from the assets to its shareholders (other than reasonable compensation for services actually rendered) or issued any additional shares or rights, options or calls with respect to its shares of capital stock, or redeemed, purchased or otherwise acquired any of its shares, or made any change whatsoever in its capital structure, other than the purchase of the shares of stock in the Company previously owned by John Kent Manley, Jr., pursuant to that certain Stock Purchase Agreement dated August 26, 2004, a full and complete copy of which without exhibits, is attached hereto as a part of Schedule 4.5 (the "Manley Stock Purchase Agreement"); (i) Paid, agreed to pay or incurred any obligation for any payment for, any contribution or other amount to, or with respect to, any employee benefit plan, or paid or agreed to pay any bonus or salary increase to its executive officers or directors, or made any increase in the pension, retirement or other benefits of its directors or executive officers other than in the ordinary course of business; (j) Committed, suffered, permitted, incurred or entered into any transaction or event other than in the normal course of business which would increase its liability for any prior taxable year; (k) Incurred any other liability or obligation or entered into any transaction other than in the ordinary course of business; or (l) Received any notices of, or has reason to believe, that any of its customers or clients have taken or contemplate any steps which could disrupt its business relationship with said customer or client or could result in the diminution in the value of the business of the Company as a going concern. 19 4.6 Legal Actions. Except as listed on Schedule 4.6, there is no action, suit, investigation, or proceeding: (a) pending against or affecting (i) the Company, (ii) Thomas, which would have a material adverse effect on Thomas' ability to perform or satisfy his obligations under this Agreement and under any of the documents executed contemporaneously herewith (including without limitation the Thomas Employment Agreement), (iii) any of the Company's properties or rights, or, (iv) to the knowledge of the Company or Thomas, any of the customers of the Company involved in the distribution of the Company's products to end-users, before any court or by or before any governmental body or arbitration board or tribunal; (b) to the knowledge of the Company or Thomas, threatened against (i) the Company, (ii) Thomas, which would have a material adverse effect on Thomas' ability to perform or satisfy his obligations under this Agreement and under any of the documents executed contemporaneously herewith (including without limitation the Thomas Employment Agreement), (iii) any of the Company's properties or rights, or (iv) any of the customers of the Company involved in the distribution of the Company's products to end-users, before any court or by or before any governmental body or arbitration board or tribunal; and (c) to the knowledge of the Company or Thomas, no basis exists for any such action, suit, investigation or proceeding, which will result in any material liability or affirmative or negative injunction being imposed on the Company or Thomas. The foregoing includes, without limiting its generality, actions pending or, to the knowledge of the Company or Thomas, threatened (or any basis therefor known to the Company or Thomas) involving the prior employment of any employees or prospective employees of the Company, or the Company's use, in connection with its businesses, of any information or techniques which might be alleged to be proprietary to former employer(s) of any employees or prospective employees of the Company. 4.7 Business Property Rights. To the best of the Company's or Thomas's knowledge, no person or entity has made or threatened to make (or has any valid reason to threaten) any claims that the operation of the businesses of the Company is in violation of or infringe upon any technology, patents, copyrights, trademarks, trade names, service marks (and any application for any of the foregoing), licenses, proprietary information, know-how, or trade secrets ("Business Property Rights") of a non-affiliated third party. To the best of the Company's or Thomas's knowledge, no third party is infringing upon or violating any of the Company's Business Property Rights and the Company has the exclusive right to use the same. To the best of the Company's or Thomas's knowledge, none of the employees, directors, or stockholders of the Company has any valid claim whatsoever (whether direct, indirect or contingent) of right, title or interest in or to any of the Company's Business Property Rights. 4.8 Liabilities. Except as disclosed or to be disclosed in the Financial Statements and the February 28, 2005 Financial Statements, to the knowledge of Thomas and the Company, (a) the Company is not or will not be, as the case may be, in default with respect to any liabilities or obligations and (b) all such liabilities or obligations shown and reflected in the Financial Statements and the February 28, 2005 Financial Statements have been, or will be, as the case may be, paid or discharged as they become due. 20 4.9 Ownership of Assets and Leases. (a) Attached hereto as Schedule 4.9(a) is a complete and correct list and brief description, as of the date of this Agreement, of all real property and material items of personal property owned by the Company and all of the leases and other agreements relating to any real, personal or intangible property owned, used, licensed or leased by the Company. The Company has good and marketable title to all of its assets, including those listed on Schedule 4.9(a), and any income or revenue generated therefrom, in each case free and clear of any liens, claims, charges, options, rights of tenants or other encumbrances, except (i) as disclosed and reserved against in the Financial Statements and the February 28, 2005 Financial Statements (to the extent and in the amounts so disclosed and reserved against), (ii) for liens arising from current taxes not yet due and payable, and (iii) as separately and specifically set forth on Schedule 4.9(a). Each of the leases and agreements of the Company is in full force and effect and constitutes a legal, valid and binding obligation of the Company and the other respective parties thereto, enforceable in accordance with its terms, except as enforceability may be limited by applicable equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to time in effect affecting the enforcement of creditors' rights generally. There is not under any of such leases or agreements existing any default of the Company or, to the best of the Company's or Thomas's knowledge, of any other parties thereto (or event or condition which, with notice or lapse of time, or both, would constitute a default). The Company has not received any notice of violation of any applicable regulation, ordinance or other law with respect to its operations or assets and, to the best of the Company's or Thomas's knowledge, there is not any such violation or grounds therefor which could materially adversely affect its assets or the conduct of its business. The Company is not a party to any contract or obligation whereby an absolute or contingent right to purchase, obtain or acquire any rights in any of the assets has been granted to anyone. There does not exist and will not exist by virtue of the transactions contemplated by this Agreement any claim or right of third persons which may be legally asserted against any material asset of the Company. 21 (b) The Company's main facility, located at 4365 Arnold Avenue, Naples, Florida (the "Main Facility"), is leased by the Company pursuant to that certain Lease Agreement dated April 25, 2000, as amended by First Amendment to Lease Agreement dated August 2003, by and between Naples Hawaii, LLC (successor in interest to Ogden Manor Partnership, Ltd.), as landlord, and the Company, as tenant, a true, correct and complete copy of which lease, and all amendments and modifications thereof, is attached hereto as a part of Schedule 4.9(b) (the "Main Facility Lease"). The Company also leases property located at (i) 4327 Arnold Avenue, Naples, Florida, pursuant to that certain Lease Agreement dated January 1, 2003, by and between Thomas, as landlord, and the Company, as tenant (the "4327 Lease"); (ii) 4265 Arnold Avenue, Naples, Florida, pursuant to that certain Lease dated August 28, 2003, by and between Russ Grant, as landlord, and the Company, as tenant (the "4344 Lease"); (iii) 4405 Arnold Avenue, Naples, Florida, pursuant to a verbal lease by and between Gulfside Construction and Equipment, Inc., as landlord, and the Company, as tenant, as evidenced by letters from the Company to Gulfside Construction and Equipment, Inc. dated October 10, 2001, and from Gulfside Construction and Equipment, Inc. to the Company dated December 1, 2003 (the "4405 Lease"); and (iv) 4206 Arnold Avenue, Naples, Florida, pursuant to that certain Lease Agreement dated August 18, 2004, by and between Thomas, as landlord, and the Company, as tenant (the "4206 Lease," and, together with the 4327 Lease, the 4344 Lease and the 4405 Lease, the "Ancillary Facilities Leases"), true, correct and complete copies of which Ancillary Facilities Leases, and all amendments and modifications thereof, are attached hereto as a part of Schedule 4.9(b). Thomas hereby represents and warrants that the rent payable under the 4206 Lease is at or below local market rates. 22 (c) To the knowledge of Thomas and the Company, the Main Facility and the properties covered by the Ancillary Facilities Leases (the "Ancillary Facilities"), and the use thereof, is in compliance with all applicable zoning laws, rules, regulations and ordinances in all material respects, and all structures thereon are in compliance with applicable building codes, rules and regulations in all material respects, except that, notwithstanding the above, no certificates of occupancy have been issued to the Company for the Main Facility or for any of the Ancillary Facilities. Thomas hereby covenants and agrees, at the Surviving Corporation's cost and expense, to use commercially reasonable efforts to obtain, as soon as commercially practicable but in no event later than two (2) years from the Closing Date, issuance to the Surviving Corporation of permanent certificates of occupancy for the Main Facility and all of the Ancillary Facilities by the applicable governmental authority, including undertaking and completing any improvements or modifications required to the Main Facility or to any of the Ancillary Facilities to the extent necessary to so obtain a permanent certificate of occupancy. Thomas hereby represents and warrants that the cost of obtaining all such certificates of occupancy (including without limitation the costs of any improvements or modifications required to the Main Facility or to any of the Ancillary Facilities to the extent necessary to so obtain same) shall not exceed $100,000 in the aggregate. 23 4.10 Taxes. The Company has paid all taxes due, assessed and owed by it as reflected on its consolidated tax returns and has timely filed all federal, state, local and other tax returns which were required to be filed and which were due prior to the Closing Date, except for those taxes set forth on Schedule 4.10(a), which taxes have been properly accrued and reflected on the December 2003 Audit and will be reflected on the Closing Balance Sheet. All federal, state, local, and other taxes of the Company accruable since the filing of such returns have been properly accrued. No federal income tax returns for the Company have ever been audited by the Internal Revenue Service or any state or local taxing authority. No other proceedings or other actions which are still pending or open have been taken for the assessment or collection of additional taxes of any kind from the Company for any period for which returns have been filed, and to the Company's knowledge, no other examination by the Internal Revenue Service or any other taxing authority affecting the Company is now pending or threatened. Except for those taxes set forth on Schedule 4.10(a), taxes which the Company was required by law to withhold or collect subsequent to the incorporation of the Company have been withheld or collected and have been paid over to the proper governmental authorities or are properly held by the Company for such payment and are so withheld, collected and paid over as of the date hereof. No waivers of statutes of limitations with respect to any tax returns of the Company, nor extensions of time for the assessment of any tax, have been given by any current employees of the Company. There are not, and there will not be, any liabilities for federal, state or local income, sales, use, excise or other taxes arising out of, or attributable to, or affecting the assets or the conduct of the business of the Company through the close of business on the Closing Date, or attributable to the conduct of the operations of the Company at any time for which Parent or the Surviving Corporation may have any liability for payment or otherwise, except for those taxes set forth on Schedule 4.10(a) and except for taxes applicable to the period January 1, 2004 through the Closing Date, which taxes have been properly accrued and will be reflected on the Closing Balance Sheet. After the Closing, there does not and will not exist by virtue of the transactions contemplated by this Agreement any liability for taxes which may be asserted by any taxing authority against the assets of the Company, or the operation of any of its businesses, and no lien or other encumbrance for taxes will attach to such assets or the operation of its businesses. 24 4.11 Contracts, Other Agreements. Attached hereto as Schedule 4.11 is a true and complete list of each material contract, agreement and other instrument to which the Company is a party, including, but not limited to, all bank and financing documents. At Parent's request, the Company shall deliver to Parent a true and complete copy of any such contract, agreement or instrument. All of the contracts, agreements, and instruments described in Schedule 4.11 hereto are valid and binding upon the Company and the other parties thereto and are in full force and effect, and neither the Company, nor to the best of the Company's or Thomas' knowledge, any other party to any such contract, commitment or arrangement has breached any provision of, or is in default in any respect under, the material terms thereof. 4.12 Governmental Approvals. No registration or filing with, or consent or approval of, or other action by, any federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance of this Agreement by the Company. 4.13 Lack of Defaults; Compliance with Law. No default has occurred or exists in performance of any obligation, covenant or condition contained in any note, debenture, mortgage or other contract or agreement of any nature or kind to which the Company or Thomas is a party, nor has any default occurred, nor does any default exist, with respect to any order, writ, injunction or decree of any court, governmental authority or arbitration board or tribunal to which the Company or Thomas is a party. The Company and Thomas know of no violation of any law, ordinance, governmental rule or regulation to which the Company or Thomas is subject, nor has the Company or Thomas failed to obtain any licenses, permits, franchises or other governmental authorizations necessary for the ownership of their properties, or to the conduct of their business, or for the legal sale of their products. The Company has conducted and will conduct its businesses and operations in substantial compliance with all federal, state, county and municipal laws, statutes, ordinances and regulations, including without limitation the rules, regulations and requirements of (i) the Federal Trade Commission (including all such rules, regulations and requirements relating to truth in advertising), (ii) the U.S. Food and Drug Administration, (iii) the U.S. Department of Agriculture, and (iv) the U.S. Occupational Safety and Health Administration. 25 4.14 Employees and Employee Benefit Plans. (a) Attached hereto as Schedule 4.14(a) is a list of each pension, retirement, profit-sharing, deferred compensation, bonus or other incentive plan, or program, arrangement, agreement or other understanding, or medical, vision, dental or other health plan, or life insurance or disability plan, or any other employee benefit plan, including, without limitation, any "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company contributes or is a party or is bound, or under which it may have liability, and under which employees or former employees of the Company (or their beneficiaries) are eligible to participate or derive a benefit (the foregoing herein referred to as the "Employee Benefit Plans"). The Company has delivered to Parent true, correct and complete copies of all Employee Benefit Plans, and the Company has complied in all material aspects with any and all obligations required of it under the terms of any plan listed on Schedule 4.14(a). (b) Attached hereto as Schedule 4.14(b) are the names, citizenship, immigration status (with respect to any non-U.S. citizen), and current rate of compensation of all salaried and hourly paid employees employed by the Company as of the date hereof, with all key employees being so designated. 26 4.15 Insurance; Bonds. Attached hereto as Schedule 4.15 is a complete and correct list and description of all of the policies of liability, property, workers' compensation and other forms of insurance or bonds carried by the Company for the benefit of or in connection with its assets and businesses. All of such policies or bonds are in full force and effect and there are no overdue premiums or other payments due on such policies or bonds and the Company has not received any notice of cancellation or termination of any of said policies or bonds. Neither Thomas nor the Company have knowledge of any change or proposed change to any of the rates set forth in the policies or bonds listed on Schedule 4.15 other than as set out therein. Thomas hereby represents and warrants that the failure to have duly issued certificates of occupancy for the Main Facility and the Ancillary Facilities shall not adversely affect any property or liability insurance coverages applicable to the Main Facility or any of the Ancillary Facilities. 4.16 Labor and Employment Matters. None of the employees of the Company are covered by a collective bargaining agreement, and no collective bargaining efforts with respect to any of the employees of the Company are pending or, to the knowledge of the Company or Thomas, threatened. No labor dispute, strike, work stoppage, employee collective action or labor relations problem of any kind is pending or, to the knowledge of the Company or Thomas, is threatened. The Company has complied in all material respects with the reporting and withholding provisions of the Code and the Federal Insurance Contribution Act and all similar state and local laws, and with the federal, state, and local laws, ordinances, rules and regulations with respect to employment and employment practices, terms and conditions of employment and of the workplace, wages and hours and equal employment opportunity. 27 4.17 Brokers and Finders. Except as set forth on Schedule 4.17, neither Thomas nor the Company has incurred or become liable for any commission, fee or other similar payment to any broker, finder, agent or other intermediary in connection with the negotiation or execution of this Agreement or the consummation of the transactions contemplated hereby. Thomas agrees to be responsible for paying all broker fees, commissions or other compensation incurred by the Company as a result of this transaction. 4.18 Accounts Receivable. (a) All accounts receivable of the Company shown on the Financial Statements and the February 28, 2005 Financial Statements reflect or will reflect, as the case may be, actual transactions, have or will have, as the case may be, arisen in the ordinary course of business, and have been collected or are now or will be, as the case may be, in the process of collection without recourse to any judicial proceedings in the ordinary course of business in the aggregate recorded amounts thereof, less the applicable allowances reflected on the Financial Statements and the February 28, 2005 Financial Statements. (b) The Company has no knowledge as to any of the accounts receivable of the Company being subject to any lien or claim of offset, set off or counterclaim not provided for by the Company's allowance for doubtful accounts as of the Closing Date. 4.19 Conflicts of Interests. Except as set forth on Schedule 4.19(a), no officer, director or stockholder of the Company was or is, directly or indirectly, a joint investor or co-venturer with, or owner, lessor, lessee, licensor or licensee of any real or personal property, tangible or intangible, owned or used by, or a lender to or debtor of, the Company and the Company has no commitments or obligations as a result of any such transactions prior to the date hereof. Except as set forth on Schedule 4.19(b), and except for directly or indirectly holding less than five percent (5%) of the outstanding shares of stock in a company which is publicly traded, none of such officers, stockholders, or directors own or have owned, directly or indirectly, individually or collectively, an interest in any entity which is a competitor, customer or supplier of (or has any existing contractual relationship with) the Company. 28 4.20 Environmental Compliance. Schedule 4.20 sets forth all government agencies which substantially regulate the business of the Company under Environmental, Health and Safety laws. The Company has complied in all material respects with all applicable federal, state and local Environmental Health and Safety Laws with respect to its premises and its operations and have kept its premises free and clear of any liens and charges imposed pursuant to such laws. The Company has not received any notice that any facts or conditions exist which would give rise to any violation, claim, charge, penalty or liability relating to any applicable Environmental Health and Safety Laws of any governmental body or agency having jurisdiction over the premises. Attached hereto as a part of Schedule 4.20 are true and complete copies of all environmental reports prepared by third parties with respect to the Main Facility or any of the Ancillary Facilities within the five (5) years preceding the date of this Agreement, and neither the Company nor Thomas has any knowledge of any facts, circumstances or occurrences materially different from those disclosed in or the findings of such reports. 4.21 Ownership of the Stock. Thomas represents and warrants that he owns all of the Stock beneficially and of record, free and clear of all liens, restrictions, encumbrances, charges, and adverse claims and the Stock to be purchased hereunder constitutes one hundred percent (100%) of issued and outstanding stock of the Company. Thomas further represents and warrants that there is no stockholders agreement or other agreement between or among him, the Company or any other former stockholder, which would in any way affect, or give any stockholder or former stockholder of the Company any rights with respect to, the Stock or which would in any way affect the transaction contemplated by this Agreement. 29 4.22 [Intentionally omitted.] 4.23 Approval of Merger; Related Matters. Thomas represents and warrants that he, in his capacity as a shareholder of the Company, (a) approves of and consents to the Merger as set forth in this Agreement, (b) waives any notice of a shareholder's meeting or similar corporate formality in connection with the approval of the transactions described herein, including, without limitation, the Merger, (c) waives any rights to protest or object to the Merger or to the exercise of any statutory remedy of appraisal as to the Stock owned by him as provided in the FGCL, and (d) has received a copy of resolutions approving the Merger in accordance with the FGCL. Thomas represents and warrants that he owes no amounts to the Company pursuant to any promissory note issued by him or otherwise. 4.24 Withholding. Each of Thomas and the Company represents and warrants that neither the Company nor Thomas is a foreign person or entity, nor does the Company or Thomas have other status, such that Parent would be required to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of the Stock any amounts under the Code, or any provision of state, local or foreign tax law. SECTION 5 REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF PARENT AND SUBSIDIARY As a material inducement to induce Thomas to consummate the Merger under this Agreement, Parent and Subsidiary represent and warrant that each of the matters set forth in this Section 5 are true and correct as of the date hereof, and acknowledge that Thomas' entry into this Agreement and the performance of his obligations hereunder are made in reliance upon the completeness and accuracy of each of the matters set forth herein. The representations and warranties being made by Parent and Subsidiary shall survive as set forth in Section 12.11 herein. 30 5.1 Organization, Qualifications and Corporate Power. Each of Parent and Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Each of Parent and Subsidiary is duly qualified as a foreign corporation in each jurisdiction in which qualification is required. Each of Parent and Subsidiary has the corporate power and authority to own and hold its properties and to conduct its businesses as currently conducted and as proposed to be conducted, and to execute, deliver and perform this Agreement and all other agreements and instruments related hereto or contemplated hereby to which Parent and Subsidiary, respectively, is a signatory. 5.2 Authorization, etc. The execution, delivery and performance of this Agreement and any other instruments or documents required to be executed and delivered hereby, and the purchase of the Stock contemplated hereby, have been authorized by all requisite corporate action and will not (a) violate any applicable provision of law, any order, writ, injunction, decree, judgment, or ruling of any court or other agency of government, the Articles of Incorporation or Bylaws of Parent or Subsidiary, or violate any provision of any indenture, agreement, insurance policy, bond or other instrument by which Parent or Subsidiary, or any of their properties or assets, are bound or affected, (b) conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, insurance policy, bond, agreement or other instrument, (c) result in being declared void, voidable or without further binding effect any license, governmental permit or certification, employee plan, note, bond, mortgage, indenture, deed of trust, franchise, lease, contract, agreement, or other instrument or commitment or obligation to which Parent or Subsidiary is a party, or by which Parent or Subsidiary, or any of their assets, may be bound, subject or affected, or (d) except as otherwise provided in this Agreement, result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever not arising in the ordinary course of business upon any of the properties or assets of Parent or Subsidiary. 31 5.3 Absence of Changes. Except as listed in Schedule 5.3, since the time period covered by Form 10Q SB dated as of April 30, 2004 as filed with the U.S. Securities Exchange Commission, Parent has not: (a) Transferred, assigned, conveyed or liquidated any of its assets or entered into any transaction or incurred any liability or obligation which affects the assets or the conduct of its business, other than in the ordinary course of business; (b) Incurred any change that is materially adverse to the business, operations, or financial condition of Parent, taken as a whole, or become aware of any event which may result in any such material adverse change; (c) Suffered any material destruction, damage or loss relating to its assets or the conduct of its business whether or not covered by insurance; (d) Suffered, permitted or incurred other than in the ordinary course of business the imposition of any lien, charge, encumbrance (which as used herein includes, without limitation, any mortgage, deed of trust, conveyance to secure debt or security interest) whether or not contingent in nature, or claim upon any of its assets, except for any current year lien with respect to personal or real property taxes not yet due and payable: (e) Committed, suffered, permitted or incurred any default in any liability or obligation of Parent; (f) Made or agreed to any change in the terms of any contract or instrument to which it is a party; (g) Knowingly waived, canceled, sold or otherwise disposed of, other than in the ordinary course of business, for less than the face amount thereof, any claim or right relating to its assets or the conduct of its business, which it has against others; 32 (h) Declared, promised or made any distribution from its assets or other payment from the assets to its shareholders (other than reasonable compensation for services actually rendered) or issued any additional shares or rights, options or calls with respect to its shares of capital stock, or redeemed, purchased or otherwise acquired any of its shares, or made any change whatsoever in its capital structure; (i) Paid, agreed to pay or incurred any obligation for any payment for, any contribution or other amount to, or with respect to, any employee benefit plan, or paid or agreed to pay any bonus or salary increase to its executive officers or directors, or made any increase in the pension, retirement or other benefits of its directors or executive officers other than in the ordinary course of business; (j) Committed, suffered, permitted, incurred or entered into any transaction or event other than in the normal course of business which would increase its liability for any prior taxable year; (k) Incurred any other liability or obligation or entered into any transaction other than in the ordinary course of business; or (l) Received any notices of, or has reason to believe, that any of its customers or clients have taken or contemplate any steps which could disrupt its business relationship with said customer or client or could result in the diminution in the value of the business of Parent as a going concern. 5.4 Governmental Approvals. No registration or filing with, or consent or approval of, or other action by, any federal, state, or other governmental agency or instrumentality, which has not been made or obtained prior to the execution of this Agreement by Parent or Subsidiary, is or will be necessary for the valid execution, delivery, and performance of this Agreement by Parent and Subsidiary. 33 5.5 Brokers Fees. Parent and Subsidiary represent that there are no brokers, other than those set forth on Schedule 5.5, involved in this transaction on their behalf. Parent and Subsidiary shall pay all broker fees contractually obligated to be paid to those brokers set forth on Schedule 5.5. 5.6 Authorized Shares of Stock. There exists sufficient authorized, but unissued, shares of Argan Stock necessary to enable Parent to satisfy any obligation of it to issue shares of Argan Stock pursuant to this Merger Agreement. 5.7 Survival of Company. The operations of the Company on the Closing Date shall be accounted for separately from the other operations and businesses of Parent after the Closing, until the expiration of the period for which the February 28, 2005 Financial Statements will be prepared. 5.8 No Section 338 Election. Neither Parent nor Subsidiary shall make any election under Section 338 of the Code with respect to any part of the transaction contemplated hereunder without the express written consent of Thomas. 34 5.9 Taxes. Parent has paid all taxes due, assessed and owed by it as reflected on its consolidated tax returns, and has timely filed all federal, state, local and other tax returns which were required to be filed by it, and which were due since the Management Assumption Date (as hereinafter defined) and prior to the Closing Date. The Current Management Team (as hereinafter defined) has no knowledge that Parent failed to pay any taxes due, assessed and owed by it, or failed to timely file any federal, state, local or other tax returns which were required to be filed by it, and which were due prior to the Management Assumption Date. No federal income tax returns for Parent have been audited by the Internal Revenue Service or any state or local taxing authority since the Management Assumption Date, and the Current Management Team has no knowledge that any federal income tax returns for Parent were audited by the Internal Revenue Service or any state or local taxing authority prior to the Management Assumption Date. No other proceedings or other actions which are still pending or open have been taken for the assessment or collection of additional taxes of any kind from Parent for any period for which returns have been filed, and to the Current Management Team's knowledge, no other examination by the Internal Revenue Service or any other taxing authority affecting Parent is now pending or threatened. Taxes which Parent was required by law to withhold or collect subsequent to the Management Assumption Date have been withheld or collected and have been paid over to the proper governmental authorities or are properly held by Parent for such payment and are so withheld, collected and paid over as of the date hereof. No waivers of statutes of limitation with respect to any tax returns of Parent, nor extensions of time for the assessment of any tax, have been given by any current employees of Parent. For purposes of this Section 5.9, the "Management Assumption Date" shall mean April 29, 2003, being the date that the Current Management Team assumed management responsibilities of Parent; and the "Current Management Team" shall mean Rainer Bosselmann, Arthur Trudel and Haywood Miller. 35 5.10 Employees and Employee Benefit Plans. Attached hereto as Schedule 5.10 is a list of each pension, retirement, profit-sharing, deferred compensation, bonus or other incentive plan, or program, arrangement, agreement or other understanding, or medical, vision, dental or other health plan, or life insurance or disability plan, or any other employee benefit plan, including, without limitation, any "employee benefit plan" as defined in Section 3(3) of ERISA, to which Parent contributes or is a party or is bound, or under which it may have liability, and under which employees or former employees of Parent (or their beneficiaries) are eligible to participate or derive a benefit (the foregoing herein referred to as the "Parent Employee Benefit Plans"). Parent has delivered to Thomas true, correct and complete copies of all Parent Employee Benefit Plans, or summaries thereof, and Parent has complied in all material aspects with any and all obligations required of it under the terms of any plan listed on Schedule 5.10. 5.11 Releasing Thomas From Personal Guaranties. Parent hereby covenants and agrees to use commercially reasonable efforts to obtain releases of personal guaranties made by Thomas with respect to (i) the Master Lease Agreement dated November 26, 2003 by and between the Company, as lessee, and Key Equipment Finance, as lessor, as personally guaranteed by Thomas on schedules thereto dated December 2, 2003 and March 22, 2004, respectively, (ii) the Master Lease Agreement dated April 10, 2001 by and between the Company, as lessee, and First Union Commercial Corporation, as lessor, as personally guaranteed by Thomas on schedules thereto dated April 10, 2001, and (iii) the Master Lease Agreement dated March 27, 2002 by and between the Company, as lessee, and First Union Commercial Corporation, as lessor, as personally guaranteed by Thomas on a schedule thereto dated March 27, 2002 (together, the "Guaranteed Equipment Leases"). Parent and Surviving Corporation hereby agree that they will not, without Thomas' prior written consent, modify or amend any of the Guaranteed Equipment Leases in any manner that would increase or extend Thomas' guarantee obligations thereunder. 36 SECTION 6 CONDITIONS TO CLOSING FOR PARENT Parent's obligation to consummate the Merger under this Agreement shall be subject to fulfillment of all of the following conditions on or prior to the Closing, any of which may be waived in writing by Parent. 6.1 Performance of Agreements. The Company shall have performed all agreements contained herein and required to be performed by it prior to or at the Closing and all of the representations and warranties made by it and Thomas in this Agreement shall be true and correct as of the Closing Date. 6.2 Lack of Material Liabilities. The Company shall not have incurred any material liability, direct or contingent (as that term is ordinarily used), other than in the ordinary course of its business, not reflected on the most recent internally generated financial statements of the Company for the six (6) month period ending as of June 30, 2004. 6.3 Financial Statements. Parent shall have received the Financial Statements other than the Closing Balance Sheet. Parent also shall have received the internally generated consolidated financial statements of the Company for the three (3) month periods ending as of March 31, 2003, June 30, 2003, September 30, 2003, December 30, 2003, and June 30, 2004, including appropriate adjustments of balance sheet reserves for accounts receivable and tax accruals, and to properly value inventory, to appropriate operating levels, as reviewed by the Company's Regular CPA, and accepted by the accounting firm of Ernst & Young, or such other accounting firm designated by Parent. 37 6.4 [Intentionally omitted.] 6.5 [Intentionally omitted.] 6.6 Employment Agreement. Thomas and the Company shall have executed that certain Employment Agreement, a copy of which is attached hereto as Exhibit 6.6 (the "Thomas Employment Agreement"). 6.7 Opinion of Counsel. Parent shall have received an opinion of counsel from the attorneys for the Company, dated as of the Closing Date, in form and substance acceptable to Parent and its counsel. 6.8 Compliance Certificate. The Company shall have delivered to Parent a certificate executed by its Chief Executive Officer, dated as of the Closing Date, certifying the fulfillment of the conditions specified in this Section 6 and the accuracy of the representations and warranties contained in Section 4 hereof, in form and substance acceptable to Parent and its counsel.. 6.9 [Intentionally omitted.] 6.10 [Intentionally omitted.] 6.11 [Intentionally omitted.] 6.12 Release from Thomas; Payment of Amounts Owed by Thomas. Thomas shall execute and deliver to Parent, in a form satisfactory to Parent's counsel, a release of any claim that he may have against the Company for the repayment of any loan, claim for unpaid compensation, claim for indemnification, claim for management fee, or otherwise. It is understood and agreed that the full amount of all outstanding loans from Thomas to the Company, the full outstanding balance of which be not greater than $507,514 as of the Closing Date, shall be paid by Parent in full at Closing. All amounts due to the Company from Thomas or any other former stockholder of the Company shall have been paid in full. 38 6.13 Corporate Documents. Parent shall have received copies of the following documents: (a) a certificate of the Chief Executive Officer of the Company dated the Closing Date and certifying (i) that attached thereto is a true and complete copy of the Articles of Incorporation and Bylaws of the Company as in effect on the date of such certification; and (ii) that attached thereto are true and complete copies of resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; and (b) such additional supporting documents and other information with respect to the operations and affairs of the Company as Parent may reasonably request. All such documents described in (a) and (b) shall be satisfactory in form and substance to Parent and its counsel. 6.14 Corporate Filings. The Certificates of Merger shall be filed with the appropriate governmental agencies. 6.15 Trustee of Plans. The Surviving Corporation shall at Closing cause a successor trustee to be appointed, if necessary, for the Company's 401(k), pension, profit-sharing or other retirement or employee benefit plans. 39 6.16 Assignment and Assumption of Real Property Leases. Naples Hawaii, LLC, as landlord, the Company, as tenant, and Subsidiary, as assignee, shall enter into an Assignment and Assumption of Lease, in form and substance acceptable to Parent and its counsel, pursuant to which all of the Company's right, title and interest in and to the Main Facility Lease shall be assigned to and assumed by Subsidiary (the "Main Facility Lease Assignment"). In addition, each of the landlords under the Ancillary Facilities Leases (other than the landlord under the 4344 Lease), the Company, as tenant, and Subsidiary, as assignee, shall enter into assignments and assumptions of leases, in form and substance acceptable to Parent and its counsel, pursuant to which all of the Company's right, title and interest in and to each of the Ancillary Facilities Leases (other than the 4344 Lease, which is on a month to month basis and which the Company intends to vacate) shall be assigned to and assumed by Subsidiary. 6.17 Assignment and Assumption of Equipment Leases. The Company, as lessee/assignor, and Subsidiary, as assignee, shall enter into those Assignments and Assumptions of Equipment Leases, in form and substance acceptable to Parent and its counsel, pursuant to which all of the Company's right, title and interest in and to said equipment leases listed on Schedule 4.9(a) shall be assigned to and assumed by Subsidiary (the "Equipment Lease Assignments"). Thomas shall reasonably cooperate with Parent and Subsidiary to obtain consents to the Equipment Lease Assignments from the respective equipment lessors identified therein. 6.18 Supply Agreement. Subsidiary and Vitarich Farms shall enter into the Supply Agreement. 6.19 Registration Rights Agreement. Parent and Thomas shall enter into the Registration Rights Agreement. 40 6.20 Cancellation of David Agreement. The Understanding of Marketing Agreement with Gerry David dated January 22, 2003 referenced in Schedule 4.11 hereto shall be cancelled as of the Closing Date. SECTION 7 CONDITIONS TO CLOSING FOR THE COMPANY AND THOMAS The Company's and Thomas' obligation to consummate the Merger under this Agreement shall be subject to fulfillment of all of the following conditions on or prior to the Closing, any of which may be waived in writing by the Company and Thomas. 7.1 Performance of Agreements. Parent and Subsidiary shall have performed all agreements contained herein and required to be performed by them prior to or at the Closing and all of the representations and warranties made by them in this Agreement shall be true and correct as of the Closing Date. 7.2 Lack of Material Liabilities. Except as listed in Schedule 5.3, Parent shall not have incurred any material liability, direct or contingent (as that term is ordinarily used), other than in the ordinary course of its business, not reflected on Form 10Q SB dated as of April 30, 2004 as filed with the U.S. Securities Exchange Commission. 7.3 Employment Agreement. Thomas and the Company shall have executed the Thomas Employment Agreement. 7.4 Opinion of Counsel. Thomas shall have received an opinion of counsel from the attorneys for Parent, dated as of the Closing Date, in form and substance acceptable to Thomas and his counsel. 41 7.5 Compliance Certificate. Parent shall have delivered to Thomas a certificate executed by its Executive Vice President, dated as of the Closing Date, certifying the fulfillment of the conditions specified in this Section 7 and the accuracy of the representations and warranties contained in Section 5 hereof, in form and substance acceptable to Thomas and his counsel.. 7.6 Employee Stock Options. Parent resolves to take any and all actions necessary to grant up to 25,000 qualified or unqualified stock options to the employees listed, and in the amounts designated, in Schedule 7.6. All such stock options shall be granted at the first regularly scheduled meeting of the board of directors of Parent after Closing, with the strike price of such options being the market price of the Argan Stock as of the date of the grant, but not less than $7.75 per share. 7.7 Corporate Documents. Thomas shall have received copies of the following documents: (a) a certificate of the Executive Vice President of Parent dated the Closing Date and certifying that attached thereto are true and complete copies of (i) the Articles of Incorporation and Bylaws of Parent and Subsidiary as in effect on the date of such certification; and (ii) resolutions adopted by the Board of Directors of Parent and Subsidiary authorizing the execution, delivery and performance of this Agreement, and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; and (b) such additional supporting documents and other information with respect to the operations and affairs of Parent as Thomas may reasonably request. 42 All such documents described in (a) and (b) shall be satisfactory in form and substance to Parent and its counsel. 7.8 Corporate Filings. The Certificates of Merger shall be filed with the appropriate governmental agencies. 7.9 Assignment and Assumption of Real Property Leases. Naples Hawaii, LLC, as landlord, the Company, as tenant, and Subsidiary, as assignee, shall enter into the Main Facility Lease Assignment. In addition, each of the landlords under the Ancillary Facilities Leases (other than the landlord under the 4344 Lease), the Company, as tenant, and Subsidiary, as assignee, shall enter into assignments and assumptions of leases substantially similar to the Main Facility Lease Assignment, pursuant to which all of the Company's right, title and interest in and to each of the Ancillary Facilities Leases (other than the 4344 Lease, which is on a month to month basis and which the Company intends to vacate) shall be assigned to and assumed by Subsidiary. 7.10 Assignment and Assumption of Equipment Leases. The Company, as lessee/assignor, and Subsidiary, as assignee, shall enter into the Equipment Lease Assignments. Thomas shall reasonably cooperate with Parent and Subsidiary to obtain consents to the Equipment Lease Assignments from the respective equipment lessors identified therein. 7.11 Supply Agreement. Subsidiary and Vitarich Farms shall enter into the Supply Agreement. 7.12 Registration Rights Agreement. Parent and Thomas shall enter into the Registration Rights Agreement. SECTION 8 RESTRICTIVE COVENANTS 43 8.1 Covenant Not to Compete. Except as authorized by Subsidiary and Parent or by the terms of this Agreement, at all times during the period of five (5) years from the date of Closing (the "Restrictive Period"), Thomas shall not, directly or indirectly, alone or with others, engage in any competition with, or have any financial or ownership interest in any sole proprietorship, corporation, company, partnership, association, venture or business or any other person or entity (whether as an employee, officer, director, partner, manager, member, agent, security holder, creditor, consultant or otherwise) that directly or indirectly (or through any affiliated entity) competes with the business of the Company or the Surviving Corporation; provided that such provision shall not apply to Thomas' ownership of Argan Stock or the acquisition by Thomas, solely as an investment, of securities of any issuer that is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and that are listed or admitted for trading on any United States national securities exchange or that are quoted on the Nasdaq Stock Market, or any similar system or automated dissemination of quotations of securities prices in common use, so long as Thomas does not control, acquire a controlling interest in or become a member of a group which exercises direct or indirect control of, more than 2% of any class of capital stock or other indicia of ownership of such issuer. 44 8.2 Confidentiality. Thomas shall not divulge, communicate, use to the detriment of the Company, the Surviving Corporation or Parent, or for the benefit of any other person or persons, or misuse in any way, any Confidential Information (as hereinafter defined) pertaining to the business of the Company, the Surviving Corporation or Parent. Any Confidential Information or data now or hereafter acquired by Thomas with respect to the business of the Company, the Surviving Corporation or Parent (which shall include, but not be limited to, information concerning the Company's, the Surviving Corporation's or Parent's financial condition, prospects, technology (including Business Property Rights), personnel information, customers, suppliers, sources of leads and methods of doing business) shall be deemed a valuable, special and unique asset of the Company, the Surviving Corporation or Parent, as the case may be, that is received by Thomas in confidence and as a fiduciary, and Thomas shall remain a fiduciary to the Surviving Corporation and Parent with respect to all of such information. For purposes of this Agreement, "Confidential Information" means all trade secrets and information disclosed to Thomas or known by Thomas as a consequence of or through the unique position of his employment with the Company or the Surviving Corporation (including information conceived, originated, discovered or developed by Thomas and information acquired by the Company or the Surviving Corporation from others) prior to or after the date hereof, and not generally or publicly known (other than as a result of unauthorized disclosure by Thomas), about the Company, the Surviving Corporation, Parent or their respective businesses. Notwithstanding the foregoing, nothing herein shall be deemed to restrict Thomas from disclosing Confidential Information as required to perform his duties under the Thomas Employment Agreement or to the extent required by law. 45 8.3 Non-Solicitation. At all times during the Restrictive Period, Thomas shall not, directly or indirectly, for himself or for any other person, firm, corporation, company, partnership, association, venture or business or any other person or entity: (a) solicit for employment, employ or attempt to employ or enter into any contractual arrangement with any employee or former employee of the Company, the Surviving Corporation or Parent; and/or (b) call on or solicit any of the actual or targeted prospective customers or clients, or any actual distributors or suppliers, of the Company, the Surviving Corporation or Parent on behalf of himself or on behalf of any person or entity in connection with any business that competes with the business of the Company or the Surviving Corporation, nor shall Thomas make known the names or addresses or other contact information of such actual or prospective customers or clients, or any such actual distributors or suppliers, or any information relating in any manner to the Company's or the Surviving Corporation's trade or business relationships with such actual or prospective customers or clients, or any such actual distributors or suppliers, other than in connection with the performance of Thomas's duties under the Thomas Employment Agreement. 46 8.4 Acknowledgment by Thomas. Thomas acknowledges and confirms that the restrictive covenants contained in this Article 8 (including without limitation the length of the term of the provisions of this Article 8) are reasonably necessary to protect the legitimate business interests of the Company, the Surviving Corporation and Parent and are not overbroad, overlong, or unfair and are not the result of overreaching, duress or coercion of any kind. Thomas further acknowledges that the restrictions contained in this Article 8 are intended to be, and shall be, for the benefit of and shall be enforceable by, the Surviving Corporation, Parent and their respective successors and assigns. Thomas expressly agrees that upon any breach or violation of the provisions of this Article 8, the Company shall be entitled, as a matter of right, in addition to any other rights or remedies it may have, to: (a) temporary and/or permanent injunctive relief in any court of competent jurisdiction as described in Section 8.7 hereof; and (b) such damages as are provided at law or in equity. The existence of any claim or cause of action against the Company, the Surviving Corporation or Parent or their respective affiliates, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement of the restrictions contained in this Article 8. 8.5 Reformation by Court. In the event that a court of competent jurisdiction shall determine that any provision of this Article 8 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Article 8 within the jurisdiction of such court, such provision shall be interpreted or reformed and enforced as if it provided for the maximum restriction permitted under such governing law. 47 8.6 Extension of Time. If Thomas shall be in violation of any provision of this Article 8, then each time limitation set forth in this Article 8 shall be extended for a period of time equal to the period of time during which such violation or violations occur. If the Surviving Corporation or Parent seeks injunctive relief from such violation in any court, then the covenants set forth in this Article 8 shall be extended for a period of time equal to the pendency of such proceeding including all appeals by Thomas. 8.7 Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by Thomas of any of the covenants contained in Article 8 of this Agreement will cause irreparable harm and damage to the Company, the Surviving Corporation or Parent, as the case may be, the monetary amount of which may be virtually impossible to ascertain. As a result, Thomas recognizes and hereby acknowledges that the Company, the Surviving Corporation or Parent shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Article 8 of this Agreement by Thomas or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company, the Surviving Corporation or Parent may possess. 8.8 Survival. The provisions of this Article 8 shall survive the Closing. SECTION 9 INDEMNIFICATION BY THOMAS 48 Thomas shall indemnify, defend (with counsel acceptable to the indemnified party) and hold harmless Parent, Subsidiary, the Surviving Corporation and each of their respective subsidiaries and affiliates, and their respective directors, officers, shareholders, members, agents, employees, representatives, successors and assigns (each in its capacity as an indemnified party, a "Buyer Indemnitee") from and against and in respect to the following (in addition to any losses otherwise specifically indemnified against in this Agreement): 9.1 Indemnification by Thomas. (a) Breach. Subject to the provisions of this Section 9 and except as otherwise more specifically set forth herein, Thomas hereby covenants and agrees to indemnify, defend, protect, and hold harmless each Buyer Indemnitee at all times from and after the date of this Agreement from and against all Adverse Consequences incurred by such Buyer Indemnitee (i) as a result of or incident to any material breach of any representation or warranty of the Company or Thomas set forth in Section 4 of this Agreement, (ii) as a result of or incident to any material breach or nonfulfillment by the Company or Thomas of, or any noncompliance by the Company or Thomas with, any covenant, agreement, or obligation contained herein or in any certificate delivered in connection herewith, (iii) resulting directly from the material inaccuracy of any list, certificate or other instrument delivered by or on behalf of Thomas or the Company in connection herewith, or (iv) for any liability of the Company, or of Parent or Subsidiary, under the Manley Stock Purchase Agreement. (b) Environmental Indemnification. Thomas hereby covenants and agrees to indemnify and defend each Buyer Indemnitee and hold each Buyer Indemnitee harmless from and against any and all damages, losses, liabilities, costs and expenses of removal, relocation, elimination, remediation or encapsulation of any Hazardous Materials, obligations, penalties, fines, impositions, fees, levies, lien removal or bonding costs, claims, actions, causes of action, injuries, administrative orders, consent agreements and 49 orders, litigation, demands, defenses, judgments, suits, proceedings, disbursements or expenses (including without limitation, attorney's and experts' reasonable fees and disbursements) of any kind and nature whatsoever resulting from the operation of the Company's business as of the Closing Date: (i) which (x) is imposed upon, or incurred by, a Buyer Indemnitee by reason of, relating to or arising out of the violation by the Company prior to the Closing of any Environmental, Health, and Safety Laws, (y) arises out of the discharge, dispersal, release, storage, treatment, generation, disposal or escape of any Hazardous Materials, on or from the Main Facility, the Ancillary Facilities or any other facilities used by the Company as of the Closing Date, or (z) arises out of the use, specification, or inclusion of any product, material or process containing Hazardous Materials, or the failure to detect the existence or proportion of Hazardous Materials in the soil, air, surface water or groundwater, or the performance or failure to perform the abatement of any Hazardous Materials source as of the Closing Date or the replacement or removal of any soil, water, surface water, or groundwater containing Hazardous Materials; and/or (ii) is imposed upon, or incurred by, a Buyer Indemnitee by reason of or relating to any material breach, act, omission or misrepresentation contained in Section 4.20. (c) Tax Matters. Thomas shall indemnify, defend and hold harmless each Buyer Indemnitee from and against all Adverse Consequences incurred by any Buyer Indemnitee as a result of or incident to any Income Taxes or other Taxes imposed on any Buyer Indemnitee or for which any Buyer Indemnitee may otherwise be liable by law or regulation (including, without limitation, the provisions of Treasury Regulation Section 1.1502-6) or contract, for any taxable year or period that ends on or before the Closing Date or resulting in any way from this transaction. (i) The Company shall furnish to Parent copies of the federal, state, and local tax returns of the Company for the period ending on the Closing Date and shall obtain the consent of Parent before filing such returns, which consent shall not be unreasonably withheld. (ii) Except as otherwise provided in this Agreement, Parent shall have the sole right to represent the interests of any Buyer Indemnitee in any tax audit or administrative or court proceeding relating to any taxable period, including without limitation taxable periods ending on or before the Closing Date, and to compromise, settle, or contest any tax claims in connection therewith in its sole discretion, provided that Parent shall provide Thomas with written notice of its intent to exercise its rights hereunder. Thomas shall have the right, at his expense, to join Parent in any such defense. (d) Broker Fee. Thomas hereby covenants and agrees to indemnify each Buyer Indemnitee from any claim made by a broker, finder, agent or other intermediary against any Buyer Indemnitee or the Company after Closing in connection with the negotiation or execution of this Agreement or the consummation of the transactions contemplated hereby, except for those claims made against Parent or Subsidiary pursuant to Section 5.5 hereof. (e) Set-Off. Except as otherwise provided in this Agreement, Parent shall be entitled to set-off Thomas' liability to Parent for indemnification under this Section 9, or Thomas' liability under any other paragraph of this Agreement, after any dispute regarding such liability has been resolved in writing and executed by all parties or a final judgment by a court of competent jurisdiction or order of an appropriate arbitration panel, by crediting the amount of liability against any Additional Consideration payable pursuant to Section 2.4 of this Agreement; any such offset to be applied first against cash and then against stock. Notwithstanding anything to the contrary contained in this Agreement, in the event that Parent claims a right to set-off pursuant to 50 this Section 9.1(e), and notifies Thomas of such claim in writing prior to the date that any Additional Consideration otherwise would be payable pursuant to Section 2.4, then Parent's obligation to pay Thomas any Additional Consideration, up to the amount of set-off claimed by Parent, shall be tolled pending resolution of the dispute as set forth in this Section 9.1(e). (f) Costs and Expenses. Except as otherwise provided in this Agreement, all amounts indemnified pursuant to this Section 9 shall include all reasonable costs and expenses of the Buyer Indemnitee, including, but not limited to, the reasonable costs of any actions, reasonable attorneys' fees, and other reasonable expenses necessary to enforce the rights granted hereunder. (g) Termination of Thomas's Obligations. Thomas's obligations to indemnify any Buyer Indemnitee, or to contribute to any party indemnifying any Buyer Indemnitee, pursuant to this Section 9, shall expire two (2) years from the Closing Date, except as to those involving (i) environmental matters, which obligations shall expire three (3) years from the Closing Date, (ii) tax matters, which obligations shall expire sixty (60) days after the expiration date of the applicable statute of limitations for any such tax claim, and (iii) actual fraud or intentional non-disclosure, which shall not expire; provided, however, that if a claim is asserted prior to the expiration of any of such indemnification periods, then the obligation to indemnify or to contribute shall be extended until the final disposition or termination of such claim. 9.2 No Circular Recovery. Thomas hereby agrees that he will not make any claim for indemnification against either Parent or Subsidiary by reason of the fact that Thomas was a director, officer, employee, agent or other representative of the Company or any of its subsidiaries (whether such claim is for Adverse Consequences of any kind or otherwise and whether such claim is 51 pursuant to any statute, charter, by-law, contractual obligation or otherwise) with respect to any claim for indemnification brought by Parent, the Surviving Corporation, or their respective subsidiaries and affiliates, against Thomas. 9.3 Thomas's Indemnification Threshold; Cap. Notwithstanding anything in this Agreement to the contrary, (a) Thomas shall not have any indemnification payment obligations hereunder unless and until all Adverse Consequences suffered or incurred by any or all of the Buyer Indemnities resulting from any untrue representation, breach of warranty, nonfulfillment of any covenants, or other indemnified matter exceed Thomas's Indemnification Threshold (as defined hereinafter), at which point all amounts to be paid hereunder (including amounts under the threshold) shall be due and owing; and (b) the maximum aggregate liability of Thomas to the Buyer Indemnitees under this Agreement shall be an amount equal to the Merger Consideration. For purposes of this Section 9.3, "Thomas's Indemnification Threshold" shall mean One Hundred Thousand Dollars ($100,000) in the aggregate, less the amount of any costs incurred by the Surviving Corporation to obtain permanent certificates of occupancy for the Main Facility and all of the Ancillary Facilities (including without limitation the costs of any improvements or modifications required to the extent necessary to so obtain same) pursuant to Section 4.9(c) above. The foregoing limitations shall not apply to indemnification obligations arising from (i) fraudulent or willful misrepresentations or intentional non-disclosure, (ii) any liability of the Company, or of Parent or Subsidiary, under the Manley Stock Purchase Agreement. SECTION 10 52 INDEMNIFICATION BY PARENT Parent shall indemnify, defend (with counsel acceptable to Thomas) and hold harmless Thomas from and against and in respect to the following (in addition to any losses otherwise specifically indemnified against in this Agreement): 10.1 Indemnification by Parent. Subject to the provisions of this Section 10 and except as otherwise more specifically set forth herein, Parent hereby covenants and agrees to indemnify, defend, protect, and hold harmless Thomas at all times from and after the date of this Agreement from and against all Adverse Consequences incurred by Thomas (a) as a result of or incident to any material breach of any representation or warranty of Parent set forth in Section 5 of this Agreement, (b) as a result of or incident to any material breach or nonfulfillment by Parent, or any noncompliance by Parent with, any covenant, agreement, or obligation contained herein or in any certificate delivered in connection herewith, or (c) resulting directly from the material inaccuracy of any list, certificate or other instrument delivered by or on behalf of Parent in connection herewith. 10.2 Broker Fee. Parent hereby covenants and agrees to indemnify Thomas from any claim made by a broker, finder, agent or other intermediary against Thomas after Closing in connection with the negotiation or execution of this Agreement or the consummation of the transactions contemplated hereby, except for those claims made against Thomas, the Company or the Surviving Corporation pursuant to Section 4.17 hereof. 10.3 Costs and Expenses. Except as otherwise provided in this Agreement, all amounts indemnified pursuant to this Section 10 shall include all reasonable costs and expenses of Thomas, including, but not limited to, the reasonable costs of any actions, reasonable attorneys' fees, and other reasonable expenses necessary to enforce the rights granted hereunder. 53 10.4 Termination of Parent's Obligations. Except with respect to the indemnification obligations set forth in Section 10.6 below, Parent's obligations to indemnify Thomas pursuant to this Section 10 shall expire two (2) years from the Closing Date, except as to those involving actual fraud or intentional non-disclosure, which shall not expire; provided, however, that if a claim is asserted prior to the expiration of any of such indemnification period, then the obligation to indemnify or to contribute shall be extended until the final disposition or termination of such claim. 10.5 Parent's Indemnification Threshold; Cap. Notwithstanding anything in this Agreement to the contrary, except with respect to the indemnification obligations set forth in Section 10.6 below, (a) Parent shall not have any indemnification payment obligations hereunder unless and until all Adverse Consequences suffered or incurred by Thomas resulting from any untrue representation, breach of warranty, nonfulfillment of any covenants, or other indemnified matter exceed One Hundred Thousand Dollars ($100,000) in the aggregate ("Parent's Indemnification Threshold"), at which point all amounts to be paid hereunder (including amounts under the $100,000 threshold) shall be due and owing; and (b) the maximum aggregate liability of Parent to Thomas under this Agreement shall be an amount equal to the Merger Consideration. The foregoing limitations shall not apply to indemnification obligations arising from fraudulent or willful misrepresentations or intentional non-disclosure. 10.6 Indemnification for Personal Guaranties by Thomas. Parent hereby covenants and agrees to indemnify, defend and hold harmless Thomas from and against any loss, liability, claim, damage or expense suffered or incurred by or made against Thomas after Closing as a result of Parent's and/or the Surviving Corporation's failure to perform its obligations with respect to any of the Guaranteed Equipment Leases. 54 SECTION 11 [Intentionally omitted.] SECTION 12 MISCELLANEOUS 12.1 Costs. Each party shall pay its own expenses incident to the transaction contemplated hereby, including fees and expenses of their attorneys, accountants, appraisers or consultants, whether or not those transactions are consummated at Closing, subject to the indemnification provisions hereof. 12.2 Attorneys Fees. If any party initiates any litigation against any other party involving this Agreement, the prevailing party in such action shall be entitled to receive reimbursement from the other party for all reasonable attorneys' fees and other costs and expenses incurred by the prevailing party in respect of that litigation, including any appeal, and such reimbursement may be included in the judgment or final order issued in that proceeding. 12.3 Relationships to Other Agreements. In the event of a conflict between any of the provisions of this Agreement and any other agreement relating to this transaction between Thomas, the Company and Parent, the provisions of this Agreement shall control. 12.4 Titles and Captions. All articles or section titles or captions in this Agreement are for convenience of reference and are not part of this Agreement and shall in no way define, limit, extend or describe the scope or intent of provisions herein. 12.5 Exhibits. The Exhibits and Schedules referred to herein are hereby made a part hereof. 55 12.6 Applicable Law. This Agreement is to be governed by, and construed, interpreted, and enforced in accordance with, the laws of the State of Delaware. 12.7 Binding Effect and Assignment. This Agreement shall be binding to the benefit of the successors and assigns of the parties. Notwithstanding the foregoing, neither the Company nor Parent shall have any right to assign any of its rights or obligations under this Agreement without the prior written consent of the other parties hereto. 12.8 Notices. All notices, requests, instructions, or other documents required hereunder shall be deemed to have been given or made when delivered by registered or certified mail, return receipt requested, postage prepaid or by messenger or overnight delivery service to: If the Company then: Vitarich Laboratories, Inc. 4365 Arnold Avenue Naples, Florida 34104 Attention: Mr. Kevin J. Thomas If Thomas then: Mr. Kevin J. Thomas c/o Vitarich Laboratories, Inc. 4365 Arnold Avenue Naples, Florida 34104 With a copy of any such notice to the Company or to Thomas to: Greenberg Traurig, P.A. 450 South Orange Avenue, Suite 650 Orlando, Florida 32801 Attention: Jeffery A. Bahnsen, Esq. If Parent then: Argan, Inc. One Church Street, Suite 302 Rockville, Maryland 20850 Attn: Haywood Miller If Subsidiary then: AGAX/VLI Acquisition Corporation c/o Argan, Inc. One Church Street, Suite 302 Rockville, Maryland 20850 Attn: Haywood Miller With a copy of any such notice to Parent or Subsidiary to: David B. Law Curtin Law Roberson Dunigan & Salans, PC 1900 M Street, N.W. Suite 600 Washington, D.C. 20036 56 Any party may from time to time give the others written notice of a change in the address to which notices are to be sent and of any successors in interest. 12.9 Severability. Inapplicability or unenforceability of any provision of this Agreement shall not impair the operation or validity of any other provision hereof. If any provision shall be declared inapplicable or unenforceable, there shall be added automatically as part of this Agreement a provision as similar in terms to such inapplicable or unenforceable provision as may be possible and be legal, valid and enforceable. 12.10 Acceptance or Approval. By accepting all or approving anything required to be observed, performed, or fulfilled, or to be given to Parent pursuant to this Agreement, including, but not limited to, any certificate, balance sheet, statement of profit or loss or other financial statement, or insurance policy, Parent shall not be deemed to have accepted or approved the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision, or condition thereof as to third parties. 12.11 Survival. (a) All covenants, representations, and warranties made by Thomas in this Agreement shall survive the Closing Date hereunder for the periods of indemnification applicable thereto as set forth in Section 9.1(g). (b) All covenants, representations, and warranties made by Parent in this Agreement shall survive the Closing Date hereunder for the periods of indemnification applicable thereto as set forth in Section 10.4. 57 12.12 Entire Agreement. This Agreement, including all Exhibits and Schedules, constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof, and supersedes all prior agreements and understandings pertaining thereto. No covenant, representation, or condition not expressed in this Agreement shall affect or be deemed to interpret, change or restrict the express provisions hereof and no amendments hereto shall be valid unless made in writing and signed by all parties hereto. 12.13 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute one instrument. 12.14 Securities Matters. By executing this Agreement, Parent acknowledges that: (a) Parent has been advised that the Stock has not been and will not have been registered under the Act or the applicable securities laws of any state, that Thomas in transferring such shares to Parent will be relying, if applicable, upon the exemption from such registration requirements contained in Section 4(1) or 4(2) of the Act as a transaction by a person other than as issuer, underwriter or dealer and the applicable state exemption; (b) the Stock may be "restricted" as that term is used in Rule 144 under the Act as a consequence of which Parent may not be able to sell the shares unless such shares are first registered under the Act and any applicable state securities laws or unless an exemption from such registration is, in the opinion of counsel, available; (c) the Stock will be acquired by Parent for purposes other than a "distribution" as that term is used in Section 2(11) of the Act; and (d) Parent will execute, if Stockholders so request, an appropriate letter affirming that its intention with respect to the proposed acquisition of the Stock is that such acquisition be for investment purposes only and not with a view toward resale or distribution thereof. 58 12.15 Preparation and Filing of SEC Documents. If and whenever, as a result of the transaction contemplated hereunder, Parent is under an obligation to provide financial information to, or prepare a filing of any kind with, the SEC, Thomas shall assist Parent in preparing any audited financial statements required by the SEC for this purpose. The cost of preparing any such financial statements shall be borne by Parent. 12.16 Further Assurances. From time to time at or after the Closing, upon request, the parties each will execute and deliver such other instruments of conveyance, assignment, transfer and delivery and take such actions as the other party reasonably may request in order to consummate, complete and carry out the purposes of the transactions contemplated hereby, including the execution and delivery of such instruments and agreements as may be reasonably necessary or advisable to fully effect the merger of the Company into the Subsidiary. In addition, Thomas and the Company agree to timely execute and deliver any documentation, and to take such other actions and satisfy such other conditions, as may be required or imposed by Parent's banks or other third-party lenders in connection with any existing or future debt of Parent necessary to carry-on the regular business operations of Parent and its affiliates and subsidiaries, including the Surviving Corporation. [Signatures on following page] 59 IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan of Merger on the day and year first above written. ARGAN, INC. By: ----------------------------------------- Name: _________________________ Title: __________________________ VITARICH LABORATORIES, INC. By: ----------------------------------------- Kevin J. Thomas Chief Executive Officer -------------------------------------------- KEVIN J. THOMAS AGAX/VLI ACQUISITION CORPORATION By: ----------------------------------------- Name: _________________________ Title: __________________________ 60 EX-10.1 3 v06469_ex10-1.txt REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of August 31, 2004, by and among ARGAN, INC., a Delaware corporation (the "Company"); KEVIN J. THOMAS (the "Stockholder"). R E C I T A L S: WHEREAS, the Stockholder owns all of the issued and outstanding capital stock ("Vitarich Stock") of Vitarich Laboratories, Inc., a Florida corporation ("Vitarich"); WHEREAS, the Company has agreed to acquire all of the Vitarich Stock via a merger between a subsidiary of the Company and Vitarich (the "Merger") pursuant to the terms of the Merger Agreement; WHEREAS, in accordance with the terms of the Merger and the Merger Agreement, the Stockholder of Vitarich is to receive cash and shares of Common Stock as consideration and in exchange for his Vitarich Stock; and WHEREAS, in connection with the issuance by the Company of the shares of Common Stock, and as an inducement to consummate the transactions contemplated by the Merger Agreement, the Company has agreed to file a registration statement with the Commission in compliance with the Securities Act in respect to the Common Stock issued in connection with the Merger. NOW, THEREFORE, in consideration of the foregoing and the agreements set forth below, the parties hereby agree with each other as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Additional Stock Consideration" shall have the meaning as set forth in the Merger Agreement. "Closing" shall have the meaning as set forth in the Merger Agreement. "Commission" shall mean the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Company's Common Stock, $0.15 par value, as constituted as of the date of this Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Merger Agreement" Agreement and Plan of Merger dated August 31, 2004 by and between Vitarich, the Stockholder, the Company and AGAX/VLI Acquisition Corporation, a Delaware corporation which is a 100% subsidiary of the Company. "Merger Shares" shall mean shares of: (a) Common Stock issued in connection with the Merger in accordance with the terms of the Merger Agreement; and (b) any securities of the Company issued as (or issuable upon the conversion or exercise of any warrant, right, or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. "Registration Expenses" shall mean the expenses so described in Section 5. "Restricted Stock" shall mean the Merger Shares, excluding Merger Shares which have been: (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them; or (b) publicly sold pursuant to Rule 144 under the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 5. 2. Restrictive Legend. Each certificate representing Merger Shares shall, except as otherwise provided in this Section 2, be stamped or otherwise imprinted with a legend substantially in the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." A certificate shall not bear such legend if: (a) the Merger Shares represented by such certificate have been registered under the Securities Act; or (b) in the opinion of counsel satisfactory to the Company (it being agreed that an opinion of Greenberg Traurig, P.A. shall be satisfactory) the securities represented thereby may be publicly sold without registration under the Securities Act and any applicable state securities laws. 3. Required Registration. The Company shall use its best efforts to effect the registration under the Securities Act of all of the shares of Restricted Stock held by the Stockholder, or his respective assigns, pursuant to the terms of this Agreement. 4. Registration Procedures. Whenever the Company is required by the provisions of Section 3 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will, as expeditiously as possible: 2 (a) Use its best efforts to prepare and file with the Commission: (i) within 120 days after the date of the Closing; and (ii) within 120 days after the issuance of the Additional Stock Consideration a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided) or until the Restricted Stock held by the Stockholder can be publicly sold pursuant to Rule 144 under the Securities Act; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in subsection (a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller of Restricted Stock, and to each underwriter if applicable, such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten offering, the managing underwriter reasonably shall request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Restricted Stock covered by such registration statement with any securities exchange or stock market on which the Common Stock of the Company is then listed; (f) immediately notify each seller of Restricted Stock and each underwriter, if applicable, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a 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; (g) if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act; (B) the registration statement, the related prospectus and each amendment 3 or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements contained therein); and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel; and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; (h) make available for inspection by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or representative or agent in connection with such registration statement; and (i) if at such time as the Company files a registration statement pursuant to the requirements of Section 3 it is a registrant entitled to use Form S-3 or any successor thereto to register the Restricted Stock, use its best efforts to register the Restricted Stock under the Securities Act on Form S-3 or any successor thereto, for public sale in the manner specified by the holders thereof. In connection with any registration pursuant to Section 3 that is underwritten, the Company and each seller agree to enter into a written agreement with the managing underwriter selected by the sellers in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. For purposes of Sections 4(a) and 4(b), the period of distribution of Restricted Stock in any registration statement shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby and 180 days after the effective date of such registration statement. In connection with each registration hereunder, the sellers of Restricted Stock will furnish to the Company in writing such information with respect to themselves and the proposed distribution by them as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws. 4 5. Expenses. (a) All expenses incurred by the Company in complying with Sections 3 and 4, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars and costs of insurance, but excluding any Selling Expenses, are called "Registration Expenses." All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses." (b) The Company will pay all Registration Expenses in connection with each registration statement under Section 3. All Selling Expenses in connection with each registration statement under Section 3 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree. 6. Indemnification and Contribution. (a) Upon the registration of any of the Restricted Stock under the Securities Act pursuant to Section 3, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each underwriter, if applicable, of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, along with the partners, members, directors, and officers of each such seller, underwriter or controlling person, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 3, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such seller, each such underwriter and each such controlling person, along with the partners, members, directors, and officers of each such seller, underwriter or controlling person, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus or supplement thereof. (b) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 3, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company 5 or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 3, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus or supplement thereof, and; provided, further, however, that the liability of each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense that is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the net proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. (c) The Company hereby agrees to indemnify and hold harmless each holder of Restricted Stock against and in respect of: (i) any loss, claim, liability, obligation, or damage which such holder may suffer or incur resulting from or arising in connection with any misrepresentation, breach of warranty or non-fulfillment of any covenant or agreement on the part of the Company contained in Section 9; and (ii) all actions, suits, proceedings, demands, assessments, judgments, reasonable attorneys' fees, costs and expenses incident to the forgoing. (d) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof. The omission so to notify the indemnifying party shall not relieve it from any liability that it may have to such indemnified party other than under this Section 6 and shall only relieve it from any liability that it may have to such indemnified party under this Section 6 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the 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 satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 6 for any legal expenses subsequently incurred by such 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 the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it 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 expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. 6 (e) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case; or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 6; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company shall be responsible for the remaining portion; provided, however, that, in any such case: (A) no such holder will be required to contribute any amount in excess of the net proceeds received by such seller from the sale of Restricted Stock covered by such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 7. Changes in Common Stock. If, and as often as, there is any change in the Common Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. 8. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission, which may at any time permit the sale of the Restricted Stock to the public without registration, at all times after 180 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; 7 (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration. 9. Representations and Warranties of the Company. The Company represents, warrants and covenants to the Stockholder and any other holder of Restricted Stock as follows: (a) the execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Charter or By-laws of the Company; (b) this Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms; (c) that it will not file with the Commission a registration statement with respect to any shares of its capital stock other than the Restricted Stock prior to 90 days after the effective date of the registration statement registering the shares of Restricted Stock to be issued at Closing; and (d) that it will not include any shares of its capital stock other than Restricted Stock in any registration statement filed with the Commission with respect to any Restricted Stock, without the prior written consent of the holders of Restricted Stock. 10. Miscellaneous. (a) An original copy of this Agreement shall be kept by the Secretary of the Company. (b) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Restricted Stock), whether so expressed or not. (c) All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by telecopier or telex, addressed as follows: (i) if to the Company or any other party hereto, at the address of such party set forth in the Merger Agreement; 8 (ii) if to any subsequent holder of Restricted Stock, to it at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Restricted Stock) or to the holders of Restricted Stock (in the case of the Company) in accordance with the provisions of this paragraph. (d) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of law. (e) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of at least a majority of the Restricted Stock. (f) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (g) The Company shall not grant to any third party any registration rights more favorable than or inconsistent with any of those contained herein, so long as any of the registration rights under this Agreement remain in effect. (h) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. (i) This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. [Signatures on following page] 9 IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the day and year first written above. COMPANY: ARGAN, INC. By: ________________________________ H. Haywood Miller III Executive Vice President STOCKHOLDER: ------------ -------------------------------- KEVIN J. THOMAS 10 EX-10.2 4 v06469_ex10-2.txt EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into and effective as of the 31st day of August, 2004, by and between AGAX/VLI ACQUISITION CORPORATION, a Delaware corporation (the "Company"), and KEVIN J. THOMAS (hereinafter, the "Employee"). R E C I T A L S : WHEREAS, Argan, Inc. has acquired all of the issued and outstanding capital stock of Vitarich Laboratories, Inc. ("Vitarich") pursuant to a merger between the Company, a wholly owned subsidiary of Argan -------- Inc., a Delaware corporation ("Argan"), and Vitarich; and ----- WHEREAS, prior to the merger, the Employee was the sole stockholder, sole board member and chief executive officer of Vitarich; and WHEREAS, the Company is in the business of formulating, packaging and distributing whole food, dietary, herbal and nutritional supplements and related products, which are marketed globally to retail, wholesale and private label customers, including network marketing companies, health food stores, mass merchandisers, drug stores, food stores and internet and mail order companies (collectively, the "Business"); and WHEREAS, the Employee possesses intimate knowledge of the business and affairs of the Company, its policies, methods and personnel; and WHEREAS, the Company desires to employ the Employee to operate the Business and compensate him therefor; and WHEREAS, the Employee is willing to make his services available to the Company and on the terms and conditions hereinafter set forth. NOW, THEREFORE, for the reasons set forth hereinabove, and in consideration of the foregoing premises and of the mutual promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: Article 1 Employment Section 1.01 Employment and Term. The Company hereby agrees to employ the Employee and the Employee hereby agrees to serve the Company on the terms and conditions set forth herein. Section 1.02 Duties of Employee. During the Term of Employment under this Agreement, the Employee shall serve as the Senior Operating Executive of the Company, shall faithfully and diligently perform all services as may be assigned to him by the Board of Directors of the Company (the "Board") (provided that, such services shall not materially differ from the services provided by the Employee to Vitarich), and shall exercise such power and authority as may from time to time be delegated to him by the Board. The Employee shall devote his full time and attention to the business and affairs of the Company, render such services to the best of his ability, and use his reasonable best efforts to promote the interests of the Company. Notwithstanding the foregoing or any other provision of this Agreement, it shall not be a breach or violation of this Agreement for the Employee to: (a) serve on civic, charitable or, subject to Article 6 below, corporate boards or committees; (b) deliver lectures, fulfill speaking engagements or teach at educational institutions; or (c) manage personal investments, so long as such activities do not significantly interfere with or significantly detract from the performance of the Employee's responsibilities to the Company in accordance with this Agreement. Article 2 Term Section 2.01 Initial Term. The initial Term of Employment (as defined below) under this Agreement, and the employment of the Employee hereunder, shall commence on August 31, 2004 (the "Commencement Date") and shall expire on August 31, 2007, unless sooner terminated in accordance with Article 5 hereof (the "Initial Term"). Section 2.02 Renewal Terms. At the end of the Initial Term, the Term of Employment automatically shall renew for successive one year terms (subject to earlier termination as provided in Article 5 hereof), unless the Company or the Employee delivers written notice to the other at least three months prior to the Expiration Date of its or his election not to renew the Term of Employment. Section 2.03 Term of Employment and Expiration Date. The period during which the Employee shall be employed by the Company pursuant to the terms of this Agreement is sometimes referred to in this Agreement as the "Term of Employment," and the date on which the Term of Employment shall expire (including the date on which any renewal term shall expire), is sometimes referred to in this Agreement as the "Expiration Date." Article 3 Compensation Section 3.01 Base Salary. The Employee shall receive a base salary at the annual rate of $150,000 (the "Base Salary") during the Term of Employment, with such Base Salary payable in installments consistent with Vitarich's normal payroll schedule, subject to applicable withholding and other taxes. Following the Initial Term, the Base Salary shall be reviewed, at least annually, for merit increases and may, by action and in the discretion of the Board, be increased at any time or from time to time. Base Salary shall not be decreased and, if increased, shall not thereafter be decreased for any reason. 2 Section 3.02 Bonuses. (a) In addition to Base Salary, during the Term of Employment, for each fiscal year of the Company following the fiscal year ended January 31, 2005, the Employee shall be entitled to receive additional bonus compensation, provided that Pre-Tax Earnings of the Company (as defined in Section 3.02(b)(i)) for such fiscal year exceed 120% of Base Year Pre-Tax Earnings (as defined in Section 3.02(b)(ii)). In the event Pre-Tax Earnings of the Company for such fiscal year are between 120% and 130% of Base Year Pre-Tax Earnings, the Employee shall receive Incentive Compensation (as defined below) of $150,000. In the event Pre-Tax Earnings of the Company for such fiscal year exceed 130% of Base Year Pre-Tax Earnings, the Employee shall receive Incentive Compensation of $250,000. (b) For the purposes of Section 3.02(a) above, (i) "Pre-Tax Earnings of the Company" shall mean, for each fiscal year, earnings of the Company before (A) taxes; (B) non-recurring expenses or income statement adjustments for any fiscal year, or portion of a fiscal year, occurring prior to the date of this Agreement, as reasonably determined by the Board; and (C) any additional bonus compensation due under Section 3.02(a), if any; provided, however, that for each of the fiscal years ended on or before January 31, 2005 only, "Pre-Tax Earnings of the Company" shall be increased by the total compensation paid to the Employee during such each fiscal year and decreased by the Base Salary payable to the Employee pursuant to Section 3.01 above; and (ii) "Base Year Pre-Tax Earnings" shall mean, for each fiscal year, the greater of: (A) Pre-Tax Earnings of the Company for the immediately preceding fiscal year; or (B) the average Pre-Tax Earnings of the Company for the immediately preceding three fiscal years; but in the case of both clause (a) and clause (b), not less than the Pre-Tax Earnings of the Company for the fiscal year ended January 31, 2005. (c) The Employee shall receive such additional bonuses, if any, as the Board may in its sole and absolute discretion determine. (d) For the Bonus Period (as defined in Section 3.02(e)) in which the Employee's employment with the Company terminates for any reason, the Company shall pay the Employee a pro rata portion (based upon the period ending on the date on which the Employee's employment with the Company terminates) of the bonus otherwise payable under this Section 3.02 for the Bonus Period in which such termination of employment occurs; provided, however, that: (i) the Bonus Period shall be deemed to end on the last day of the fiscal quarter of the 3 Company in which the Employee's employment so terminates; and (ii) the business criteria used to determine the prorata portion of the bonus for this Bonus Period shall be annualized and shall be determined based upon unaudited financial information prepared in accordance with generally accepted accounting principles, applied consistently with prior periods, and reviewed and approved by the Compensation Committee of the Board. The prorata portion of the Incentive Compensation for this Bonus Period is sometimes hereinafter referred to as the "Termination Year Bonus." (e) Any additional bonus compensation payable pursuant to this Section 3.02 is sometimes hereinafter referred to as "Incentive Compensation." Each period for which Incentive Compensation is payable under this Section 3.02 is sometimes hereinafter referred to as a "Bonus Period." Unless otherwise specified by the Board, the Bonus Period shall be the fiscal year of the Company. (f) Any Incentive Compensation payable pursuant to this Section 3.02 shall be determined and paid by the Company to the Employee within thirty (30) days following the completion of the annual year-end audit of Argan; provided, however, that any Termination Year Bonus payable pursuant to this Section 3.02 shall be paid by the Company to the Employee within sixty (60) days after the end of the short Bonus Period for which it is payable. Article 4 Expense Reimbursement and Other Benefits. Section 4.01 Reimbursement of Expenses. Upon the submission of proper substantiation by the Employee, and subject to such rules and guidelines as the Company may from time to time adopt with respect to the reimbursement of expenses of executive personnel, the Company shall reimburse the Employee for all reasonable expenses actually paid or incurred by the Employee during the Term of Employment in the course of and pursuant to the business of the Company. The Employee shall account to the Company in writing for all expenses for which reimbursement is sought and shall supply to the Company copies of all relevant invoices, receipts or other evidence reasonably requested by the Company. Section 4.02 Compensation/Benefit Programs. During the term of Employment, the Employee shall be entitled to participate in all medical, dental, hospitalization, accidental death and dismemberment, disability, travel and life insurance plans, and any and all other plans as are presently and hereinafter offered by the Company or Argan to its executive personnel, including savings, pension, profit-sharing and deferred compensation plans, subject to the general eligibility and participation provisions set forth in such plans. Section 4.03 Working Facilities. During the Term of Employment, the Company shall furnish the Employee with an office, secretarial help and such other facilities and services suitable to his position and adequate for the performance of his duties hereunder. Section 4.04 Stock Options. During the Term of Employment the Employee shall be eligible to be granted options (the "Stock Options") to purchase common stock (the "Common Stock") of Argan under Argan's 2001 Stock Option Plan, as 4 amended and as it may be amended from time to time hereinafter, and any successor plan thereto (the "Stock Option Plan"), subject to all of the terms and conditions of the Stock Option Plan and all rules and regulations of the Securities and Exchange Commission applicable to stock option plans then in effect. The number of Stock Options and terms and conditions of the Stock Options shall be determined by the committee of the Board appointed pursuant to the Stock Option Plan, or by the Board, in its discretion and pursuant to the Stock Option Plan. Section 4.05 Other Benefits. The Employee shall be entitled to four (4) weeks of paid vacation each calendar year during the Term of Employment (prorated for any partial calendar year during the Term of Employment), to be taken at such times as the Employee and the Company shall mutually determine and provided that no vacation time shall significantly interfere with the duties required to be rendered by the Employee hereunder. Any vacation time not taken by Employee during any calendar year may not be carried forward into any succeeding calendar year. The Employee shall receive such additional benefits, if any, as the Board shall from time to time determine. Section 4.06 Withholding. Anything in this Agreement to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Employee or his estate or beneficiaries shall be subject to the withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provisions for payment of taxes and withholding as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied. Article 5 Termination. Section 5.01 Termination for Cause. The Company shall at all times have the right, upon written notice to the Employee, to terminate the Term of Employment for Cause as defined below. For purposes of this Agreement, the term "Cause" shall mean: (a) an action or omission of the Employee which constitutes a willful and material breach of, or willful and material failure or refusal (other than by reason of his disability or incapacity) to perform his duties under, this Agreement, which is not cured within 15 days after receipt by the Employee of written notice of same; (b) fraud, embezzlement, misappropriation of funds or breach of trust in connection with his services hereunder; or (c) a conviction of any crime which involves dishonesty or a breach of trust; or (d) gross negligence in connection with the performance of the Employee's duties hereunder, which is not cured (to the extent curable) within 15 days after receipt by the Employee of written notice of same. Any termination for Cause shall be made by notice in writing to the Employee, which notice shall set forth in reasonable detail all acts or omissions upon which the Company is relying for such termination. Upon termination of the Term of Employment pursuant to this Section 5.01, the Company shall: (i) immediately pay to the Employee any unpaid Base Salary through the effective date of termination ("Termination Date"); and (ii) pay to the Employee his Termination Year Bonus, if any, at the time provided in Section 3.02. Upon any termination effected and compensated pursuant to this Section 5.01, the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the Termination Date, subject, however, to the provisions of Section 4.01). 5 Section 5.02 Disability. In the event the Employee shall be unable, or fail, to perform the essential functions of his/her position, with or without reasonable accommodation, for any period of ninety (90) days or more, the Company shall have the option, in accordance with applicable law, to terminate the Term of Employment upon written notice to the Employee. Upon termination of the Term of Employment pursuant to this Section 5.02, the Company shall: (a) immediately pay to the Employee any unpaid Base Salary through the Termination Date specified in such notice; and (b) pay to the Employee his Termination Year Bonus, if any, at the time provided in Section 3.02. Upon any termination effected and compensated pursuant to this Section 5.02, the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the Termination Date, subject, however to the provisions of Section 4.01). Any payments to the Employee under any disability income policies maintained by the Company shall offset the Company's obligation to pay compensation to the Employee during the period of any disability. Section 5.03 Death. Upon the death of the Employee during the Term of Employment, the Company shall: (a) immediately pay to the estate of the deceased Employee any unpaid Base Salary through the Employee's date of death; and (b) pay to the estate of the deceased Employee the Employee's Termination Year Bonus, if any, at the time provided in Section 3.02. Upon any termination effected and compensated pursuant to this Section 5.03, the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of the Employee's death, subject, however to the provisions of Section 4.01). Section 5.04 Termination Without Cause. At any time the Company shall have the right to terminate the Term of Employment by written notice to the Employee not less than 30 days prior to the Termination Date. Upon termination pursuant to this Section 5.04 (that is not a termination under any of Sections 5.01, 5.02, 5.03, or 5.05), the Company shall: (a) immediately pay to the Employee any unpaid Base Salary through the Termination Date specified in such notice; (b) continue to pay the Employee's Base Salary for a period (the "Continuation Period") through the date on which the Term of Employment would have ended pursuant to Article 2 hereof in the absence of an earlier termination pursuant to this Article 5, in the manner and at such times as the Base Salary otherwise would have been payable to the Employee; (c) except as set forth in the following clause (e), continue to provide the Employee with benefits that are comparable, in the aggregate, to the benefits he was receiving under Section 4.02 hereof (the "Benefits"), through the end of the Continuation Period in the 6 manner and at such times as the Benefits otherwise would have been provided to the Employee; (d) pay to the Employee his Termination Year Bonus, if any, at the time provided in Section 3.02; and (e) pay to the Employee as a single lump sum payment, within 30 days of the Termination Date, a lump sum benefit equal to the value of the portion of his benefits under any savings, pension, profit sharing or deferred compensation plans that are forfeited under such plans by reason of the termination of his employment hereunder prior to the end of the Continuation Period. In the event that the Company is unable to provide the Employee with any Benefits required hereunder by reason of the termination of the Employee's employment pursuant to this Section 5.04, then the Company shall pay the Employee cash equal to the value of the Benefit that otherwise would have accrued for the Employee's benefit under the plan, for the period during which such Benefits could not be provided under the plans, said cash payments to be made monthly throughout the Continuation Period. For this purpose, the value of any Benefit shall be the amount that the Employee is required to pay to obtain that Benefit (fully grossed up for taxes at the highest marginal rate applicable to the Employee to the extent that the Benefit would have been received tax-free to the Employee). Further, the Employee shall continue to vest in the Employee's Stock Options through the end of the Continuation Period in the same manner and to the same extent as if his employment hereunder terminated on the last day of the Continuation Period. Upon any termination effected and compensated pursuant to this Section 5.04, the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the Termination Date, subject, however, to the provisions of Section 4.01). Section 5.05 Termination by Employee. (a) The Employee shall at all times have the right to terminate the Term of Employment by written notice to the Company not less than 30 days prior to the Termination Date; provided, however, that the Employee shall not have such right to terminate the Term of Employment for other than Good Reason (as defined below) prior to the expiration of the Initial Term. (b) Upon termination of the Term of Employment pursuant to this Section 5.05 by the Employee for other than Good Reason, the Company shall: (i) immediately pay to the Employee any unpaid Base Salary through the Termination Date specified in such notice; and (ii) pay to the Employee his Termination Year Bonus, if any, at the time provided in Section 3.02; provided, however, that, in addition to any other rights or remedies the Company may have for breach of contract or otherwise, the Company shall have no obligation to pay to the Employee his Termination Year Bonus if the Employee terminates the Term of Employment for other than Good Reason prior to the expiration of the Initial Term. Upon any termination effected and compensated pursuant to this Section 5.05, the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the Termination Date, subject, however, to the provisions of Section 4.01). (c) Upon termination of the Term of Employment pursuant to this Section 5.05 by the Employee for Good Reason, the Company shall pay to the Employee the same amounts (and at such times), and shall continue to compensate for Benefits in the same amounts, that would have been payable or provided by the Company to the Employee under Section 5.04 of this Agreement if the Term of Employment had been terminated by the Company without Cause. Upon any termination effected and compensated pursuant to this Section 5.05, the Company shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the Termination Date, subject, however, to the provisions of Section 4.01). 7 (d) For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Employee of any duties inconsistent in any material respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 1.02 of this Agreement, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; (ii) any failure by the Company to comply with any of the provisions of Article 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; or (iii) unless the Employee otherwise agrees, the Company's requiring the Employee to be based at any office or location outside of twenty-five (25) miles from the Company's main facility located at 4365 Arnold Avenue, Naples, Florida, except for travel reasonably required in the performance of the Employee's responsibilities. Article 6 Restrictive Covenants. Section 6.01 Non-competition. (a) At all times during the Restricted Period, the Employee shall not, directly or indirectly, alone or with others, engage in any competition with, or have any financial or ownership interest in any sole proprietorship, corporation, company, partnership, association, venture or business or any other person or entity (whether as an employee, officer, director, partner, manager, member, agent, security holder, creditor, consultant or otherwise) that directly or indirectly (or through any affiliated entity) competes with the Business; provided that such provision shall not apply to the Employee's ownership of Common Stock of Argan or the acquisition by the Employee, solely as an investment, of securities of any issuer that is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and that are listed or admitted for trading on any United States national securities exchange or that are quoted on the Nasdaq Stock Market, or any similar system or automated dissemination of quotations of securities prices in common use, so long as the Employee does not control, acquire a controlling interest in or become a member of a group which exercises direct or indirect control of, more than 2% of any class of capital stock or other indicia of ownership of such issuer. (b) For purposes of this Agreement, the "Restricted Period" shall be the Term of Employment and, if the Term of Employment is terminated: (i) by the Company for Cause (as defined in Section 5.01); or (ii) by the Employee for any reason other than Good Reason (as defined in Section 5.05(d)), the one year period immediately following the Termination Date. Notwithstanding the foregoing, the Restricted Period shall end in the event that the Company fails to make any payments or provide any Benefits required by Article 5 hereof with 15 days of written notice from the Employee of such failure. 8 Section 6.02 Confidential Information. The Employee shall not at any time during the Term of Employment or thereafter, regardless of the manner of or reason for the termination of his employment, divulge, communicate, use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any Confidential Information (as hereinafter defined) pertaining to the business of the Company. Any Confidential Information or data now or hereafter acquired by the Employee with respect to the business of the Company (which shall include, but not be limited to, information concerning the Company's financial condition, prospects, technology, customers, suppliers, sources of leads and methods of doing business) shall be deemed a valuable, special and unique asset of the Company that is received by the Employee in confidence and as a fiduciary, and Employee shall remain a fiduciary to the Company with respect to all of such information. For purposes of this Agreement, "Confidential Information" means all trade secrets and information disclosed to the Employee or known by the Employee as a consequence of or through the unique position of his employment with the Company or Vitarich (including information conceived, originated, discovered or developed by the Employee and information acquired by the Company or Vitarich from others) prior to or after the date hereof, and not generally or publicly known (other than as a result of unauthorized disclosure by the Employee), about the Company or its business. Notwithstanding the foregoing, nothing herein shall be deemed to restrict the Employee from disclosing Confidential Information as required to perform his duties under this Agreement or to the extent required by law. Upon request by the Company, the Employee shall deliver promptly to the Company upon termination of his services for the Company, or at any time thereafter as the Company may request, all Company memoranda, notes, records, reports, manuals, drawings, designs, computer files in any media and other documents (and all copies thereof) containing such Confidential Information and all property of the Company or any other Company affiliate, which he may then possess or have under his control. Section 6.03 Non-solicitation of Employees and Customers. At all times during the Restricted Period, the Employee shall not, directly or indirectly, for himself or for any other person, firm, corporation, company, partnership, association, venture or business or any other person or entity: (a) solicit for employment, employ or attempt to employ or enter into any contractual arrangement with any employee or former employee of the Company, unless such employee or former employee has not been employed by the Company for a period in excess of nine (9) months; and/or (b) call on or solicit any of the actual or targeted prospective customers or clients of the Company on behalf of himself or on behalf of any person or entity in connection with any business that competes with the Business nor shall the Employee make known the names or addresses or other contact information of such actual or prospective customers or clients or any information relating in any manner to the Company's trade or business relationships with such actual or prospective customers or clients, other than in connection with the performance of Employee's duties under this Agreement. Section 6.04 Books and Records. All books, records, and accounts relating in any manner to the customers or clients of the Company, whether prepared by the Employee or otherwise coming into the Employee's possession, shall be the exclusive property of the Company and shall be returned immediately to the Company on termination of the Employee's employment hereunder or on the Company's request at any time. 9 Section 6.05 Definition of Company. Solely for purposes of this Article 6, the term "Company" also shall include any existing or future subsidiaries of the Company that are operating during the time periods described herein and any other entities that directly or indirectly, through one or more intermediaries, control, are controlled by or are under common control with the Company during the periods described herein. Section 6.06 Acknowledgment by Employee. The Employee acknowledges and confirms that the restrictive covenants contained in this Article 6 (including without limitation the length of the term of the provisions of this Article 6) are reasonably necessary to protect the legitimate business interests of the Company, and are not overbroad, overlong, or unfair and are not the result of overreaching, duress or coercion of any kind. The Employee further acknowledges and confirms that the compensation payable to the Employee under this Agreement is in consideration for the duties and obligations of the Employee hereunder, including the restrictive covenants contained in this Article 6, and that such compensation is sufficient, fair and reasonable. The Employee further acknowledges and confirms that his full, uninhibited and faithful observance of each of the covenants contained in this Article 6 will not cause him any undue hardship, financial or otherwise, and that enforcement of each of the covenants contained herein will not impair his ability to obtain employment commensurate with his abilities and on terms fully acceptable to him or otherwise to obtain income required for the comfortable support of him and his family and the satisfaction of the needs of his creditors. The Employee acknowledges and confirms that his special knowledge of the business of the Company is such as would cause the Company serious injury or loss if he were to use such ability and knowledge to the benefit of a competitor or were to compete with the Company in violation of the terms of this Article 6. The Employee further acknowledges that the restrictions contained in this Article 6 are intended to be, and shall be, for the benefit of and shall be enforceable by, the Company's successors and assigns. The Employee expressly agrees that upon any breach or violation of the provisions of this Article 6, the Company shall be entitled, as a matter of right, in addition to any other rights or remedies it may have, to: (a) temporary and/or permanent injunctive relief in any court of competent jurisdiction as described in Section 6.9 hereof; and (b) such damages as are provided at law or in equity. The existence of any claim or cause of action against the Company or its affiliates, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement of the restrictions contained in this Article 6. Section 6.07 Reformation by Court. In the event that a court of competent jurisdiction shall determine that any provision of this Article 6 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Article 6 within the jurisdiction of such court, such provision shall be interpreted or reformed and enforced as if it provided for the maximum restriction permitted under such governing law. 10 Section 6.08 Extension of Time. If the Employee shall be in violation of any provision of this Article 6, then each time limitation set forth in this Article 6 shall be extended for a period of time equal to the period of time during which such violation or violations occur. If the Company seeks injunctive relief from such violation in any court, then the covenants set forth in this Article 6 shall be extended for a period of time equal to the pendency of such proceeding including all appeals by the Employee. Section 6.09 Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach by the Employee of any of the covenants contained in Article 6 of this Agreement will cause irreparable harm and damage to the Company, the monetary amount of which may be virtually impossible to ascertain. As a result, the Employee recognizes and hereby acknowledges that the Company shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Article 6 of this Agreement by the Employee or any of his affiliates, associates, partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to whatever other remedies the Company may possess. Section 6.10 Merger Agreement. Notwithstanding anything to the contrary contained in this Agreement, nothing herein shall limit or otherwise affect the restrictive covenants applicable to the Employee under and pursuant to the terms, covenants and conditions of that certain Agreement and Plan of Merger, of even date herewith (the "Merger Agreement") by and among the Employee, the Company, Argan, and Vitarich, all of which such restrictive covenants shall remain in full force and effect in accordance with the terms and conditions of the Merger Agreement. Section 6.11 Survival. The provisions of this Article 6 shall survive the termination of the Term of Employment or expiration of the term of this Agreement. Article 7 Assignment Section 7.01 The Company shall have the right to assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation or other entity with or into which the Company may hereafter merge or consolidate or to which the Company may transfer all or substantially all of its assets, if in any such case said corporation or other entity shall by operation of law or expressly in writing assume all obligations of the Company hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Employee may not assign or transfer this Agreement or any rights or obligations hereunder. Article 8 Miscellaneous. Section 8.01 Benefits; Binding Effect. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where permitted and applicable, assigns, including, without limitation, any successor to the Company, whether by merger, consolidation, sale of stock, sale of assets or otherwise. 11 Section 8.02 Severability. The invalidity of any one or more of the words, phrases, sentences, clauses, provisions, sections or articles contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, provisions, sections or articles contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, provisions or provisions, section or sections or article or articles had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. Section 8.03 Waivers. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation. Section 8.04 Damages; Attorneys Fees. Nothing contained herein shall be construed to prevent the Company or the Employee from seeking and recovering from the other damages sustained by either or both of them as a result of its or his breach of any term or provision of this Agreement. In the event that either party hereto seeks to collect any damages resulting from, or the injunction of any action constituting, a breach of any of the terms or provisions of this Agreement, then the party found to be at fault shall pay all reasonable costs and attorneys' fees of the other. Section 8.05 No Set-off or Mitigation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. If the Employee's employment under this Agreement is terminated in such a manner that the Company continues to be obligated to pay the Employee compensation and Benefits following the Termination Date in accordance with the terms of this Agreement, then in such event the Employee shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement; provided, however, that any amounts earned by the Employee from any such other third-party employment during the pay-out period shall offset the amounts otherwise payable by the Company to the Employee hereunder. Section 8.06 Section Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 12 Section 8.07 No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Company, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement. Section 8.08 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same in Section 8.09 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Florida, without regard to principles of conflict of laws.Section 8.10 Jurisdiction and Venue. The parties acknowledge that a substantial portion of the negotiations, anticipated performance and execution of this Agreement occurred or shall occur in Naples, Florida, and that, therefore, without limiting the jurisdiction or venue of any other federal or state courts, each of the parties irrevocably and unconditionally: (a) agrees that any suit, action or legal proceeding arising out of or relating to this Agreement which is expressly permitted by the terms of this Agreement to be brought in a court of law, shall be brought in the courts of record of the State of Florida in Collier County or the court of the United States, Middle District of Florida; (b) consents to the jurisdiction of each such court in any such suit, action or proceeding; (c) waives any objection which it or he may have to the laying of venue of any such suit, action or proceeding in any of such courts; and (d) agrees that service of any court papers may be effected on such party by mail, as provided in this Agreement, or in such other manner as may be provided under applicable laws or court rules in such courts. Section 8.11 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and, upon its effectiveness, shall supersede all prior agreements, understandings and arrangements, both oral and written, between the Employee and the Company (or any of its affiliates) with respect to such subject matter. This Agreement may not be modified in any way unless by a written instrument signed by both the Company and the Employee. Section 8.12 Notices. All notices required or permitted to be given hereunder shall be in writing and shall be personally delivered by courier, sent by registered or certified mail, return receipt requested, sent by overnight courier, or sent by confirmed facsimile transmission addressed as set forth herein. Notices personally delivered, sent by facsimile or sent by overnight courier shall be deemed given on the date of delivery and notices mailed in accordance with the foregoing shall be deemed given upon the earlier of receipt by the addressee, as evidenced by the return receipt thereof, or three days after deposit in the U.S. mail. Notice shall be sent: (a) if to the Company, addressed to Argan, Inc., One Church Street, Suite 302, Rockville, Maryland 20850, Attention: Mr. Haywood Miller; and (b) if to the Employee, to his address as reflected on the payroll records of the Company, or to such other address as either party shall request by notice to the other in accordance with this provision. 13 [Signatures on following page] 14 IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first above written. COMPANY: AGAX/VLI ACQUISITION CORPORATION By: --------------------------------------------- Name: ------------------------------------------- Title: ------------------------------------------ EMPLOYEE: ------------------------------------------------ KEVIN J. THOMAS 15 EX-10.3 5 v06469ex10-3.txt THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT THIS THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this "Agreement") is made as of the 31st day of August, 2004, by and among Argan, Inc. (formerly Puroflow Incorporated)("Argan"), a corporation organized and in good standing under the laws of the State of Delaware, Southern Maryland Cable, Inc. ("SMC"), a corporation organized and in good standing under the laws of the State of Delaware, and AGAX/VLI Acquisition CORPORATION ("AGAX/VLI Acquisition"), a corporation organized and in good standing under the laws of the State of Delaware, jointly and severally (each a "Borrower"; and collectively, the "Borrowers") and BANK OF AMERICA, N.A., a national banking association, its successors and assigns (the "Lender"). RECITALS A. Argan and SMC (the "Original Borrowers") and the Lender entered into a Financing and Security Agreement dated as of August 19, 2003 (the same, as amended, modified, substituted, extended, and renewed from time to time, the "Financing Agreement"). B. The Financing Agreement provides for some of the agreements between the Original Borrowers and the Lender with respect to the Loans (as defined in the Financing Agreement), including a revolving credit facility in an amount not to exceed $1,750,000 and a term loan facility in an amount not to exceed $1,200,000. C. Kevin Thomas and Ken Manley (the "Stockholders"), Argan, VITARICH LABORATORIES, INC., a corporation organized under the laws of the State of Florida ("VLI") and AGAX/VLI Acquisition have entered into an Agreement and Plan of Merger, dated August 31, 2004 (the "Merger Agreement"), pursuant to which Argan will acquire VLI by means of a merger of VLI with and into AGAX/VLI Acquisition (the "Merger"). Argan has requested that the Lender finance a portion of the Merger. The Lender has agreed to do so, on the condition, among others, that this Agreement be executed. AGREEMENTS NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, the Borrowers and the Lender agree as follows: 1. Recitals. The Borrowers and the Lender agree that the Recitals above are a part of this Agreement. Unless otherwise expressly defined in this Agreement, terms defined in the Financing Agreement shall have the same meaning under this Agreement. 2. Representations and Warranties. The Borrowers represent and warrant to the Lender as follows: (a) Each Borrower is a corporation duly organized, validly existing and in good standing under the laws of their respective state of incorporation set forth above and is duly qualified to do business as a foreign corporation in good standing in every other state wherein the conduct of its business or the ownership of its property requires such qualification; (b) Each Borrower has the power and authority to execute and deliver this Agreement and perform its obligations hereunder and has taken all necessary and appropriate action to authorize the execution, delivery and performance of this Agreement; (c) The Financing Agreement, as heretofore amended and as amended by this Agreement, and each of the other Financing Documents remains in full force and effect, and each constitutes the valid and legally binding obligation of each Borrower, enforceable in accordance with its terms; (d) All of Borrowers' representations and warranties contained in the Financing Agreement and the other Financing Documents are true and correct on and as of the date of Borrowers' execution of this Agreement; and (e) No Event of Default and no event which, with notice, lapse of time or both would constitute an Event of Default, has occurred and is continuing under the Financing Agreement or the other Financing Documents which has not been waived in writing by the Lender. 3. Certain Defined Terms. The following definitions are hereby added to Section 1.1 of the Financing Agreement as follows: "Borrowing Base" has the meaning described in Section 2.1.8 (Borrowing Base). "Borrowing Base Deficiency" has the meaning described in Section 2.1.8 (Borrowing Base). "Borrowing Base Report" has the meaning described in Section 2.1.9 (Borrowing Base Report). "Eligible Inventory" means the collective reference to all Inventory of each Borrower held for sale in the ordinary course of business, valued at the lowest of the net purchase cost or realizable value with respect to raw materials and the lowest of the net manufacturing cost or realizable value with respect to finished goods inventory, excluding, however, any Inventory which consists of: (i) any Inventory located outside of the United States; (ii) any Inventory in which the Lender has not properly and unavoidably perfected the Liens of the Lender under this Agreement; (iii) any Inventory not in the actual possession of a Borrower, except to the extent provided in subsection (iv) below; (iv) any Inventory in the possession of a bailee, warehouseman, consignee or similar third party, except to the extent that such bailee, warehouseman, consignee or similar third party has entered into an agreement with the Lender in which such bailee, warehouseman, consignee or similar third party consents and agrees to the Lender's Lien on such Inventory and to such other terms and conditions as may be required by the Lender; 2 (v) any Inventory located on premises leased or rented to a Borrower or otherwise not owned by a Borrower, unless the Lender has received a waiver and consent from the lessor, landlord and/or owner, in form and substance satisfactory to the Lender and from any mortgagee of such lessor, landlord or owner to the extent required by the Lender; (vi) any Inventory the sale or other disposition of which has given rise to a Receivable; (vii) any Inventory which fails to meet all standards and requirements imposed by any Governmental Authority over such Inventory or its production, storage, use or sale; (viii) work-in-process, supplies, displays, packaging and promotional materials; (ix) any Inventory as to which the Lender determines in the exercise of its sole and absolute discretion at any time and in good faith is not in good condition or is defective, unmerchantable, post-seasonal, slow moving or obsolete; and (x) any Inventory which the Lender in the good faith exercise of its sole and absolute discretion has deemed to be ineligible because the Lender in good faith, otherwise considers the collateral value to the Lender to be impaired or its ability to realize such value to be insecure. In the event of any dispute under the foregoing criteria, as to whether Inventory is, or has ceased to be, Eligible Inventory, the decision of the Lender in the good faith exercise of its sole and absolute discretion shall control. "Eligible Receivable" and "Eligible Receivables" mean, at any time of determination thereof, the unpaid portion of each account (net of any returns, discounts, claims, credits, charges, accrued rebates or other allowances, offsets, deductions, counterclaims, disputes or other defenses and reduced by the aggregate amount of all reserves, limits and deductions provided for in this definition and elsewhere in this Agreement) receivable in United States Dollars by a Borrower, provided each account conforms and continues to conform to the following criteria to the satisfaction of the Lender: (a) the account arose in the ordinary course of a Borrower's business from a bona fide outright sale of Inventory by such Borrower or from services performed by such Borrower; (b) the account is a valid, legally enforceable obligation of the Account Debtor and requires no further act on the part of any Person under any circumstances to make the account payable by the Account Debtor; 3 (c) the account is based upon an enforceable order or contract, written or oral, for Inventory shipped or for services performed, and the same were shipped or performed in accordance with such order or contract; (d) if the account arises from the sale of Inventory, the Inventory the sale of which gave rise to the account has been shipped or delivered to the Account Debtor on an absolute sale basis and not on a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or return basis, or on the basis of any other similar understanding; (e) if the account arises from the performance of services, such services have been fully rendered and do not relate to any warranty claim or obligation; (f) the account is evidenced by an invoice or other documentation in form acceptable to the Lender, dated no later than the date of shipment or performance and containing only terms normally offered by the respective Borrower; (g) the amount shown on the books of a Borrower and on any invoice, certificate, schedule or statement delivered to the Lender is owing to such Borrower and no partial payment has been received unless reflected with that delivery; (h) the account is not outstanding more than ninety (90) days from the date of the invoice therefore; (i) the account is not owing by any Account Debtor for which the Lender has deemed fifty percent (50%) or more of such Account Debtor's other accounts (or any portion thereof) due to a Borrower, individually, or all of the Borrowers collectively, to be non-Eligible Receivables; (j) to the extent such account is owing by an Account Debtor or a group of affiliated Account Debtors then existing accounts to all of the Borrowers collectively exceed in aggregate face amount twenty five percent (25%) of the total Eligible Receivables of all Borrowers Receivables, the accounts in excess of twenty five percent (25%) shall not be Eligible Receivables; (k) the Account Debtor has not returned, rejected or refused to retain, or otherwise notified a Borrower of any dispute concerning, or claimed nonconformity of, any of the Inventory or services from the sale or furnishing of which the account arose; (l) the account is not subject to any present or contingent (and no facts exist which are the basis for any future) offset, claim, deduction or counterclaim, dispute or defense in law or equity on the part of such Account Debtor, or any claim for credits, allowances, or adjustments by the Account Debtor because of returned, inferior, or damaged Inventory or unsatisfactory services, or for any other reason including, without limitation, those arising on account of a breach of any express or implied representation or warranty; 4 (m) the Account Debtor is not a Subsidiary or Affiliate of any Borrower or an employee, officer, director or shareholder (other than Kevin Thomas), of any Borrower or any Subsidiary or Affiliate of any Borrower; (n) the Account Debtor is not incorporated or primarily conducting business or otherwise located in any jurisdiction outside of the United States of America, unless the Account Debtor's obligations with respect to such account are secured by a letter of credit, guaranty or banker's acceptance having terms and from such issuers and confirmation banks as are acceptable to the Lender in its sole and absolute discretion (which letter of credit, guaranty or banker's acceptance is subject to the perfected Lien of the Lender); (o) as to which none of the following events has occurred with respect to the Account Debtor on such Account: death or judicial declaration of incompetency of an Account Debtor who is an individual; the filing by or against the Account Debtor of a request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect; the making of any general assignment by the Account Debtor for the benefit of creditors; the appointment of a receiver or trustee for the Account Debtor or for any of the assets of the Account Debtor, including, without limitation, the appointment of or taking possession by a "custodian," as defined in the Federal Bankruptcy Code; the institution by or against the Account Debtor of any other type of insolvency proceeding (under the bankruptcy laws of the United States or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, the Account Debtor; the sale, assignment, or transfer of all or any material part of the assets of the Account Debtor; the nonpayment generally by the Account Debtor of its debts as they become due; or the cessation of the business of the Account Debtor as a going concern; (p) the Account Debtor is not a Governmental Authority, unless all rights of each Borrower with respect to such account have been assigned to the Lender on terms acceptable to the Lender pursuant to the Assignment of Claims Act of 1940, as amended or any comparable state statute; (q) no Borrower is indebted in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by a Borrower in the ordinary course of its business; (r) the account does not arise from services under or related to any warranty obligation of a Borrower or out of service charges, finance charges or other fees for the time value of money; (s) the account is not evidenced by chattel paper or an instrument of any kind; 5 (t) the title of the respective Borrower to the account is absolute and is not subject to any prior assignment, claim, Lien, or security interest, except Permitted Liens; (u) no bond or other undertaking by a guarantor or surety has been or is required to be obtained, supporting the performance of any Borrower or any other obligor in respect of any of such Borrower's agreements with the Account Debtor or supporting the account and any of the Account Debtor's obligations in respect of the account; (v) each Borrower has the full and unqualified right and power to assign and grant a security interest in, and Lien on, the account to the Lender as security and collateral for the payment of the Obligations; (w) the account is subject to a Lien in favor of the Lender, which Lien is perfected as to the account by the filing of financing statements and which Lien upon such filing constitutes a first priority security interest and Lien; (x) the Inventory giving rise to the account was not, at the time of the sale thereof, subject to any Lien, except those in favor of the Lender; (y) the part of the account which represents a retainage shall be excluded from Eligible Accounts, and to the extent any part of an account represents a progress billing the Lender reserves the right to among other things, exclude such account or to lower the advance rate of Eligible Accounts, or limit the amount of loans which can be made against progress billings, based on the results of a field exam; and (z) the Lender in the good faith exercise of its sole and absolute discretion has not deemed the account ineligible because of uncertainty as to the creditworthiness of the Account Debtor or because the Lender otherwise considers the collateral value of such account to the Lender to be impaired or its ability to realize such value to be insecure. In the event of any dispute, under the foregoing criteria, as to whether an account is, or has ceased to be, an Eligible Receivable, the decision of the Lender in the good faith exercise of its sole and absolute discretion shall control. "Merger Agreement" means that certain agreement and plan of merger dated August ___, 2004 by and among the Stockholders named therein, VLI, Argan and AGAX/VLI Acquisition. "Merger Agreement Documents" means collectively the Merger Agreement and any and all other agreements, documents or instruments (together with any and all amendments, modifications, and supplements thereto, restatements thereof, and substitutes therefore) previously, now or hereafter executed and delivered by any or all of the Borrowers, the Stockholders, or any other Person in connection with the Merger Agreement Transaction. 6 "Merger Agreement Transaction" means the stock purchase agreement transaction contemplated by the provisions of the Merger Agreement. 4. Revised Terms. The following definitions in Section 1.1 of the Financing Agreement are amended and restated in their entirety as follows: "Responsible Officer" means for Argan, Rainer Bosselmann, President, Haywood Miller, Executive Vice President, Art Trudel, Senior Vice President and CFO, for SMC, Haywood Miller, Vice President and Secretary and Art Trudel, Vice President and Treasurer and for AGAX/VLI Acquisition, Rainer Bosselmann, Chairman of the Board, Art Trudel, Vice President or Treasurer and Haywood Miller as V.P. or Secretary. "Revolving Credit Expiration Date" means May 31, 2005. 5. Revolving Credit Facility. Section 2.1.1 of the Financing Agreement is hereby amended and restated in its entirety as follows: 2.1.1 Revolving Credit Facility. Subject to and upon the provisions of this Agreement, the Lender establishes a revolving credit facility in favor of the Borrowers. The aggregate of all advances under the Revolving Credit Facility is sometimes referred to in this Agreement as the "Revolving Loan". The principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000) is the "Revolving Credit Committed Amount". During the Revolving Credit Commitment Period, any or all of the Borrowers may request advances under the Revolving Credit Facility in accordance with the provisions of this Agreement; provided that after giving effect to any Borrower's request the aggregate outstanding principal balance of the Revolving Loan would not exceed the lesser of (a) the Revolving Credit Committed Amount or (b) the then most current Borrowing Base. Unless sooner paid, the unpaid Revolving Loan, together with interest accrued and unpaid thereon, and all other Obligations shall be due and payable in full on the Revolving Credit Expiration Date. 6. Procedure for Making Advances Under the Revolving Loan; Lender Protection Loans. Section 2.1.2 of the Financing Agreement is hereby amended and restated in its entirety as follows: 2.1.2 Procedure for Making Advances Under the Revolving Loan; Lender Protection Loans. The Borrowers may borrow under the Revolving Credit Facility on any Business Day. Advances under the Revolving Loan shall be deposited to a demand deposit account of a Borrower with the Lender (or an Affiliate of the Lender) or shall be otherwise applied as directed by the Borrowers, which direction the Lender may require to be in writing. No later than 11:00 a.m. (Eastern Time) on the date of the requested borrowing, the Borrowers shall give the Lender oral or 7 written notice (a "Loan Notice") of the amount and (if requested by the Lender) the purpose of the requested borrowing. Any oral Loan Notice shall be confirmed in writing by the Borrowers within three (3) Business Days after the making of the requested advance under the Revolving Loan. Each Loan Notice shall be irrevocable. In addition, each of the Borrowers hereby irrevocably authorizes the Lender at any time and from time to time, without further request from or notice to the Borrowers, to make advances under the Revolving Loan, and to establish, without duplication reserves against the Borrowing Base, which the Lender, in its sole and absolute discretion, deems necessary or appropriate to protect the interests of the Lender, including, without limitation, advances and reserves under the Revolving Loan made to cover debit balances in the Revolving Loan Account, principal of, and/or interest on, any Loan, the Obligations, and/or Enforcement Costs, prior to, on, or after the termination of other advances under this Agreement, regardless of whether the outstanding principal amount of the Revolving Loan that the Lender may advance or reserve hereunder exceeds the Revolving Credit Committed Amount. Notwithstanding the foregoing, prior to the occurrence of any Default, the Lender will provide notice of any advances made under the Revolving Loan pursuant to this provision. 7. Borrowing Base. The following Sections are hereby added to the Financing Agreement immediately after Section 2.1.7 as Sections 2.1.8 through 2.1.11: 2.1.8 Borrowing Base As used in this Agreement, the term "Borrowing Base" means at any time, an amount equal to the aggregate of (a) eighty percent (80%) of the amount of Eligible Receivables, plus (b) fifty percent (50%) of the amount of Eligible Inventory. The Borrowing Base shall be computed based on the Borrowing Base Report most recently delivered to and accepted by the Lender in its sole and absolute discretion. In the event the Borrowers fail to furnish a Borrowing Base Report required by Section 2.1.9 (Borrowing Base Report), or in the event the Lender believes that a Borrowing Base Report is no longer accurate, the Lender may, in its sole and absolute discretion exercised from time to time and without limiting its other rights and remedies under this Agreement, suspend the making of or limit advances under the Revolving Loan. The Borrowing Base shall be subject to reduction by the amount of any Receivable or any Inventory which was included in the Borrowing Base but which the Lender determines fails to meet the respective criteria applicable from time to time for Eligible Receivables or Eligible Inventory. If at any time the total of the aggregate principal amount of the Revolving Loan exceeds the Borrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base Deficiency exists, the Borrowers at the sole and absolute discretion of the Lender exercised from time to time shall pay the Borrowing Base Deficiency ON DEMAND to the Lender. Without implying any limitation on the Lender's discretion with respect to the Borrowing Base, the criteria for Eligible Receivables and for Eligible Inventory contained in the respective definitions of Eligible Receivables and of Eligible Inventory are in part based upon the business operations of the Borrowers existing on or about the Closing Date and upon information and records furnished to the Lender by the Borrowers. If at any time or from time to time 8 hereafter, the business operations of the Borrowers change or such information and records furnished to the Lender is incorrect or misleading, the Lender in its discretion, may at any time and from time to time during the duration of this Agreement change such criteria or add new criteria. The Lender may communicate such changed or additional criteria to the Borrowers from time to time either orally or in writing. 2.1.9 Borrowing Base Report The Borrowers will furnish to the Lender no less frequently than monthly and at such other times as may be requested by the Lender a report of the Borrowing Base (each a "Borrowing Base Report"; collectively, the "Borrowing Base Reports") in the form required from time to time by the Lender, appropriately completed and duly signed. The Borrowing Base Report shall contain the amount and payments on the Receivables, the value of Inventory, and the calculations of the Borrowing Base, all in such detail, and accompanied by such supporting and other information, as the Lender may from time to time request. Upon the Lender's request and upon the creation of any Receivables, or at such other intervals as the Lender may require, the Borrowers will provide the Lender with (a) copies of Account Debtor invoices; (b) evidence of shipment or delivery; and (c) such further schedules, documents and/or information regarding the Receivables and the Inventory as the Lender may reasonably require. The items to be provided under this subsection shall be in form satisfactory to the Lender, and certified as true and correct by a Responsible Officer (or by any other officers or employees of the Borrower whom a Responsible Officer from time to time authorizes in writing to do so), and delivered to the Lender from time to time solely for the Lender's convenience in maintaining records of the Collateral. Any Borrower's failure to deliver any of such items to the Lender shall not affect, terminate, modify, or otherwise limit the Liens of the Lender on the Collateral. 2.1.10 Mandatory Prepayments of Revolving Loan. The Borrowers shall make the mandatory prepayments (each a "Revolving Loan Mandatory Prepayment" and collectively, the "Revolving Loan Mandatory Prepayments") of the Revolving Loan at any time and from time to time in such amounts requested by the Lender pursuant to Section 2.1.8 (Borrowing Base) in order to cover any Borrowing Base Deficiency. 2.1.11 The Collateral Account. If the Lender requests, the Borrowers will deposit, or cause to be deposited, all Items of Payment to a bank account designated by the Lender and from which the Lender alone has power of access and withdrawal (the "Collateral Account"). When a Collateral Account is in existence, each deposit shall be made not later than the next Business Day after the date of receipt of the Items of Payment. The Items of Payment shall be deposited in precisely the form received, except for the endorsements of the Borrowers where necessary to permit the collection of any such Items of Payment, which endorsement the Borrowers hereby agree to make. In the event the Borrowers fail to do so, the Borrowers hereby authorize the Lender to make the endorsement in the name of any or all of the Borrowers. During any period when a Collateral Account is in place, prior to such a deposit, the Borrowers will not commingle any Items of Payment with any of the Borrowers' other funds or property, but will hold them separate and apart in trust and for the account of the Lender. 9 In addition, if so directed by the Lender, the Borrowers shall direct the mailing of all Items of Payment from their Account Debtors to one or more post-office boxes designated by the Lender, or to such other additional or replacement post-office boxes pursuant to the request of the Lender from time to time (collectively, the "Lockbox"). The Lender shall have unrestricted and exclusive access to the Lockbox. After a Collateral Account is established, tithe Borrowers hereby authorize the Lender to inspect all Items of Payment, endorse all Items of Payment in the name of any or all of the Borrowers, and deposit such Items of Payment in the Collateral Account. The Lender reserves the right, exercised in its sole and absolute discretion from time to time, to provide to the Collateral Account credit prior to final collection of an Item of Payment and to disallow credit for any Item of Payment which is unsatisfactory to the Lender. In the event Items of Payment are returned to the Lender for any reason whatsoever, the Lender may, in the exercise of its discretion from time to time, forward such Items of Payment a second time. Any returned Items of Payment shall be charged back to the Collateral Account, the Revolving Loan Account, or other account, as appropriate. The Lender will apply the whole or any part of the collected funds credited to the Collateral Account against the Revolving Loan (or with respect to Items of Payment that are not proceeds of Accounts or Inventory or after an Event of Default, against any of the Obligations) or credit such collected funds to a depository account of any or all of the Borrowers with the Lender (or an Affiliate of the Lender), the order and method of such application to be in the sole discretion of the Lender. On the first day of each month, the Borrowers shall pay the Lender an amount equal to the additional interest which would have accrued on the Revolving Loan during the preceding month if collections in the Collateral Account during the month had been received two (2) Business Days subsequent to their actual receipt; any resulting increase in the amount of interest payable by the Borrowers shall be part of the Obligations. 8. Compliance with Eligibility Standards. The following Section is added to the Financing Agreement immediately after Section 4.1.28 as Section 4.1.29: 4.1.29 Compliance with Eligibility Standards. Each Account and all Inventory included in the calculation of the Borrowing Base does and will at all times meet and comply with all of the standards for Eligible Receivables and Eligible Inventory. With respect to those Accounts which the Lender has deemed Eligible Receivables (a) there are no facts, events or occurrences which in any way impair the validity, collectibility or enforceability thereof or tend to reduce the amount payable thereunder; and (b) there are no proceedings or actions known to any Borrower that are threatened or pending against any Account Debtor which might result in any material adverse change in the Borrowing Base. 9. Monthly Reports The following Section is added to the Financing Agreement immediately after Section 6.1.1(d): 10 6.1.1(e) Monthly Reports The Borrowers shall furnish to the Lender within twenty (20) days after the end of each fiscal month, a Borrowing Base Report and a report containing the following information: (i) a detailed aging schedule of all Receivables by Account Debtor, in such detail, and accompanied by such supporting information, as the Lender may from time to time reasonably request; (ii) a detailed aging of all accounts payable by supplier, in such detail, and accompanied by such supporting information, as the Lender may from time to time reasonably request; (iii) a listing of all Inventory by component, category and location, in such detail, and accompanied by such supporting information as the Lender may from time to time reasonably request; and (iv) such other information as the Lender may reasonably request. 10. Financial Covenants Section 6.1.14 of the Financing Agreement is hereby amended and restated in its entirety as follows: 6.1.14 Financial Covenants. (a) Funded Debt to EBITDA. The Borrowers, on a consolidated basis, will not permit the ratio of Funded Debt to EBITDA tested as of the last day of each of the Borrowers' fiscal quarters to be greater than 2.50 to 1.00 beginning with the fiscal quarter ending January 31, 2005. For the fiscal quarter ending January 31, 2005, this covenant shall be calculated by annualizing the EBITDA component for the prior two (2) fiscal quarters. For the quarter ending April 30, 2005, this covenant shall be calculated by annualizing the EBITDA component for the fiscal quarter then ending and the immediately preceding three (3) fiscal quarters and commencing on July 31, 2005 and thereafter, this covenant shall be calculated based on the four (4) quarter period then ending. (b) Fixed Charge Coverage Ratio. The Borrowers will maintain, on a consolidated basis and tested as of the last day of each of the Borrowers' fiscal quarters, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00 beginning with the fiscal quarter ending January 31, 2005. For the fiscal quarter ending January 31, 2005, this covenant shall be calculated by annualizing the EBITDA component of the Fixed Charge Coverage Ratio for the prior two (2) fiscal quarters. For the quarter ending April 30, 2005, this covenant shall be calculated by annualizing the EBITDA component of the Fixed Charge Coverage Ratio for the prior three (3) fiscal quarters and commencing on July 31, 2005 and thereafter, this covenant shall be calculated based on the four (4) quarter period then ending. 11 11. Minimum Liquidity and Positive Net Income Covenants. The Minimum Liquidity and Positive Net Income covenants set forth in that certain Second Amendment To Financing and Security Agreement made as of the 29th day of June, 2004 by and among Argan, SMC and the Lender are hereby deleted in their entirety. 12. Field Audit, Financials. The Borrowers agree that as soon as available, but in no event later than October 15, 2004: (a) The Lender shall have completed, at Borrowers' expense, a field audit of the Collateral and the books and records of AGAX/VLI Acquisition, the results of which must be satisfactory to the Lender in all material respects; and (b) The Borrower's shall have provided to the Lender a current balance sheet of AGAX/VLI Acquisition, all in form and detail satisfactory to the Lender. (c) Upon receipt and review of the results of the field examination provided in (a) above, provided such results are satisfactory to the Lender and further provided that any changes or adjustments which the Lender requires as a result of such examination have been fully implemented by Borrower, the Lender will release its lien on that certain $300,000 certificate of deposit previously pledged by the Borrowers to the Lender as collateral security for the Borrower's obligations under the Term Loan. 13. Representations with Respect to Merger Agreement Transaction. The Lender has received true and correct photocopies of the Merger Agreement and each of the other Merger Agreement Documents, executed, delivered and/or furnished on or before the date of this Agreement in connection with the Merger Agreement Transaction. Neither the Merger Agreement nor any of the other Merger Agreement Documents have been modified, changed, supplemented, canceled, amended or otherwise altered or affected, except as otherwise disclosed to the Lender in writing on or before the date of this Agreement. The Merger Agreement Transaction has been effected, closed and consummated pursuant to, and in accordance with, the terms and conditions of the Merger Agreement and with all applicable Laws. 14. Fee. In consideration of the Bank's modifications described above, the Borrowers shall pay to the Lender upon the date of this Agreement, a nonrefundable fee, in the amount of Twenty Thousand Dollars ($20,000). The fee is considered earned when paid and is not refundable. 15. Conditions Precedent. The agreements of the Lender under this Agreement are subject to the following conditions precedent: (a) An Amended and Restated Revolving Credit Note (the "Replacement Revolving Note") issued and delivered by the Borrowers in the form of EXHIBIT A_ attached hereto and incorporated herein by reference, payable to the order of the Bank in the maximum principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000); 12 (b) A First Amendment to Term Note (the "Term Note Modification") issued and delivered by the Borrowers in the form of EXHIBIT B_, and dated as of June 29, 2004 attached hereto and incorporated herein by reference; (c) An Additional Borrower Joinder Supplement from AGAX/VLI Acquisition (the "Joinder"), together with all documents, instruments and deliveries required pursuant to such Additional Borrower Joinder Supplement; (d) The Lender shall have received photocopies of all Merger Agreement Documents executed, delivered and/or furnished in connection with the Merger Agreement Transaction, together with a certificate signed by a Responsible Officer of each of the Borrowers certifying that the Merger Agreement and the other Merger Agreement Documents furnished to the Lender are true, correct, in full force and effect and the provisions thereof have not been in any way modified, amended or waived, the Merger Agreement Transaction has been closed and completed in accordance with the Merger Agreement and the other Merger Agreement Documents furnished to the Lender and in accordance with all applicable Laws, including, any and all bulk transfer laws, the Borrowers have given public notice of their obligation to pay the obligations and liabilities assumed by the Borrowers under, and in connection with, the Merger Agreement in accordance with the provisions of Article 6 of the Uniform Commercial Code, the Borrowers have obtained all consents, licenses and approvals to permit it to engage in the business previously operated and conducted by the Seller, and the Seller has duly and properly assigned to the Borrowers all of its right, title and interest in, and to, any and all Trademarks, Copyrights and Patents, together with the goodwill of the Seller associated with, and/or symbolized by, any of the foregoing, and such assignment has been duly and properly filed, registered and recorded with the United States Patent and Trademark Office, the United States Copyright Office and with such other state or Federal Governmental Authorities as may be necessary to effect and consummate an assignment of such Trademarks, Copyrights and Patents, together with the goodwill associated with, or symbolized by any of the foregoing from the Seller to the Borrowers; (e) True and complete copies of the resolutions of AGAX/VLI Acquisition and Argan's Board of Directors authorizing (A) the execution, delivery and performance of this Agreement and the Merger Agreement Documents to which it is a party, (B) the borrowings hereunder, and (C) the granting of the Liens contemplated by this Agreement and the Joinder to which it is a party and (E) the Merger Agreement Transaction; (f) The Lender shall have received copies of all consents, licenses and approvals, required in connection with the execution, delivery, performance, validity and enforceability of this Agreement, the Joinder, the Merger Agreement Documents, and such consents, licenses and approvals shall be in full force and effect; (g) All documents and instruments (including, without limitation, UCC-1 financing statements and UCC-3 termination statements) required to be filed, registered or recorded in order to create, in favor of the Lender, a perfected first Lien in the Collateral (subject only to the Permitted Liens), in form and in sufficient number for filing, registration, and recording in each office in each jurisdiction in which such filings, registrations and recordations are required, along with such evidence as the Lender may deem satisfactory that all necessary filing fees and all recording and other similar fees, and all taxes and other expenses related to such filings, registrations and recordings will be or have been paid in full; 13 (h) Payment of the fees described in Paragraph 11 of this Agreement, together with the Lender's legal fees and expenses; and (i) Such other information, instruments, opinions, documents, certificates and reports as the Lender may deem necessary. 16. Replacement Revolving Credit Note. The Borrowers shall execute and deliver to the Lender on the date hereof the Replacement Revolving Note in substitution for and not satisfaction of, the issued and outstanding Revolving Credit Note, and the Replacement Revolving Note shall be the "Revolving Credit Note" for all purposes of the Financing Documents. The Note being substituted pursuant to this Agreement shall be marked "Replaced" and returned to the Original Borrowers after the execution. 17. Ratification; Novation. Each Borrower hereby issues, ratifies and confirms the representations, warranties and covenants contained in the Financing Agreement, as amended hereby. Each Borrower agrees that this Agreement is not intended to and shall not cause a novation with respect to any or all of the Obligations. 18. Fees and Expenses. The Borrowers shall pay at the time this Agreement is executed and delivered all fees, commissions, costs, charges, taxes and other expenses incurred by the Lender and its counsel in connection with this Agreement, including, but not limited to reasonable fees and expenses of the Lender's counsel and all recording fees, taxes and charges. 19. Good Faith. Each Borrower acknowledges and warrants that the Lender has acted in good faith and has conducted in a commercially reasonable manner its relationships with the Borrowers in connection with this Agreement and generally in connection with the Financing Agreement and the Obligations, the Borrowers hereby waiving and releasing any claims to the contrary. 20. Counterparts. This Agreement may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same instrument. Each Borrower agrees that the Lender may rely on a telecopy of any signature of a Borrower. The Lender agrees that the Borrowers may rely on a telecopy of this Agreement executed by the Lender. [SIGNATURES APPEAR ON THE FOLLOWING PAGE] 14 IN WITNESS WHEREOF, the Borrowers and the Lender have executed this Agreement under seal as of the date and year first written above. WITNESS OR ATTEST: ARGAN, INC. _________________________ By:______________________(SEAL) Name: Title: WITNESS OR ATTEST: SOUTHERN MARYLAND CABLE, INC. _________________________ By:______________________(SEAL) Name: Title: WITNESS OR ATTEST: AGAX/VLI ACQUISITION CORPORATION _________________________ By:______________________(SEAL) Name: Title: WITNESS: BANK OF AMERICA, N.A. _________________________ By:______________________(SEAL) Name: Title: 15 EX-10.4 6 v06469_ex10-4.txt AMENDED AND RESTATED REVOLVING CREDIT NOTE $3,500,000 Rockville, Maryland August 31st, 2004 FOR VALUE RECEIVED, ARGAN, INC., a corporation organized under the laws of the State of Delaware ("Argan"), SOUTHERN MARYLAND CABLE, INC., a corporation organized under the laws of the State of Delaware ("SMCI") and AGAX/VLI ACQUISITION CORPORATION, a corporation organized under the laws of the State of Delaware ("AGAX/VLI Acquisition") (each a "Borrower" and collectively "Borrowers"), jointly and severally promise to pay to the order of BANK OF AMERICA, N.A., a national banking association (the "Lender"), the principal sum of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000) (the "Principal Sum"), or so much thereof as has been or may be advanced or readvanced to or for the account of the Borrowers pursuant to the terms and conditions of this Amended and Restated Revolving Credit Note (including all renewals, extensions or modifications hereof, this "Note"), together with interest thereon at the rate or rates hereinafter provided, in accordance with the following: 1. Interest. Commencing as of the date hereof and continuing until repayment in full of all sums due hereunder, the unpaid Principal Sum shall bear interest at the LIBOR Rate plus three and one quarter percent (3.25%) per annum. For purposes hereof, the "LIBOR Rate" shall mean a daily fluctuating rate equal to the one (1) month rate of interest (rounded upwards, if necessary to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the one (1) month London interbank offered rate for deposits in U.S. Dollars at approximately 11:00 A.M. (London, time), on the second preceding business day, as adjusted from time to time in the Lender's sole discretion for then-applicable reserve requirements, deposits insurance assessment rates and other regulatory costs. If for any reason such rate is not available, the term "LIBOR Rate" shall mean the fluctuating rate of interest equal to the one (1) month rate of interest (rounded upwards, if necessary to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the one (1) month London interbank offered rate for deposits in U.S. Dollars at approximately 11:00 a.m. (London Time) on the second preceding business day, as adjusted from time to time for then-applicable reserve requirements, deposit insurance assessment rates and other regulatory costs; provided, however, if more than one rate is specified on Reuters Screen LIBO page, the applicable rate shall be the arithmetic mean of all such rates. The rate of interest charged under this Note shall change immediately and contemporaneously with any change in the LIBOR Rate. All interest payable under the terms of this Note shall be calculated on the basis of a 360-day year and the actual number of days elapsed. 2. Payments and Maturity. The unpaid Principal Sum, together with interest thereon at the rate or rates provided above, shall be payable as follows: (a) Interest only on the unpaid Principal Sum shall be due and payable monthly, commencing September 30, 2004, and on the last day of each month thereafter to maturity; and (b) Unless sooner paid, the unpaid Principal Sum, together with interest accrued and unpaid thereon, shall be due and payable in full on May 31, 2005. The fact that the balance hereunder may be reduced to zero from time to time pursuant to the Financing Agreement will not affect the continuing validity of this Note or the Financing Agreement, and the balance may be increased to the Principal Sum after any such reduction to zero. Borrower hereby authorizes Lender to automatically deduct from Borrower's account numbered 003939628068 the amount of each payment of principal (including without limitation the principal payment due on the final maturity date) and/or interest on the dates such payments become due. If the funds in the account are insufficient to cover any payment, Lender shall not be obligated to advance funds to cover the payment. At any time and for any reason, Borrower or Lender may voluntarily terminate automatic payments as provided in this paragraph. 3. Default Interest. Upon the occurrence of an Event of Default (as hereinafter defined), the unpaid Principal Sum shall bear interest thereafter at the Post-Default Rate until such Event of Default is cured. 4. Late Charges. If the Borrowers shall fail to make any payment under the terms of this Note within five (5) days after the date such payment is due, the Borrowers shall pay to the Lender on demand a late charge equal to five percent (5%) of such payment. 5. Application and Place of Payments. All payments, made on account of this Note shall be applied first to the payment of accrued and unpaid interest then due hereunder, and the remainder, if any, shall be applied to the unpaid Principal Sum. All payments on account of this Note shall be paid in lawful money of the United States of America in immediately available funds during regular business hours of the Lender at its principal office in Rockville, Maryland or at such other times and places as the Lender may at any time and from time to time designate in writing to the Borrowers. 6. Financing Agreement and Other Financing Documents. This Note is the "Revolving Credit Note" described in a Financing and Security Agreement, dated August 19, 2003, by and among Argan, SMCI and the Lender (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Financing Agreement"). This Note increases, amends and restates in its entirety that certain Revolving Credit Note (the "Original Note") in the maximum principal sum of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) dated August 19, 2003 from Argan and SMCI in favor 2 of the Lender. It is expressly agreed that the indebtedness evidenced by the Original Note has not been extinguished or discharged hereby. The Borrowers and the Lender agree that the execution of this Note is not intended to and shall not cause or result in a novation with respect to the Original Note. The indebtedness evidenced by this Note is included within the meaning of the term "Obligations" as defined in the Financing Agreement. The term "Financing Documents" as used in this Note shall mean collectively this Note, the Term Note, the Financing Agreement and any other instrument, agreement, or document previously, simultaneously, or hereafter executed and delivered by any Borrower and/or any other Person, singularly or jointly with any other Person, evidencing, securing, guaranteeing, or in connection with the Principal Sum, this Note and/or the Financing Agreement. 7. Security. This Note is secured as provided in the Financing Agreement. 8. Events of Default. The occurrence of any one or more of the following events shall constitute an event of default (individually, an "Event of Default" and collectively, the "Events of Default") under the terms of this Note: (a) The failure of any Borrower to pay to the Lender within five (5) days of when due any and all amounts payable by any Borrower to the Lender under the terms of this Note; or (b) The occurrence of an Event of Default (as defined therein) under the terms and conditions of any of the other Financing Documents. 9. Remedies. Upon the occurrence of an Event of Default, at the option of the Lender, all amounts payable by the Borrowers to the Lender under the terms of this Note shall immediately become due and payable by the Borrowers to the Lender without notice to the Borrowers or any other Person, and the Lender shall have all of the rights, powers, and remedies available under the terms of this Note, any of the other Financing Documents and all applicable laws. The Borrowers and all endorsers, guarantors, and other parties who may now or in the future be primarily or secondarily liable for the payment of the indebtedness evidenced by this Note hereby severally waive presentment, protest and demand, notice of protest, notice of demand and of dishonor and non-payment of this Note and expressly agree that this Note or any payment hereunder may be extended from time to time without in any way affecting the liability of the Borrowers, guarantors and endorsers. 10. Confessed Judgment. Upon the occurrence of an Event of Default, each Borrower hereby authorizes any attorney designated by the Lender or any clerk of any court of record to appear for the Borrowers in any court of record and confess judgment without prior hearing against the Borrowers in favor of the Lender for and in the amount of the unpaid Principal Sum, all interest accrued and unpaid thereon, all other amounts payable by any Borrower to the Lender under the terms of this Note or any of the other Financing Documents, costs of suit, and attorneys' fees of fifteen percent (15%) of the unpaid Principal Sum and interest then due 3 hereunder. By its acceptance of this Note, the Lender agrees that in the event the Lender exercises at any time its right to confess judgment under this Note, the Lender shall use its best efforts to obtain legal counsel who will charge the Lender for its services on an hourly basis, at its customary hourly rates and only for the time and reasonable expenses incurred. In no event shall the Lender enforce the legal fees portion of a confessed judgment award for an amount in excess of the fees and expenses actually charged to the Lender for services rendered by its counsel in connection with such confession of judgment and/or the collection of sums owed to the Lender. In the event the Lender receives, through execution upon a confessed judgment, payments on account of attorneys' fees in excess of such actual attorneys' fees and expenses incurred by the Lender, then, after full repayment and satisfaction of all of the obligations under and in connection with this Note, the Financing Agreement and all of the other Financing Documents, the Lender shall refund such excess amount to the Borrowers. Each Borrower hereby releases, to the extent permitted by applicable law, all errors and all rights of exemption, appeal, stay of execution, inquisition, and other rights to which any Borrower may otherwise be entitled under the laws of the United States of America or of any state or possession of the United States of America now in force or which may hereafter be enacted. The authority and power to appear for and enter judgment against the Borrowers shall not be exhausted by one or more exercises thereof or by any imperfect exercise thereof and shall not be extinguished by any judgment entered pursuant thereto. Such authority may be exercised on one or more occasions or from time to time in the same or different jurisdictions as often as the Lender shall deem necessary or desirable, for all of which this Note shall be a sufficient warrant. 11. Expenses. Each Borrower promises to pay to the Lender on demand by the Lender all costs and expenses incurred by the Lender in connection with the collection and enforcement of this Note, including, without limitation, reasonable attorneys' fees and expenses and all court costs. 12. Notices. Any notice, request, or demand to or upon the Borrowers or the Lender shall be deemed to have been properly given or made when delivered in accordance with Section 8.1 of the Financing Agreement. 13. Miscellaneous. Each right, power, and remedy of the Lender as provided for in this Note or any of the other Financing Documents, or now or hereafter existing under any applicable law or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Note or any of the other Financing Documents or now or hereafter existing under any applicable law, and the exercise or beginning of the exercise by the Lender of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by the Lender of any or all such other rights, powers, or remedies. No failure or delay by the Lender to insist upon the strict performance of any term, condition, covenant, or agreement of this Note or any of the other Financing Documents, or to exercise any right, power, or remedy consequent upon a breach thereof, shall constitute a waiver of any such term, condition, covenant, or agreement or of any such breach, or preclude the Lender from exercising any such right, power, or remedy at a later time or times. By accepting payment after the due date of any amount payable under the terms of this Note, the Lender shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under the terms of this Note or to declare an Event of Default for the failure to effect such prompt payment of any such other amount. No course of dealing or conduct shall be effective to amend, modify, waive, release, or change any provisions of this Note. 4 Until such time as the Lender is not committed to extend further credit to the Borrowers and all Obligations of the Borrowers to the Lender have been indefeasibly paid in full in cash, and subject to and not in limitation of the provisions set forth in the next following paragraph below, no Borrower shall have any right of subrogation (whether contractual, arising under the bankruptcy code or otherwise), reimbursement or contribution from any Borrower or any guarantor, nor any right of recourse to its security for any of the debts and obligations of any Borrower which are the subject of this Note. Except as otherwise expressly permitted by the Financing Agreement, any and all present and future debts and obligations of any Borrower to any other Borrower are hereby subordinated to the full payment and performance of all present and future debts and obligations to the Lender under this Note and the Financing Agreement and the Loan Documents, provided, however, notwithstanding anything set forth in this Note to the contrary, prior to the occurrence of a payment Default, the Borrowers shall be permitted to make payments on account of any of such present and future debts and obligations from time to time in accordance with the terms thereof. Each Borrower further agrees that, if any payment made by any Borrower or any other person is applied to this Note and is at any time annulled, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of any property hereafter securing this Note is required to be returned by the Lender to any Borrower, its estate, trustee, receiver or any other party, including, without limitation, such Borrower, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, such Borrower's liability hereunder (and any lien, security interest or other collateral securing such liability) shall be and remain in full force and effect, as fully as if such payment had never been made, or, if prior thereto any such lien, security interest or other collateral hereafter securing such Borrower's liability hereunder shall have been released or terminated by virtue of such cancellation or surrender, this Note (and such lien, security interest or other collateral) shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of such Borrower in respect of the amount of such payment (or any lien, security interest or other collateral securing such obligation). The JOINT AND SEVERAL obligations of each Borrower under this Note shall be absolute, irrevocable and unconditional and shall remain in full force and effect until the outstanding principal of and interest on this Note and all other Obligations or amounts due hereunder and under the Financing Agreement and the Loan Documents shall have been indefeasibly paid in full in cash in accordance with the terms thereof and this Note shall have been canceled. The Borrowers each shall be jointly and severally liable on the payment of the Obligations as and when due and payable in accordance with the provisions of this Note, the Financing Agreement and the other Loan Documents. The term "Borrowers" when used in this Note shall include all of the Borrowers, individually and jointly, and the Lender may (without notice to or consent of any or all of the Borrowers and with or without consideration) release, compromise, settle with, proceed against any or all of the Borrowers without affecting, impairing, lessening or releasing the obligations of the other Borrower hereunder. 5 14. Partial Invalidity. In the event any provision of this Note (or any part of any provision) is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note; but this Note shall be construed as if such invalid, illegal, or unenforceable provision (or part thereof) had not been contained in this Note, but only to the extent it is invalid, illegal, or unenforceable. 15. Captions. The captions herein set forth are for convenience only and shall not be deemed to define, limit, or describe the scope or intent of this Note. 16. Applicable Law. Each Borrower acknowledges and agrees that this Note shall be governed by the laws of the State of Maryland, even though for the convenience and at the request of the Borrowers, this Note may be executed elsewhere. 17. Consent to Jurisdiction. Each Borrower irrevocably submits to the jurisdiction of any state or federal court sitting in the State of Maryland over any suit, action, or proceeding arising out of or relating to this Note or any of the other Financing Documents. Each Borrower irrevocably waives, to the fullest extent permitted by law, any objection that any Borrower may now or hereafter have to the laying of venue of any such suit, action, or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action, or proceeding brought in any such court shall be conclusive and binding upon the Borrowers and may be enforced in any court in which any Borrower is subject to jurisdiction by a suit upon such judgment, provided that service of process is effected upon the Borrowers as provided in this Note or as otherwise permitted by applicable law. 18. Service of Process. Each Borrower hereby irrevocably designates and appoints CT Corporation Systems, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, as each Borrower's authorized agent to receive on each Borrower's behalf service of any and all process that may be served in any suit, action, or proceeding instituted in connection with this Note in any state or federal court sitting in the State of Maryland. If such agent shall cease so to act, the Borrowers shall irrevocably designate and appoint without delay another such agent in the State of Maryland satisfactory to the Lender and shall promptly deliver to the Lender evidence in writing of such agent's acceptance of such appointment and its agreement that such appointment shall be irrevocable. 6 Each Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by (a) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested, to each Borrower and (b) serving a copy thereof upon the agent hereinabove designated and appointed by each Borrower as each Borrower's agent for service of process. Each Borrower irrevocably agrees that such service shall be deemed in every respect effective service of process upon the Borrowers in any such suit, action or proceeding, and shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Borrowers. Nothing in this Section shall affect the right of the Lender to serve process in any manner otherwise permitted by law or limit the right of the Lender otherwise to bring proceedings against the Borrowers in the courts of any jurisdiction or jurisdictions. 19. WAIVER OF TRIAL BY JURY. EACH BORROWER AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH ANY BORROWER AND THE LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS NOTE OR (B) THE FINANCING DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH BORROWER, AND EACH BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH BORROWER FURTHER REPRESENTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT EACH HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. [SIGNATURES APPEAR ON THE FOLLOWING PAGE] 7 IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed under seal by their duly authorized officers as of the date first written above. WITNESS/ATTEST: ARGAN, INC. ______________________________ By:__________________________(SEAL) Name: Title: WITNESS/ATTEST: SOUTHERN MARYLAND CABLE, INC. ______________________________ By:__________________________(SEAL) Name: Title: WITNESS/ATTEST: AGAX/VLI ACQUISITION CORPORATION ______________________________ By:__________________________(SEAL) Name: Title: 8 EX-10.5 7 v06469_ex10-5.txt FIRST AMENDMENT TO TERM NOTE THIS FIRST AMENDMENT TO TERM NOTE (this "Agreement") is made as of June 29, 2004, by Argan, Inc. (formerly PUROFLOW INCORPORATED), a corporation organized under the laws of the State of Delaware and SOUTHERN MARYLAND CABLE, INC., a corporation organized under the laws of the State of Delaware, (collectively, the "Borrowers" and each a "Borrower"), jointly and severally and BANK OF AMERICA, N.A., a national banking association, it successors and assigns (the "Lender"). RECITALS A. The Borrowers and the Lender entered into a Financing and Security Agreement dated August 19, 2003 (the same, as amended, modified, restated, substituted, extended, and renewed from time to time, the "Financing Agreement"). Under the terms of the Financing Agreement, the Lender agreed to make the Term Loan (as that term is defined in the Financing Agreement) which is evidenced by the Borrowers' Term Note dated August 19, 2003 (the same, as amended by this Agreement and as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Note"). B. The Borrowers have requested that the Lender waive certain covenant defaults and otherwise modify the Note, pursuant to the terms of this Agreement. C. The Lender is willing to agree to the Borrowers' request on the condition, among others, that this Agreement be executed. AGREEMENTS NOW, THEREFORE, in consideration of the premises, the mutual agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers and the Lender hereby agree as follows: 1. The Borrowers and the Lender agree that the Recitals above are a part of this Agreement. Unless otherwise expressly defined in this Agreement, terms defined in the Financing Agreement shall have the same meaning under this Agreement. 2. Section 1 of the Term Note is hereby amended and restated in its entirety as follows: 1. Interest Commencing as of July 1, 2004 and continuing thereafter until repayment in full, the unpaid Principal Sum shall bear interest at the LIBOR Rate plus three hundred forty five (345) basis points per annum. The rate of interest charged under this Note shall change immediately and contemporaneously with any change in the LIBOR Rate. All interest payable under the terms of this Note shall be calculated on the basis of a 360-day year and the actual number of days elapsed. 3. The Borrowers and the Lender agree that this Agreement is not intended to and shall not cause a novation with respect to the Term Loan and/or any or all of the other Obligations evidenced or secured by the Financing Documents (as defined in the Financing Agreement). Except as expressly modified herein, the terms, provisions and covenants of the Note are in all other respects hereby ratified and confirmed and remain in full force and effect. 4. This Agreement may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same instrument. The Borrowers agree that the Lender may rely on a telecopy of any signature of any Borrower. The Lender agrees that the Borrowers may rely on a telecopy of this Agreement executed by the Lender. [SIGNATURES ON FOLLOWING PAGE] 2 IN WITNESS WHEREOF, the parties hereto have signed and sealed this Agreement on the day and year first above written. WITNESS: ARGAN, INC. _________________________ By:__________________________(SEAL) Name: Title: WITNESS OR ATTEST: SOUTHERN MARYLAND CABLE, INC. ________________________ By:____________________________(Seal) Name: Title: WITNESS: BANK OF AMERICA, N.A. ________________________ By:____________________________(Seal) Name: Title: 3 EX-10.6 8 v06469ex10-6.txt ADDITIONAL BORROWERS JOINDER SUPPLEMENT THIS ADDITIONAL BORROWERS JOINDER SUPPLEMENT (this "Agreement") is made this 31st day of August, 2004, by and among ARGAN, INC., formerly known as Puroflow Incorporated, a corporation organized under the laws of the State of Delaware ("Designated Borrower"), the other "Existing Borrowers" (as that term is defined below) and AGAX/VLI ACQUISITION CORPORATION. ("AGAX"), a corporation organized under the laws of the State of Delaware (the "Additional Borrower"), and BANK OF AMERICA, N.A., a national banking association (the "Lender"). NOW, THEREFORE, for value received the undersigned agree as follows: 1. Reference is hereby made to the Financing and Security Agreement dated as of August 19, 2003 (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Financing Agreement") by and among Designated Borrower, and SOUTHERN MARYLAND CABLE, INC., constituting each Person which is included in the definition of "Borrower" (as that term is defined in the Financing Agreement) immediately prior to the date of this Agreement (together with Designated Borrower, the "Existing Borrowers") and the Lender. Capitalized terms not otherwise defined in this Agreement shall have the meanings given to them in the Financing Agreement. 2. (a) The Additional Borrower and the Existing Borrowers hereby acknowledge, confirm and agree that on and as of the date of this Agreement, the Additional Borrower has become an "Additional Borrower" (as that term is defined in the Financing Agreement), and, along with the Existing Borrowers, is included in the definition of "Borrower" under the Financing Agreement and the other Financing Documents for all purposes thereof, and as such shall be jointly and severally liable, as provided in the Financing Documents, for all Obligations thereunder (whether incurred or arising prior to, on, or subsequent to the date hereof) and otherwise bound by all of the terms, provisions and conditions thereof. (b) Without in any way implying any limitation on any of the provisions of this Agreement, the Financing Agreement, or any of the other Financing Documents, the Additional Borrower hereby assigns, pledges and grants to the Lender, and agrees that the Lender shall have a perfected and continuing security interest in, and Lien on, (i) all of the Additional Borrower's Accounts, Inventory, Chattel Paper, Documents, Instruments, Equipment, Investment Property and General Intangibles, whether now owned or existing or hereafter acquired or arising, (ii) all returned, rejected or repossessed goods, the sale or lease of which shall have given or shall give rise to an Account or Chattel Paper, (iii) all insurance policies relating to the foregoing, (iv) all books and records in whatever media (paper, electronic or otherwise) recorded or stored, with respect to the foregoing and all equipment and general intangibles necessary or beneficial to retain, access and/or process the information contained in those books and records, and (v) all cash and non-cash proceeds and products of the foregoing. The Additional Borrower further agrees that the Lender shall have in respect thereof all of the rights and remedies of a secured party under the Uniform Commercial Code as well as those provided in this Agreement, under each of the other Financing Documents and under applicable Laws. (c) Without in any way implying any limitation on any of the provisions of this Agreement, the Additional Borrower agrees to execute such financing statements, instruments, and other documents as the Lender may require including, without limitation, an allonge for each of the Notes. (d) Without in any way implying any limitation on any of the provisions of this Agreement, the Additional Borrower hereby represents and warrants that all of the representations and warranties of the Additional Borrower contained in the Financing Documents are true and correct on and as of the date hereof as if made on and as of such date, both before and after giving effect to this Joinder Supplement, and that no Event of Default or Default has occurred and is continuing or exists or would occur or exist after giving effect to this Joinder Supplement. 3. Prior to any further advance by the Lender under the Financing Agreement, the Additional Borrower shall satisfy the following conditions precedent in a manner satisfactory in form and substance to the Lender and its counsel: (a) The Lender shall have received: (i) a certificate of good standing certified by the Secretary of State, or other appropriate Governmental Authority, of the state of formation of the Additional Borrower; (ii) a certified copy from the appropriate Governmental Authority under which the Additional Borrower is organized, of Additional Borrower's organizational documents and all recorded amendments thereto; (iii) a certificate of qualification to do business certified by the Secretary of State or other Governmental Authority of each jurisdiction in which the Additional Borrower conducts business; and (iv) a certificate dated as of the Closing Date by the Secretary or an Assistant Secretary of Additional Borrower covering: (A) true and complete copies of each Additional Borrower's organizational and governing documents and all amendments thereto; (B) true and complete copies of the resolutions of its Board of Directors authorizing (A) the execution, delivery and performance of the Financing Documents to which it is a party, (B) the borrowings hereunder, and (C) the granting of the Liens contemplated by this Agreement and the Financing Documents to which the Additional Borrower is a party; (C) the incumbency, authority and signatures of the officers of the Additional Borrower authorized to sign this Agreement and the other Financing Documents to which the Additional Borrower is a party; and (D) the identity of the Additional Borrower's current directors, and any common stock holders and other equity holders, who to the Additional Borrower's knowledge own more than 20% of the outstanding stock. (b) The Lender shall have received the favorable opinion of counsel for the Additional Borrower addressed to the Lender. 2 (c) The Additional Borrower shall have delivered a Collateral Disclosure List required under the provisions of Section 3.3 (Collateral Disclosure List) of the Financing Agreement duly executed by a Responsible Officer of the Additional Borrower. (d) The Additional Borrower shall have: (i) executed and delivered all Financing Documents required to be filed, registered or recorded in order to create, in favor of the Lender, a perfected Lien in the Collateral (subject only to the Permitted Liens) in form and in sufficient number for filing, registration, and recording in each office in each jurisdiction in which such filings, registrations and recordations are required, and (ii) delivered such evidence as the Lender deems satisfactory that all necessary filing fees and all recording and other similar fees, and all Taxes and other expenses related to such filings, registrations and recordings will be or have been paid in full. (e) The Lender shall have received an insurance certificate in accordance with the provisions of Section 6.1.8 (Insurance) from the Financing Agreement. (f) The Lender shall have received a waiver from each landlord of each and every business premise leased by the Additional Borrower and on which any of the Collateral is or may hereafter be located, which landlords' waivers must be reasonably acceptable to the Lender and its counsel in their sole and absolute discretion. (g) The Lender shall have received an agreement acknowledging the Liens of the Lender from each bailee, warehouseman, consignee or similar third party which has possession of any of the Collateral, which agreements must be reasonably acceptable to the Lender and its counsel in their sole and absolute discretion. (h) Not later than October 15, 2004, the Lender shall have completed a field examination of the Additional Borrower's business, operations and income, the results of which field examination shall be in all respects acceptable to the Lender in its sole and absolute discretion and shall include reference discussions with key customers and vendors. 4. Each Person included in the term "Borrower" hereby covenants and agrees with the Lender as follows: (a) The Obligations include all present and future indebtedness, duties, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of the Additional Borrower or the Existing Borrowers. (b) Reference in this Agreement, the Financing Agreement and the other Financing Documents to the "Borrower" or otherwise with respect to any one or more of the Persons now or hereafter included in the definition of "Borrower" shall mean each and every such Person and any one or more of such Persons, jointly and severally, unless the context requires otherwise (by way of example, and not limitation, if only one such Person is the owner of the real property which is the subject of a mortgage). 3 (c) Each Person included in the term "Borrower" in the discretion of its respective management is to agree among themselves as to the allocation of the proceeds of Loans, provided, however, that each such Person be deemed to have represented and warranted to the Lender at the time of allocation that each benefit and use of proceeds is a Permitted Use. (d) For administrative convenience, each Person included in the term "Borrower" hereby irrevocably appoints Designated Borrower as the Borrower's attorney-in-fact, with power of substitution (with the prior written consent of the Lender in the exercise of its sole and absolute discretion), in the name of Designated Borrower or in the name of the Borrower or otherwise to take any and all actions with respect to the this Agreement, the other Financing Documents, the Obligations and/or the Collateral (including, without limitation, the proceeds thereof) as Designated Borrower may so elect from time to time, including, without limitation, actions to (i) request advances under the Loans, and direct the Lender to disburse or credit the proceeds of any Loan directly to an account of Designated Borrower, any one or more of such Persons or otherwise, which direction shall evidence the making of such Loan and shall constitute the acknowledgement by each such Person of the receipt of the proceeds of such Loan, (ii) enter into, execute, deliver, amend, modify, restate, substitute, extend and/or renew this Agreement, any Additional Borrowers Joinder Supplement, any other Financing Documents, security agreements, mortgages, deposit account agreements, instruments, certificates, waivers, letter of credit applications, releases, documents and agreements from time to time, and (iii) endorse any check or other item of payment in the name of such Person or in the name of Designated Borrower. The foregoing appointment is coupled with an interest, cannot be revoked without the prior written consent of the Lender, and may be exercised from time to time through Designated Borrower' duly authorized officer, officers or other Person or Persons designated by Designated Borrower to act from time to time on behalf of Designated Borrower. (e) Each Person included in the term "Borrower" hereby irrevocably authorizes the Lender to make Loans to any one or more all of such Person, pursuant to the provisions of this Agreement upon the written, oral or telephone request any one or more of the Persons who is from time to time a Responsible Officer of a Borrower under the provisions of the most recent certificate of corporate resolutions and/or incumbency of the Person included in the term "Borrower" on file with the Lender and also upon the written, oral or telephone request of any one of the Persons who is from time to time a Responsible Officer of Designated Borrower under the provisions of the most recent certificate of corporate resolutions and/or incumbency for Designated Borrower on file with the Lender. (f) The Lender assumes no responsibility or liability for any errors, mistakes, and/or discrepancies in the oral, telephonic, written or other transmissions of any instructions, orders, requests and confirmations between the Lender and any one or more of the Persons included in the term "Borrower" in connection with the Credit Facilities, any Loan, or any other transaction in connection with the provisions of this Agreement. 5. Without implying any limitation on the joint and several nature of the Obligations, the Lender agrees that, notwithstanding any other provision of this Agreement, the Persons included in the term "Borrower," may create reasonable inter-company indebtedness between or among the Borrowers with respect to the allocation of the benefits and proceeds of the advances and Credit Facilities 4 under this Agreement. The Borrowers agree among themselves, and the Lender consents to that agreement, that each Borrower shall have rights of contribution from all of the other Borrowers to the extent such Borrower incurs Obligations in excess of the proceeds of the Loans received by, or allocated to purposes for the direct benefit of, such Borrower. All such indebtedness and rights shall be, and are hereby agreed by the Borrowers to be, subordinate in priority and payment to the indefeasible repayment in full in cash of the Obligations, and, unless the Lender agrees in writing otherwise, shall not be exercised or repaid in whole or in part until all of the Obligations have been indefeasibly paid in full in cash. The Borrowers agree that all of such inter-company indebtedness and rights of contribution are part of the Collateral and secure the Obligations. Each Borrower hereby waives all rights of counterclaim, recoupment and offset between or among themselves arising on account of that indebtedness and otherwise. Each Borrower shall not evidence the inter-company indebtedness or rights of contribution by note or other instrument, and shall not secure such indebtedness or rights of contribution with any Lien or security. Notwithstanding anything contained in this Agreement to the contrary, the amount covered by each Borrower under the Obligations (including, without limitation, Section 2.3.8 (Guaranty) of the Financing Agreement) shall be limited to an aggregate amount (after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Borrower in respect of the Obligations) which, together with other amounts owing by such Borrowers to the Lender under the Obligations, is equal to the largest amount that would not be subject to avoidance under the Bankruptcy Code or any applicable provisions of any applicable, comparable state or other Laws. 6. (a) Each Person included in the term "Borrower" hereby represents and warrants to the Lender that each of them will derive benefits, directly and indirectly, from each Loan, both in their separate capacity and as a member of the integrated group to which each such Person belongs and because the successful operation of the integrated group is dependent upon the continued successful performance of the functions of the integrated group as a whole, because (i) the terms of the consolidated financing provided under this Agreement are more favorable than would otherwise would be obtainable by such Persons individually, and (ii) the additional administrative and other costs and reduced flexibility associated with individual financing arrangements which would otherwise be required if obtainable would substantially reduce the value to such Persons of the financing. (b) Each Person included in the term "Borrower" hereby represents and warrants that all of the representations and warranties contained in the Financing Documents are true and correct on and as of the date hereof as if made on and as of such date, both before and after giving effect to this Agreement, and that no Event of Default or Default has occurred and is continuing or exists or would occur or exist after giving effect to this Agreement. 7. Guaranty. (a) Each Person included in the term "Borrower" hereby unconditionally and irrevocably, guarantees to the Lender: (i) the due and punctual payment in full (and not merely the collectibility) by the other Persons included in the term "Borrower" of the Obligations, including unpaid and accrued interest thereon, in each case when due and payable, all according to the terms of this Agreement, the Notes and the other Financing Documents; (ii) the due and punctual payment in full (and not merely the collectibility) by the other Persons included in the term "Borrower" of all other sums and charges which may at any time be due and payable in accordance with this Agreement, the Notes or any of the other Financing Documents; (iii) the due and punctual performance by the other Persons included in the term "Borrower" of all of the other terms, covenants and conditions contained in the Financing Documents; and 5 (iv) all the other Obligations of the other Persons included in the term "Borrower". (b) The obligations and liabilities of each Person included in the term "Borrower" as a guarantor under this paragraph 7 shall be absolute and unconditional and joint and several, irrespective of the genuineness, validity, priority, regularity or enforceability of this Agreement, any of the Notes or any of the Financing Documents or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. Each Person included in the term "Borrower" in its capacity as a guarantor expressly agrees that the Lender may, in its sole and absolute discretion, without notice to or further assent of such Borrower and without in any way releasing, affecting or in any way impairing the joint and several obligations and liabilities of such Person as a guarantor hereunder unless otherwise specifically provided: (i) waive compliance with, or any defaults under, or grant any other indulgences under or with respect to any of the Financing Documents; (ii) modify, amend, change or terminate any provisions of any of the Financing Documents; (iii) grant extensions or renewals of or with respect to the Credit Facilities, the Notes or any of the other Financing Documents; (iv) effect any release, subordination, compromise or settlement in connection with this Agreement, any of the Notes or any of the other Financing Documents; (v) agree to the substitution, exchange, release or other disposition of the Collateral or any part thereof, or any other collateral for the Loan or to the subordination of any lien or security interest therein; (vi) make advances for the purpose of performing any term, provision or covenant contained in this Agreement, any of the Notes or any of the other Financing Documents with respect to which the Borrower shall then be in default; (vii) make future advances pursuant to the Financing Agreement or any of the other Financing Documents; (viii) assign, pledge, hypothecate or otherwise transfer the Commitments, the Obligations, the Notes, any of the other Financing Documents or any interest therein, all as and to the extent permitted by the provisions of this Agreement; (ix) deal in all respects with the other Persons included in the term "Borrower" as if this paragraph 7 were not in effect; (x) effect any release, compromise or settlement with any of the other Persons included in the term "Borrower", whether in their capacity as a Borrower or as a guarantor under this paragraph 7 or any other guarantor; and 6 (xi) provide debtor-in-possession financing or allow use of cash collateral in proceedings under the Bankruptcy Code, it being expressly agreed by all Persons included in the term "Borrower" that any such financing and/or use would be part of the Obligations. (c) The obligations and liabilities of each Person included in the term "Borrower", as guarantor under this paragraph 7 shall be primary, direct and immediate, shall not be subject to any counterclaim, recoupment, set off, reduction or defense based upon any claim that such Person may have against any one or more of the other Persons included in the term "Borrower", the Lender and/or any other guarantor and shall not be conditional or contingent upon pursuit or enforcement by the Lender of any remedies it may have against Persons included in the term "Borrower" with respect to this Agreement, the Notes or any of the other Financing Documents, whether pursuant to the terms thereof or by operation of law. Without limiting the generality of the foregoing, the Lender shall not be required to make any demand upon any of the Persons included in the term "Borrower", or to sell the Collateral or otherwise pursue, enforce or exhaust its or their remedies against the Persons included in the term "Borrower" or the Collateral either before, concurrently with or after pursuing or enforcing its rights and remedies hereunder. Any one or more successive or concurrent actions or proceedings may be brought against each Person included in the term "Borrower" under this paragraph 7, either in the same action, if any, brought against any one or more of the Persons included in the term "Borrower" or in separate actions or proceedings, as often as the Lender may deem expedient or advisable. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of any one or more of the Persons included in the term "Borrower", any other guarantor or any obligor under any of the Financing Documents, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of debtors under federal or state law initiated by or against any one or more of the Persons included in the term "Borrower", in their respective capacities as borrowers and guarantors under this paragraph 7, or under any of the Financing Documents shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of each Borrower under this paragraph 7 in any manner whatsoever, and this paragraph 7 shall remain and continue in full force and effect. It is the intent and purpose of this paragraph 7 that each Person included in the term "Borrower" shall and does hereby waive all rights and benefits which might accrue to any other guarantor by reason of any such proceeding, and the Persons included in the term "Borrower" agree that they shall be liable for the full amount of the obligations and liabilities under this paragraph 7 regardless of, and irrespective to, any modification, limitation or discharge of the liability of any one or more of the Persons included in the term "Borrower", any other guarantor or any obligor under any of the Financing Documents, that may result from any such proceedings. (d) Each Person included in the term "Borrower", as guarantor under this paragraph 7, hereby unconditionally, jointly and severally, irrevocably and expressly waives: (i) presentment and demand for payment of the Obligations and protest of non-payment; (ii) notice of acceptance of this paragraph 7 and of presentment, demand and protest thereof; (iii) notice of any default hereunder or under the Notes or any of the other Financing Documents and notice of all indulgences; 7 (iv) notice of any increase in the amount of any portion of or all of the indebtedness guaranteed by this paragraph 7; (v) demand for observance, performance or enforcement of any of the terms or provisions of this paragraph 7, the Notes or any of the other Financing Documents; (vi) all errors and omissions in connection with the Lender's administration of all indebtedness guaranteed by this paragraph 7; (vii) any right or claim of right to cause a marshalling of the assets of any one or more of the other Persons included in the term "Borrower"; (viii) any act or omission of the Lender which changes the scope of the risk as guarantor hereunder; and (ix) all other notices and demands otherwise required by law which such Person may lawfully waive. (e) Within ten (10) days following any request of the Lender so to do, each Person included in the term "Borrower" will furnish the Lender and such other persons as the Lender may direct with a written certificate, duly acknowledged stating in detail whether or not any credits, offsets or defenses exist with respect to this paragraph 7. 8. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Maryland, without regard to principles of choice of law. [Signatures are on the following page] 8 WITNESS the due execution hereof as of the day and year first written above. WITNESS: ARGAN, INC. _________________________ By:________________________(SEAL) Name: Title: WITNESS: AGAX/VLI ACQUISITION CORPORATION _________________________ By:________________________(SEAL) Name: Title: WITNESS: BANK OF AMERICA, N. A. _________________________ By:________________________(Seal) Name: Title: 9 EX-99.1 9 ex99-1.txt Exhibit 99.1 NEWS - FOR IMMEDIATE RELEASE DATE: SEPTEMBER 1, 2004 From: Argan, Inc. Contact: Haywood Miller Fax: 301-315-0064 Phone: 301-315-0027 ARGAN ANNOUNCES MERGER WITH VITARICH LABORATORIES ROCKVILLE, MD - Argan, Inc. (OTC BB; BSE: AGAX.OB; AGX) announced today the closing of its merger with Vitarich Laboratories, Inc. (Vitarich). Vitarich is a farm-to-market, vertically integrated private label manufacturer that manufactures, packages and distributes premium nutraceutical products, including nutritional and whole-food dietary supplements and other personal healthcare products. The company is headquartered in Naples, FL. Rainer Bosselmann, Chairman and Chief Executive Officer of Argan, remarked, "Vitarich is the kind of entrepreneurial company we like to invest in. It positions us for entry into the nutraceutical industry that is characterized by rapid growth, fragmentation and opportunities for innovation and consolidation. We will continue to look for investment opportunities in this industry." In addition he stated, "Vitarich has a premier management team that has an excellent industry reputation for the research, development and manufacture of innovative and premium nutraceutical products in its state-of-the-art facilities." Vitarich CEO Kevin Thomas says that "the entire Vitarich management team is energized by the combination with Argan and by what it means for the future of the company. The entire Vitarich team will continue our commitment to research, quality products and excellent customer service." Vitarich has experienced substantial growth over the past few years, growing from $7 million in revenue in calendar year 2000 to approximately $17 million over the past 12 months. For more information see www.vitarichlabs.com. Argan, Inc., headquartered in Rockville, MD, is a farm-to-market, vertically integrated private label manufacturer that manufactures, packages and distributes premium nutraceutical products, including nutritional and whole-food dietary supplements and other personal healthcare products. Diversely, Argan has another wholly owned subsidiary, Southern Maryland Cable, Inc., that provides inside premise wiring services to the federal government and also provides underground and aerial construction services and splicing to major telecommunications and utilities customers. This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes the assumptions underlying the forward-looking statements contained herein, including the development plans of the Company, are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements contained in the press release will prove to be accurate. In light of significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. -----END PRIVACY-ENHANCED MESSAGE-----