<PAGE> 1
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 15,1997
Commodore Applied Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-11871 11-3312952
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
150 East 58th Street
New York, New York 10155
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 308-5800
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
CURRENT REPORT ON FORM 8-K
COMMODORE APPLIED TECHNOLOGIES, INC.
August 15, 1997
Item 5. Other Events.
SALE OF SERIES A PREFERRED STOCK
On August 15, 1997, pursuant to a Series A Convertible Preferred Stock
Purchase Agreement (the "Series A Purchase Agreement"), the Company completed
the sale to six investors, for an aggregate purchase price of $1,800,000, of
18,000 shares of newly-created Series A Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), of the Company.
The Series A Preferred Stock has a liquidation preference of $100 per
share (plus accumulated and unpaid dividends) and pays a 7% per-annum cumulative
dividend, payable, at the Company's option, at the time of conversion in cash or
shares of common stock, par value $.001 per share (the "Common Stock"), of the
Company at the Conversion Price (as defined). The Series A Preferred Stock ranks
prior to all other classes of equity securities of the Company, including Common
Stock, as to distributions of assets upon liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary.
The Series A Preferred Stock has separate class voting rights as to
matters effecting such securities (which requires the consent or approval of
holders of 66-2/3% of the Series A Preferred Stock), and votes together with
holders of Common Stock on all matters requiring stockholder approval on a "as
converted" basis, as though such shares of Series A Preferred Stock had been
converted into Common Stock on the record date used to determine Common Stock
entitled to vote on such transaction or matter.
The Series A Preferred Stock may be converted by the holders thereof at
any time or from time to time at the Conversion Price (as defined). However,
prior to July 31, 1999, each holder of Series A Preferred Stock may not convert
more than 20% of his or her shares of Series A Preferred Stock in any one month,
subject to the right to accumulate conversions so that any shares of Series A
Preferred Stock not converted in any one calendar month may be accumulated with
the number of convertible shares of Series A Preferred Stock in the next
calendar month. To the extent not converted voluntarily, as of August 1, 1999
all remaining shares of Series A Preferred Stock will be automatically converted
into Common Stock at the Conversion Price then in effect.
The Series A Preferred Stock is convertible by the holders thereof into
that number of shares of Common Stock equal to the Liquidation Preference
divided by the Conversion Price. The Conversion Price is defined to mean an
amount equal to the lesser of 100% of the Average Share Price (as defined) for
the five consecutive trading days preceding the August 15, 1997 issuance date of
the Series A Preferred Stock, or (ii) 88% of the Average Share Price for the
five consecutive trading days immediately prior to the Conversion Date (as
defined). Subject to customary anti-dilution provisions, the minimum conversion
price is $2.00 per share; provided, that if the Average Share Price (defined as
the last sale price per share of the Common Stock reported by Bloomberg on the
AMEX or any other exchange on which such stock trades for the applicable number
of consecutive trading days) is less than $2.00 for any 60 consecutive calendar
days, the holders of the Series A Preferred Stock may either demand mandatory
redemption of such Series A Preferred Stock (at $100 per share plus accrued and
unpaid dividends) or convert their shares into Common Stock without regard to
such minimum $2.00 per share price.
If conversion of all shares of Series A Preferred Stock were to occur
based upon the Average Share Price on August 15, 1997 of $4.64, the 18,000
shares would convert to 388,000 shares of Common Stock, representing
approximately 1.7% of total Common Stock outstanding. If conversion of all
Series A Preferred Stock were to occur based upon a minimum Conversion Price of
$2.00 per share of Common Stock, the 18,000 shares would
2
<PAGE> 3
convert into 900,000 shares of Company Common Stock, representing approximately
4% of the total Common Stock outstanding.
So long as the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock are subject to a current registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), the Company has
the right to voluntarily redeem the shares of Series A Preferred Stock on not
more than 60 and not less than 15 days prior notice, at a redemption price equal
to the sum of $100 per share, plus accrued and unpaid dividends, and a
redemption premium designed to provide the investor with a 12% annual yield on
his or her shares of Series A Preferred Stock.
The Series A Preferred Stock is subject to mandatory redemption at $100
per share, plus accrued and unpaid dividends, upon the occurrence of certain
events, including (i) the Average Share Price for any 60 consecutive days shall
be less than $2.00, (ii) the Common Stock is not listed on any exchange or
over-the-counter market for 15 consecutive trading days, or (iii) if the Company
is required to obtain stockholder approval under AMEX or other stock exchange
regulations in order to issue shares of Common Stock upon conversion of the
Series A Preferred Stock and fails to obtain such requisite stockholder approval
within 90 calendar days.
The Company has agreed to pay certain penalties to the holders of the
Series A Preferred Stock in the event that the Company shall fail by certain
specified dates to cause to become effective under the Securities Act a
registration statement on Form S-3, or other applicable form of registration
statement, covering all shares of Common Stock issuable upon conversion of all
18,000 outstanding shares of Series A Preferred Stock. Upon the effectiveness of
such registration statement, no such penalties are payable by the Company.
The above transaction was deemed exempt from registration under the
Securities Act, as a transaction by an issuer not involving any public offering.
The recipients of the Series A Preferred Stock represented their intentions to
acquire such securities for investment only and not with a view to or for sale
in connection with any distribution thereof, and appropriate legends were
affixed to the certificates representing the shares of Series A Preferred Stock.
LOAN FROM COMMODORE ENVIRONMENTAL SERVICES, INC.
On August 22, 1997, Commodore Environmental Services, Inc. ("COES"), the
owner of 67.2% of the outstanding shares of Common Stock of the Company, agreed
to provide the Company with a $4,000,000 loan. The loan was funded to the
Company on September 23, 1997. The proceeds of such loan were derived by COES,
primarily from the sale of $8.8 million of COES' Series D Preferred Stock
convertible into shares of Company Common Stock owned by COES. The $4,000,000
loan from COES to the Company was evidenced by the Company's 8% note due August
31, 2002. COES has the right at any time to convert the note into shares of
Company Common Stock at a conversion price of $3.89 per share (one full share of
Company Common Stock for each $3.89 principal amount of the note so converted).
Such conversion price was fixed at approximately 85% of the five day average
closing bid price of Company Common Stock ($4.575 per share) as traded on the
American Stock Exchange ("AMEX") for the five trading days prior to August 22,
1997; the date that the executive committees of the respective boards of
directors of each of COES and the Company authorized such loan. The conversion
price is also subject to adjustment to protect the holder of the note against
dilution.
In consideration of the $4,000,000 loan, the Company issued to COES a
warrant expiring August 31, 2002 entitling COES to purchase 1,000,000 shares of
additional Company Common Stock at an exercise price of $5.0325 per share
(approximately 110% of the five day average closing bid price of Company Common
Stock ($4.575 per share) as traded on the AMEX for the five trading days prior
to August 22, 1997).
SALE OF 600,000 SHARES OF COMMON STOCK
On September 30, 1997, the Company completed the sale of 600,000
shares of Company Common Stock to four investors for an aggregate purchase price
of $2,202,000 (the "Common Stock Private Placement"). Pursuant to stock purchase
agreements, dated September 26, 1997 (the "Common Stock Purchase
3
<PAGE> 4
Agreements"), by and between the Company and each of the four private investors,
the purchase price for such shares of Company Common Stock is subject to reset
if, during the twelve month period following September 30, 1997 (the
"Anniversary Period"), the Company shall (i) sell any shares of Common Stock,
(ii) issue any convertible securities or warrants, or (iii) issue any shares of
Common Stock during such Anniversary Period (but not thereafter) upon conversion
of its currently outstanding Series A Preferred Stock, in each case, for a
selling price, conversion price or exercise price per share which shall be lower
than the $3.67 per share purchase price of the shares of Common Stock sold
pursuant to the Common Stock Private Placement (such lower price being the
"Reset Price"), the $3.67 purchase price will be adjusted downward at the end of
the Anniversary Period so as to equal the Reset Price. The lowest selling price,
conversion price or exercise price per share at which the Company issues Common
Stock or securities convertible or exercisable into Common Stock during the
Anniversary Period will determine the applicable Reset Price, except that (a)
the lowest sales, exercise or conversion prices associated with issuance by the
Company of up to 10,000 shares of Common Stock, and (b) the issuance of Company
Common Stock by COES upon conversion of outstanding shares of COES Series D
Preferred Stock or upon exercise of outstanding warrants issued by COES, shall
be excluded in determining the Reset Price.
Capello Capital Corp. acted as placement agent in connection with the
Common Stock Private Placement and received $209,475 in compensation, as well
as warrants expiring September 30, 2002 entitling the placement agent to
purchase 60,000 shares of Company Common Stock at $3.67 per share.
The Company has granted certain "demand" and "piggyback" registration
rights to the investors in the Common Stock Private Placement and has agreed to
pay certain penalties to such investors in the event that the Company shall fail
by certain specified dates to cause to become effective under the Securities Act
a registration statement on Form S-3 covering the shares of Common Stock held by
such investors.
The above transaction was deemed exempt from registration under the
Securities Act, as a transaction by an issuer not involving any public offering.
The recipients of the Common Stock represented their intentions to acquire such
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the
certificates representing the shares of Common Stock.
With the proceeds from the sale of the Series A Preferred Stock and the
Common Stock, and the proceeds from the $4.0 million loan from COES, the Company
believes that it has sufficient cash reserves to meet expenses incurred in the
ordinary course of business until the third fiscal quarter of 1998. The
foregoing does not, however, include funds that may be required to finance
capital equipment or acquisition opportunities which may arise in the future.
Although the Company believes that funds will be available for such purposes and
that it will secure sufficient commercial business to achieve operating profits
in the second half of 1998, there is no assurance that this will be the case or
that the Company will ever be able to achieve profitability.
The information set forth above is qualified in its entirety by reference
to the following: (a) Series A Convertible Preferred Stock Purchase Agreement,
dated as of August 15, 1997, among the Company and Nelson Partners, Olympus
Securities, Ltd., Leonardo, L.P., Raphael, L.P., Ramius Fund, Ltd. and Fortune
Fund (collectively, the "Series A Preferred Purchasers"), attached hereto as
Exhibit 4.1; (b) Certificate of Designations for Series A Preferred Stock,
attached hereto as Exhibit 4.2; (c) Registration Rights Agreement between the
Company and the Series A Preferred Purchasers, attached hereto as Exhibit 4.3;
(d) $4,000,000 convertible note of the Company payable to Commodore
Environmental Services, Inc., incorporated herein by reference as Exhibit 4.4;
(e) Common Stock Purchase Warrant to purchase 1,000,000 shares of Company Common
Stock issued to Commodore Environmental Services, Inc., incorporated herein by
reference as Exhibit 4.5; and (f) Stock Purchase Agreements, dated as of
September 26, 1997, by and between the Company and each of DFA Group Trust -
Small Company Subtrust, U.S. 9-10 Small Company Portfolio, DFA Group Trust -
6-10 Subtrust and U.S. 6-10 Small Company Series (collectively, the "Common
Stock Purchasers"), attached hereto as Exhibit 4.6.
4
<PAGE> 5
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Not Applicable.
(b) Pro Forma Financial Information.
Not Applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.1 Series A Convertible Preferred Stock Purchase Agreement, dated as of
August 15, 1997, among the Company and the Series A Preferred
Purchasers.
4.2 Certificate of Designations for Series A Preferred Stock.
4.3 Registration Rights Agreement between the Company and the Series
A Preferred Purchasers.
4.4 8% $4.0 million note due 2002 from the Company to Commodore
Environmental Services, Inc.(1)
4.5 Common Stock Purchase Warrant to purchase 1,000,000 shares of
Common Stock of the Company issued to Commodore Environmental
Services, Inc.(1)
4.6 Common Stock Purchase Agreements, dated as of September 26, 1997,
by and between the Company and each of the Common Stock
Purchasers.
</TABLE>
- -----------------------
(1) Incorporated herein by reference. Filed as an exhibit to Amendment No.
1 on Form 8-K/A-1 to Commodore Environmental Services, Inc.'s Current
Report on Form 8-K, dated May 20, 1997, filed with the Commission on
October 3, 1997 (Commission File No. 0-10054).
5
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMODORE APPLIED TECHNOLOGIES, INC.
Date: October 3, 1997. By: /s/ Michael D. Fullwood
----------------------------------------
Michael D. Fullwood, Senior Vice President, Chief
Financial and Administrative Officer, Secretary
and General Counsel
6
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.1 Series A Convertible Preferred Stock Purchase Agreement, dated as of
August 15, 1997, among the Company and the Series A Preferred
Purchasers.
4.2 Certificate of Designations for Series A Preferred Stock.
4.3 Registration Rights Agreement between the Company and the Series
A Preferred Purchasers.
4.4 8% $4.0 million note due 2002 from the Company to Commodore
Environmental Services, Inc.(1)
4.5 Common Stock Purchase Warrant to purchase 1,000,000 shares of
Common Stock of the Company issued to Commodore Environmental
Services, Inc.(1)
4.6 Common Stock Purchase Agreements, dated as of September 26, 1997,
by and between the Company and each of the Common Stock
Purchasers.
</TABLE>
- -----------------------
(1) Incorporated herein by reference. Filed as an exhibit to Amendment No.
1 on Form 8-K/A-1 to Commodore Environmental Services, Inc.'s Current
Report on Form 8-K, dated May 20, 1997, filed with the Commission on
October 3, 1997 (Commission File No. 0-10054).
<PAGE> 1
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
DATED AS OF AUGUST 15, 1997
AMONG
COMMODORE APPLIED TECHNOLOGIES, INC.
AND
THE PURCHASERS LISTED ON EXHIBIT A
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I Purchase and Sale of Preferred Stock
<S> <C>
Section 1.1 Purchase and Sale of Stock..................................................................1
Section 1.2 The Conversion Shares.......................................................................1
Section 1.3 Purchase Price and Closing..................................................................1
ARTICLE II Representations and Warranties........................................................................2
Section 2.1 Representation and Warranties of the Company................................................2
(a) Organization, Good Standing and Power......................................................2
(b) Authorization; Enforcement.................................................................2
(c) Capitalization.............................................................................3
(d) Issuance of Shares.........................................................................3
(e) No Conflicts...............................................................................3
(f) Commission Documents, Financial Statements.................................................4
(g) Subsidiaries...............................................................................5
(h) No Material Adverse Change.................................................................5
(i) No Undisclosed Liabilities.................................................................5
(j) No Undisclosed Events or Circumstances.....................................................5
(k) Indebtedness...............................................................................6
(l) Title to Assets............................................................................6
(m) Actions Pending............................................................................6
(n) Compliance with Law........................................................................6
(o) Taxes......................................................................................6
i
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(p) Certain Fees...............................................................................7
(q) Disclosure.................................................................................7
(r) Operation Of Business......................................................................7
(s) Environmental Compliance...................................................................7
(t) Books and Records..........................................................................8
(u) Material Agreements........................................................................8
(v) Transaction with Affiliates................................................................8
(w) Securities Act of 1933.....................................................................8
(x) Governmental Approvals....................................................................9
(y) Employees.................................................................................9
(z) Absence of Certain Development............................................................9
(aa) Use of Proceeds..........................................................................10
(ab) Investment Company Act Status............................................................11
(ac) ERISA....................................................................................11
Section 2.2 Representations and Warranties of the Purchasers...........................................11
(a) Organization and Standing of the Purchasers..............................................11
(b) Authorization, Power.....................................................................11
(c) No Conflicts.............................................................................11
(d) Acquisition for Investment...............................................................12
(e) Accredited Purchasers....................................................................12
(f) Rule 144.................................................................................12
ii
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE III Covenants............................................................................................13
Section 3.1 Securities Compliance......................................................................13
Section 3.2 Registration and Listing...................................................................13
Section 3.3 Inspection Rights..........................................................................13
Section 3.4 Compliance with Laws.......................................................................13
Section 3.5 Keeping of Records and Books of Account....................................................14
Section 3.6 Reporting Requirements.....................................................................14
Section 3.7 Amendments.................................................................................14
Section 3.8 Other Agreements...........................................................................14
Section 3.9 HSR Act....................................................................................14
Section 3.10 Status of Dividends........................................................................15
Section 3.11 Rule 144A..................................................................................16
Section 3.12 Regulation S...............................................................................16
ARTICLE IV Conditions............................................................................................16
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares..................................................................................16
(a) Accuracy of the Purchasers' Representations and Warranties................................16
(b) Performance by the Purchasers.............................................................16
(c) No Injunction.............................................................................16
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Shares..............................................................................17
(a) Accuracy of the Company's Representations and Warranties..................................17
(b) Performance by the Company................................................................17
(c) Minimum Purchase..........................................................................17
iii
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
(d) No Suspension, Etc........................................................................17
(e) No Injunction.............................................................................17
(f) No Proceedings or Litigation..............................................................17
(g) Certificate of Determination of Rights and Preferences....................................18
(h) Opinion of Counsel, Etc...................................................................18
(i) Registration Rights Agreement.............................................................18
ARTICLE V Registration Rights...................................................................................18
ARTICLE VI Stock Certificate Legend.............................................................................18
Section 6.1 Legend.....................................................................................18
ARTICLE VII Termination..........................................................................................19
Section 7.1 Termination by Mutual Consent..............................................................19
Section 7.2 Other Termination..........................................................................19
Section 7.3 Effect of Termination......................................................................19
ARTICLE VIII Indemnification....................................................................................19
Section 8.1 General Indemnity..........................................................................19
Section 8.2 Indemnification Procedure..................................................................20
ARTICLE IX Miscellaneous........................................................................................21
Section 9.1 Fees and Expenses..........................................................................21
Section 9.2 Specific Enforcement, Consent to Jurisdiction..............................................21
Section 9.3 Entire Agreement; Amendment................................................................21
Section 9.4 Notices....................................................................................22
Section 9.5 Waivers....................................................................................22
Section 9.6 Headings...................................................................................22
iv
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Section 9.7 Successors and Assigns.....................................................................23
Section 9.8 No Third Party Beneficiaries...............................................................23
Section 9.9 Governing Law..............................................................................23
Section 9.10 Survival...................................................................................23
Section 9.11 Counterparts...............................................................................23
Section 9.12 Publicity..................................................................................23
Section 9.13 Severability...............................................................................23
Section 9.14 Further Assurances.........................................................................24
v
</TABLE>
<PAGE> 7
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of August 15, 1997 between Commodore Applied
Technologies, Inc., a Delaware corporation (the "Company") and each of the
Purchasers of shares of Series A Convertible Preferred Stock to purchase
Preferred Stock of the Company whose names are set forth on Exhibit A hereto
(individually, an "Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company.
(a) The number of shares of the Company's Series A Convertible
Preferred Stock, par value $0.001 per share (the "Preferred Shares") at a
purchase price of $100 per share set forth with respect to such Purchaser on
Exhibit A hereto; and the designation, rights, preferences and other terms and
provisions of the Series A Convertible Preferred Stock are set forth on Exhibit
B hereto.
Section 1.2 The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock, par value $0.001 per share
(the "Common Stock"), to satisfy the rights of conversion of the holders of the
Preferred Shares. Any shares of Common Stock issuable upon conversion of the
Preferred Shares (and such shares when issued) are herein referred to as the
"Conversion Shares". The Preferred Shares, and the Conversion Shares are
sometimes collectively referred to as the "Shares".
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Preferred Shares set forth opposite their respective names on Exhibit A. The
aggregate purchase price of the Preferred Shares being acquired by each
Purchaser is set forth opposite such Purchaser's name on Exhibit A. The closing
of the purchase and sale of the Preferred Shares to be acquired by the
Purchasers from the Company under this
1
<PAGE> 8
Agreement shall take place at the offices of Mark J. Richardson, 1299 Ocean
Avenue, Suite 900, Santa Monica, California 90401 (the "Closing") at 10:00 a.m.
P.S.T. on the later of the following: (i) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance herewith,
or (ii) such other time and place and/or on such other date as the Purchasers
and the Company may agree at the Closing (the "Closing Date"). In the event that
the Closing and the Closing Date shall not have occurred by August 19, 1997,
either the Company or any one or more of the Purchasers may terminate this
Agreement without any further obligation or liability to each other or their
respective agents; provided, however, that such right of termination shall not
be unilaterally available to any party or parties which have breached any of
their representations and warranties contained herein or failed to perform any
of the covenants and agreements on their part to be performed hereunder. On the
Closing Date, the Company shall deliver to each Purchaser certificates for the
number and series of Preferred Shares set forth opposite its name under the
heading "Number of Preferred Shares to be Purchased" on Exhibit A hereto,
registered in such Purchaser's name (or its nominee) against delivery of a check
or checks payable to the order of the Company, or a transfer of funds to the
account as shall be designated in writing by the Company, representing the cash
consideration set forth opposite each such Purchaser's name on Exhibit A. In
addition, each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchasers:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any subsidiaries except as set
forth (i) in the Company's Form 10-K for the year ended December 31, 1996,
including the accompanying financial statements (the "Form 10-K"), (ii) in the
Form 10-Q for the quarter ended March 31, 1997 (the "Form 10-Q"), (iii) in the
annual report and proxy statement for the annual stockholders meeting of the
Company held June 17, 1997 (the "Annual Report"), (iv) in the Form 8-K Current
Reports filed with the Securities and Exchange Commission (the "Commission") on
October 15, 1996, on December 11, 1996, on January 22, 1997 and on March 27,
1997 (collectively, the "Form 8-K Reports"), or (v) on Schedule 2.1 (a) hereto.
The Company and each such subsidiary is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary except for any jurisdiction
2
<PAGE> 9
in which the failure to be so qualified will not have a material adverse effect
on the Company's financial condition. The Company has furnished to the
Purchasers or their representatives true and complete copies of the Company's
Form 10-K, Form 10-Q, Annual Report and Form 8-K Reports (collectively, the "SEC
Reports").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement and the
Registration Rights Agreement attached hereto as Exhibit C (the "Registration
Rights Agreement") and to issue and sell the Shares in accordance with the terms
hereof. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The Registration Rights Agreement will have been duly executed and delivered by
the Company at the Closing. Each of this Agreement and the Registration
Agreement constitutes, or shall constitute when executed and delivered, a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) Capitalization. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding are set forth on
Schedule 2.1(c) hereto. All of the outstanding shares of the Company's Common
Stock and Series A Convertible Preferred Stock have been duly and validly
authorized. Except as set forth in this Agreement and the Registration Rights
Agreement and as set forth on Schedule 2.1(c) hereto, no shares of Common Stock
or Series A Convertible Preferred Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities as provided on Schedule 2.1(c) hereto, the
Company is not a party to any agreement granting registration rights to any
person with respect to any of its equity or debt securities. The Company is not
a party to, and it has no knowledge of, any agreement restricting the voting of
any shares of the capital stock of the Company. Except as set forth on Schedule
2.1(c) hereto, the offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable federal and state securities laws and no stockholder has a
right of rescission or damages with respect thereto which would have a Material
Adverse Effect (as defined in Section 2.1(e) herein) on the Company's financial
condition or operating results. The Company has furnished or made available to
the Purchasers true and correct
3
<PAGE> 10
copies of the Company's Certificate of Incorporation as in effect on the date
hereof (the "Certificate"), and the Company's Bylaws as in effect on the date
hereof (the "Bylaws").
(d) Issuance of Shares. The Preferred Shares to be issued at
the Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Preferred
Shares shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in Exhibit B hereto. When the
Conversion Shares are issued in accordance with the terms of the Preferred
Shares as set forth in the Certificate of Designations of the Series A
Cumulative Preferred Stock of the Company (the "Certificate of Designations") in
the form of Exhibit B hereto, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of preferred stock.
(e) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated therein do not (i)
violate any provision of the Company's Articles or Bylaws, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
to which the Company is a party or by which the Company is bound or by which any
of its respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local of foreign statute, rule, regulation, order,
judgment or decree (including Federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected (except
for such conflicts, defaults, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect. "Material Adverse Effect" means any adverse
effect on the business, operations, properties, prospects, or financial
condition of the Company and its subsidiaries and which is material to the
Company and its subsidiaries, when taken as a consolidated whole. The business
of the Company and its subsidiaries is not being conducted in violation of any
law, ordinance or regulations of any governmental entity, except for possible
violations which singly or in the aggregate do not and will not have a Material
Adverse Effect. The Company is not required under Federal, state or local law,
rule or regulation in the United States to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement and the Registration Rights Agreement, or issue and sell
the Preferred Shares or Conversion Shares in accordance with the terms hereof or
thereof (other then any Securities and Exchange Commission (the "Commission"),
NASD or state securities filings which may be required to be made by the Company
subsequent to the Closing, any registration statement which may be filed
pursuant hereto and the Certificate of Designations); provided that, for purpose
of the representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Purchasers herein.
(f) Commission Documents, Financial Statement. The Common
Stock of the
4
<PAGE> 11
Company is registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, except as disclosed on Schedule
2.1(f) hereto, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing including filings incorporated by reference therein being referred to
herein as the "Commission Documents"). The Company has delivered or made
available to each of the Purchasers true and complete copies of the Commission
Documents filed with the Commission since December 31, 1995. The Company has not
provided to the Purchasers any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective dates, the SEC Reports
for the year ended December 31, 1996 complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and, as of their respective dates,
none of the SEC Reports and the Forms 10-Q referred to above contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the Commission Documents comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission or other applicable rules
and regulations with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) Subsidiaries. The SEC Reports or Schedule 2.1(g) hereto
sets forth each subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such subsidiary. As
used herein, the term "subsidiary" shall mean any corporation or other entity of
which at least a majority of the securities or other ownership interest having
ordinary voting power ( absolutely or contingently) for the election of
directors or other persons performing similar functions are at the time owned
directly or indirectly by the Company and/or any of its other subsidiaries. All
of the outstanding shares of capital stock of each subsidiary have been duly
authorized and validly issued, and are fully paid and nonassessable. There are
no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Except as disclosed on the SEC
Reports or on Schedule 2.1(g), neither the Company nor any subsidiary is subject
to
5
<PAGE> 12
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the preceding
sentence. Except as disclosed on the SEC Reports on on Schedule 2.1(g), neither
the Company nor any subsidiary is party to, nor has any knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of any subsidiary.
(h) No Material Adverse Change. Since March 31, 1997, the date
through which the most recent quarterly report of the Company on Form 10-Q has
been prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule 2(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the SEC
Reports or on Schedule 2(i) hereto, neither the Company nor any of its
subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP
not disclosed in the Commission Documents, other than those incurred in the
ordinary course of the Company's or its subsidiaries, respective businesses
since December 31, 1996 and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company and its subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective business properties, prospects, operations or
financial condition, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
(k) Indebtedness. The SEC Reports or Schedule 2.1(k) hereto
sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. "Indebtedness" shall mean, in an amount in excess of
$100,000, (a) any liability for borrowed money or evidenced by a note or similar
obligation given in connection with the acquisition of any property or other
assets (other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations, in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions on the ordinary course of business; and (c) the present
value of any lease payments due under leases required to be capitalized in
accordance with GAAP. Neither the Company nor any subsidiary is in default with
respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries
has good and marketable title to all of its real and personal property reflected
in the Commission Documents,
6
<PAGE> 13
free of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except for those indicated in the SEC Reports or on Schedule
2.1(l) hereto or such that do not cause a Material Adverse Effect. Both the
Company and each of its subsidiaries enjoy peaceful and undisturbed possession
under all leases under which it is operating, and all said leases are valid and
subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary which questions the validity of
this Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. Except as set forth in the SEC Reports or
on Schedule 2.1(m) hereto, there is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened, against or
involving the Company, any subsidiary or any of their respective properties or
assets. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any subsidiary.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state, and local governmental laws, rules, regulations and
ordinances, except as set forth on Schedule 2.1(n) hereto such that do not cause
a Material Adverse Effect on the Company's financial condition or operating
results. Both the Company and each of its subsidiaries has all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, both
the Company and each of the subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
which are not currently due and payable. None of the federal income tax returns
of the Company or any subsidiary for the years subsequent to December 31, 1994
have been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) pending or threatened against the Company or any subsidiary
for any period, nor of any basis for any such assessment, adjustment or
contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. Neither this Agreement or the Schedules hereto
nor or any
7
<PAGE> 14
other document, certificate or instrument furnished to the Purchasers by or on
behalf of the Company or any subsidiary in connection with the transactions
contemplated by this Agreements, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
made herein or therein, in the light of the circumstances under which they were
made herein or therein, not misleading.
(r) Operation of Business. Both the Company and each of the
subsidiaries owns or possess all parents, trademarks, service marks, trade
names, copyrights, licenses and authorizations as set forth in the SEC Reports
and on Schedule 2.1(r) hereto, and all rights with respect to the foregoing,
necessary for the conduct of its business as now conducted without any conflict
with the rights of others.
(s) Environmental Compliance. Except as disclosed in the SEC
Reports or on Schedule 2.1(s) hereto or where the failure to obtain any of the
following would not have a Material Adverse Effect, the Company and each of its
subsidiaries have obtained all material approvals authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. "Environmental Laws" shall mean all applicable laws relating
to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use treatment, storage, disposal,
transport or handling or hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. Except as set forth in the SEC Reports or on Schedule 2.1(s),
or where non-compliance would not have a Material Adverse Effect, the Company
and each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, to
the Company's knowledge, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting the Company or its subsidiaries that violate or would violate any
Environmental Law or that would give rise to any Environmental Liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, study or investigation (i) under any Environmental Law, or (ii) based
on or related to the manufacture, processing, distribution, use, treatment,
storage (including without limitation underground storage tanks), disposal,
transport or handling, or the emission, discharge, release or threatened release
of any hazardous substance. "Environmental Liabilities" means all liabilities of
a person (whether such liabilities are owed by such person to governmental
authorities, third parties or otherwise) whether currently in existence or
arising hereafter which arise under or relate to any Environmental Law.
(t) Books and Records. The records and documents of the
Company and the subsidiaries accurately reflect in all material respects
information relating to the business of the
8
<PAGE> 15
Company and the subsidiaries, the location and collection of its assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company or any subsidiary.
(u) Material Agreements. Except as set forth in (i) the
exhibits filed with the registration statement and all amendments thereto,
declared effective by the Commission in June 1996 in connection with the
Company's initial public offering of securities, (ii) the SEC Reports or (ii)
Schedule 2.1(u) hereto, neither the Company nor any subsidiary is a party to any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-1 or applicable form if the
Company or any subsidiary were registering securities under the Securities Act
of 1933, as amended (the "Securities Act"). The Company, each subsidiary and, to
the best of the Company's knowledge, each other party thereto have in all
material respects performed all the obligations required to be performed by them
to date under the foregoing agreements, have received no notice of default and
are not in default under any lease, agreement or contract now in effect to which
the Company or any subsidiary is a party or by which it or its property may be
bound, the result of which would cause a Material Adverse Effect. Except as set
forth in the SEC Reports or on Schedule 2.1(u), no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any subsidiary limits or shall limit the payment of preferred
stock dividends on the Company's Common Stock.
(v) Transactions with Affiliates. Except as set forth in the
SEC Reports or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $250,000 between (a) the Company, any
subsidiary or any of their respective customers or suppliers on the one hand,
and (b) any officer, employee, consultant or director of the Company, or any
person owning any capital stock of the Company or any subsidiary or any member
of the immediate family of such officer, employee, consultant, director or
stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder on the
other hand.
(w) Securities Act of 1933. The Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Preferred Shares hereunder. Neither the
Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy the Preferred Shares or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any person, so
as to bring the issuance and sale of the Preferred Shares under the registration
provisions of the Securities Act and applicable state securities laws. Neither
the Company nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection with
the offer or sale of the Preferred Shares.
9
<PAGE> 16
(x) Governmental Approvals. Except as set forth on Schedule
2.1(x) hereto and except for the filing of any notice prior or subsequent to the
Closing that may be required under applicable state and/or Federal securities
laws (which if required, shall be filed on a timely basis), including the
Certificate of Designations, no authorization, consent, approval, license,
exemption of, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for, or in connection with the execution or delivery of the
Preferred Shares, or for the performance by the Company of its obligations under
this Agreement.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
(z) Absence of Certain Developments. Except as provided in
Schedule 2.1(z) hereto, since March 31, 1997, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
material liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of business
during the comparable portion of its prior fiscal year, as adjusted to reflect
the current nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any material lien or encumbrance
or paid any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other material tangible
assets, or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, except in the ordinary course of business;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course
10
<PAGE> 17
of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $250,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or
(xiv) experienced any event which would cause an adjustment in
the Conversion Price of the Series A Convertible Preferred Stock.
(aa) Use of Proceeds. The proceeds from the sale of the
Preferred Shares will be used by the Company and its subsidiaries for the
retirement of indebtedness, for acquisitions and working capital.
(ab) Public Utility Holding Company Act and Investment Company
Act Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company", or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary
11
<PAGE> 18
or by any trade or business, whether or not incorporated, which, together with
the Company or any subsidiary, is under common control, as described in Section
414(b) or (c) of the Code.
Section 2.2 Representations and Warranties of the Purchasers.
Each of the Purchasers hereby makes the following representations and warranties
to the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate or partnership
action (if the Purchaser is an entity), and no further consent or authorization
of such Purchaser or its Board of Directors, stockholders, or partners, as the
case may be, is required. Each of this Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered by such Purchaser.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture to instrument to which such Purchaser
is a party, or, to such Purchaser's knowledge, violate any order, judgment or
decree of any court or governmental agency applicable to such Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate have a Material Adverse Effect on such
Purchaser). Such Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or the Registration Rights Agreement or the purchase the
Preferred Shares in accordance with the terms hereof, provided that for purposes
of the representation made in this sentence, such Purchaser is assuming and
relying upon the accuracy of the relevant representations and agreements of the
Company herein.
(d) Acquisition for Investment. Such Purchaser is purchasing
the Preferred Shares solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Such
Purchaser does not have a present intention to sell the Preferred Shares, nor a
present arrangement (whether or not legally binding) or intention to effect any
distribution of the Preferred Shares to or through any person or entity;
provided, however, that by making the representations herein, such Purchaser
does not agree to hold the
12
<PAGE> 19
Preferred Shares for any minimum or other specific term and reserves the right
to dispose of the Preferred Shares at any time in accordance with Federal
securities laws applicable to such disposition. Such Purchaser acknowledges that
it is able to bear the financial risks associated with an investment in the
Preferred Shares and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary and appropriate to conduct its due
diligence investigation.
(e) Accredited Purchasers. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) Rule 144. Such Purchaser understands that the Shares must
be held indefinitely unless such Shares are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such person will be unable to sell any Preferred Shares
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(g) General. Each Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirements of Federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchasers set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchasers to acquire the Shares.
ARTICLE III
COVENANTS
For so long as the Purchasers shall (i) individually or collectively
own of record any Preferred Shares, or (ii) collectively own beneficially any
Conversion Shares, which, in the aggregate, represent more than 1% of the total
combined voting power of all voting securities of the Company then outstanding,
or (iii) own any Conversion Shares which are not immediately salable pursuant to
an effective registration statement or Rule 144(k) as promulated under the
Securities Act of 1933, as amended, the Company covenants with each of the
Purchasers as follows, which covenants are for the benefit of the Purchasers and
their permitted assignees (as defined herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission and NASD, if applicable, in
13
<PAGE> 20
accordance with their requirements, of the transactions contemplated by this
Agreement and the Registration Rights Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Preferred
Shares to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of such
exemptions and the suitability of such Purchasers to acquire the Preferred
Shares.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement and will not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under said Acts,
except as permitted herein. The Company will take all action necessary to
continue the listing or trading of its Common Stock on the NASDAQ system, if
applicable, and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and NASDAQ system.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, to examine and make
reasonable copies of and extracts from the records and books of account of, and
visit and inspect the properties, assets, operations and business of the Company
and any subsidiary, and to discuss the affairs, finances and accounts of the
Company and any subsidiary with any of its officers, consultants, directors, key
employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep, and cause each subsidiary to keep, adequate records and books of account,
in which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and such
subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company shall furnish the
following to each Purchaser:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
available,
14
<PAGE> 21
and in any event within 45 days after the end of each of the first three fiscal
quarters of the Company, consolidated balance sheets of the Company and the
subsidiaries as of the end of such period and consolidated statements of income
and statements of cash flows and changes in stockholders equity of the Company
and the subsidiaries for such period and for the period commencing at the end of
the previous fiscal year and ending with the end of such period, setting forth
in each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, and including comparisons to the budget or
business plan and an analysis of the variances from the budget or plan, prepared
in accordance with GAAP consistently applied; and
(b) Annual Reports filed with the Commission on SEC Reports as soon as
available, and in any event within 90 days after the end of each fiscal year of
the Company, a copy of the annual consolidated balance sheet, consolidated
statements of income and statements of cash flows and changes in stockholders
equity of the Company and the subsidiaries for such period and for the period
commencing at the end of the previous fiscal year and ending with the end of
such period, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year. All such
consolidated statements shall be duly certified by the Chief Financial Officer
of the Company and an independent public accountant of recognized national
standing approved by the Company's Audit Committee.
3.7 Amendments. The Company shall not amend or waive any provision of
the Certificate of Incorporation, Bylaws of the Company or the Registration
Rights Agreements in any way that would adversely affect the liquidation
preferences, dividend rights, voting rights, conversion rights or redemption
rights of the holders of the Preferred Stock.
3.8 Other Agreements. The Company shall not enter into any agreement in
which the terms of such agreement would materially restrict or materially impair
the right to perform of the Company or any subsidiary under this Agreement, the
Registration Rights Agreement or the Certificate of Incorporation of the
Company.
3.9 HSR Act. The Company shall make any and all filings which it is
required to make under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act") for the sale of the Preferred Shares, such filings to be made
within five business days of the date hereof, and the Company agrees to furnish
the Purchasers with such necessary information and reasonable assistance as the
Purchasers may request in connection with their preparation of necessary filings
or submissions to the Federal Trade Commission (the "FTC") or the Antitrust
Division of the U.S. Department of Justice (the "Antitrust Division"), including
without limitation, any filings necessary under the provisions of the HSR Act.
The Company shall, at its own expense, utilize its best efforts to respond
promptly to any Request for Additional Information, or other formal or informal
request for information, witnesses or documents which may be made by any
governmental body pertaining to the sale of the Preferred Shares, and shall keep
the Purchasers fully apprised of its action with respect thereto,
notwithstanding anything to the contrary in this Section 3.9, the Company shall
not be deemed to have breached any of the covenants contained in this Section
3.9 to the extent that the Company fails to take any
15
<PAGE> 22
action otherwise required to be taken pursuant to this Section 3.9 based on
information given to the Company by any of the Purchasers regarding any
Purchaser or the respective business.
3.10 Status of Dividends. The Company covenants and agrees that (i) no
Federal income tax return or claim for refund of Federal income tax or other
submission to the Internal Revenue Service will adversely affect the Preferred
Shares, any other series of its Preferred Stock, or the Common Stock, and any
deduction shall not operate to jeopardize the availability to Purchasers of the
dividends received deduction provided by Section 243(a)(1) of the Code or any
successor provision, (ii) in no report to shareholders or to any governmental
body having jurisdiction over the Company or otherwise will it treat the
Preferred Shares other than as equity capital or the dividends paid thereon
other than as dividends paid on equity capital unless required to do so by a
governmental body having jurisdiction over the accounts of the Company or by a
change in generally accepted accounting principals required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designations, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. In the event that the Purchasers have reasonable cause to believe that
dividends paid by the Company on the Preferred Shares out of the Company's
current or accumulated earnings and profits will not be treated as eligible for
the dividends received deduction provided by Section 243(a)(l) of the Code, or
any successor provision, the Company will, at the request of the Purchasers,
join with the Purchasers in the submission to the Service of a request for a
ruling that dividends paid on the Shares will be so eligible for Federal income
tax purposes. In addition, the Company will cooperate with the Purchasers in any
litigation, appeal or other proceeding challenging or contesting any ruling,
technical advice, finding or determination earnings and profits are not eligible
for the dividends received deduction provided by Section 243(a)(l) of the Code,
or any successor provision to the extent that the position to be taken in any
such litigation, appeal, or other proceeding is not contrary to any provision of
the Code or incurred in connection with any such submission, litigation, appeal
or other proceeding. The Company agrees that it will pay all expenses reasonably
incurred by the Purchasers in connection with any such submission, litigation,
appeal or other proceeding necessitated or caused by a breach of this Agreement
by the Company. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall be hereafter amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or or that a deduction with respect to all or a
portion of dividends on the Shares is allowable for Federal income tax purposes,
or (ii) in the absence of such an amendment, issuance or modification and after
a submission of a request for ruling or technical advice, the Service shall rule
or advise that dividends on the Shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute
16
<PAGE> 23
debt, the Company may file protective claims for refund.
Section 3.11 Rule 144A. The Company covenants and agrees that if the
Company fails to register the Conversion Shares within 90 days from the Closing
Date under the terms and conditions of the Registration Rights Agreement
attached hereto as Exhibit C, that, for so long as any of the Preferred Shares
remain outstanding and continue to be "restricted securities" within the meaning
of Rule 144 under the Securities Act, the Company shall make available to the
Purchasers in connection with any sale thereof, the information required by Rule
144A(d)(4) under the Securities Act in order to permit resales of the Shares
pursuant to Rule 144A, if applicable.
Section 3.12 Redemption of Other Preferred Stock. Without the prior
written consent of Purchasers owning beneficially a majority of the issued and
outstanding Preferred Shares or Conversion Shares, the Company shall not redeem
or repurchase any other class or series of preferred stock or Common Stock.
Section 3.13 Regulation S. The Company covenants and agrees that if the
Company fails to register the Conversion Shares within 180 days from the Closing
Date under the terms and conditions of the Registration Rights Agreement
attached hereto as Exhibit C, that, for so long as any of the Preferred Shares
or Conversion Shares remain outstanding and continue to be "restricted
securities" within the meaning of Rule 144 under the Securities Act, the Company
shall, in order to permit resales of the Preferred Shares or Conversion Shares
pursuant to Regulation S under the Securities Act, (a) continue to file all
material required to be filed pursuant to Section 13(a) or 15(d) of the Exchange
Act, (b) not knowingly engage in directed selling efforts in connection with the
resale of securities by any Purchaser under Regulation S, and (c) obtain the
opinion of counsel acceptable to the transfer agent of the Company to enable the
Purchasers to effect resales under Regulation S; it being understood that such
Purchaser's will be required to make certain reasonable representations to such
counsel.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and sell the
Preferred Shares to the Purchasers is subject to the satisfaction or waiver, at
or before the Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion, upon prior written notice to all Purchasers
or their legal representatives.
(a) Accuracy of the Purchasers Representations and Warranties. The
representations and warranties of the Purchasers shall be true and correct in
all material respects.
17
<PAGE> 24
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all material covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation hereunder of each Purchaser to acquire and
pay for the Preferred Shares is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below. These conditions
are for each Purchaser's sole benefit and may be waived by such Purchaser at any
time in its sole discretion, upon prior written notice to the Company.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing as though
made at that time (except for representations and warranties that speak as of a
particular date). On the Closing Date, the Purchasers shall have received a
certificate from the Chief Executive Officer or Chief Financial Officer of the
Company confirming the accuracy of the foregoing.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) Minimum Purchase. Under the terms and conditions of this Agreement,
the Company shall make sales of the Preferred Shares to the Purchasers resulting
in gross proceeds of a minimum of $1,500,000 and a maximum of $8,000,000 to the
Company, less fees and legal expenses payable to Pacific Continental Securities
Corporation pursuant to a written agreement outlining said fees.
(d) No Suspension, Etc. From the date hereof to the Closing Date,
trading in the Company's Common Stock shall not have been suspended by the
Commission or the American Stock Exchange (the "AMEX") (except for any
suspension of trading of limited duration agreed to between the Company, which
suspension shall be terminated prior to Closing), and, at any time prior to the
Closing, trading in securities generally as reported by the AMEX shall not have
been suspended or limited or minimum prices shall not have been established on
securities whose trades reported by the AMEX, nor shall trading in securities on
the New York Stock Exchange have been suspended nor minimum prices established
on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or
18
<PAGE> 25
other national or international calamity or crisis of such magnitude in its
effect on, or any material adverse change in, any financial market which, in
each case, in the judgment of such Purchaser, makes it impracticable or
inadvisable to purchase the Shares.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(f) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or charge the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(g) Certificate of Designations of Rights and Preferences. The
Certificate of Designations shall have been filed with the Secretary of State of
Delaware.
(h) Opinion of Counsel, Etc. At the Closing, the Purchasers shall have
received an opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
counsel to the Company, dated the date of Closing, in the form of Exhibit D
hereto, and such other certificates and documents as the Purchasers or its
counsel shall reasonably require incident to the Closing.
(i) Registration Rights Agreement. At the Closing the Company shall
have executed and delivered the Registration Rights Agreement to each Purchaser.
(j) Issuance of Preferred Shares. Prior to the Closing, the Company
shall issue certificates evidencing the Preferred Shares to Pacific Continental
Securities Corporation, as escrow agent for the Company and the Purchasers;
which shares shall be delivered to the Purchasers against delivery to the
Company of the purchase price for the Preferred Shares and satisfaction of the
other conditions precedent to the Closing.
ARTICLE V
REGISTRATION RIGHTS
At the Closing, the Company and Purchasers shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit C (the
"Registration Rights Agreement").
19
<PAGE> 26
ARTICLE VI
STOCK CERTIFICATE LEGEND
Section 6.1 Legend. Each certificate representing the Preferred Shares,
and, if appropriate, securities issued upon conversion thereof, shall be stamped
or otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or "blue sky"
laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES")
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR COMMODORE APPLIED
TECHNOLOGIES, INC. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION OF SUCH
SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Preferred
Shares and the without the legend set forth above at such time if prior to
making any transfer of any Preferred Shares or Conversion Shares, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer will not be effected until: (a) the Company has notified such
holder that either (i) in the opinion of Company counsel, the registration of
such Preferred Shares or Conversion Shares under the Securities Act is not
required in connection with such proposed transfer; or (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act; and (b) the Company has notified such holder that either: (i) in
the opinion of Company counsel, the registration or qualification under the
securities of "blue sky" laws of any state is not required in connection with
such proposed disposition, or (ii) compliance with applicable state securities
or "blue sky" laws has been effected. The Company will use its best efforts to
respond to any such notice from a holder within ten (10) days. In the case of
any proposed transfer under this Section 6, the Company will use reasonable
efforts to comply with any such applicable state securities or "blue sky" laws,
but shall in no event be required, in connection therewith, to qualify to do
business in any state where it is not then qualified or to take any action that
would subject it to tax or to the general service of process in any state where
it is not then subject. The restrictions on transfer contained in Section 6
shall be in addition to, and not by way of limitation of, any other restrictions
on transfer contained in any other section of this Agreement.
20
<PAGE> 27
ARTICLE VII
TERMINATION
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Purchasers.
Section 7.2 Other Termination. This Agreement may be terminated by the
action of the Board of Directors of the Company or by any one or more of the
Purchasers at any time if the Closing shall not have been consummated by August
19, 1997.
Section 7.3 Effect of Termination. In the event of termination by the
Company or any one or more of the Purchasers, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement and the Registration Rights Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Sections 7.1 or 7.2 herein, this Agreement shall become void and of no further
force and effect, except for Sections 9.1, 9.2, 9.10 and Article 8. Nothing in
this Section 7.3 shall be deemed to release the Company or any Purchaser from
any liability for any breach under this Agreement or the Registration Rights
Agreement or to impair the rights of the Company and the Purchasers to compel
specific performance by the other party of its obligations under this Agreement
and the Registration Rights Agreement.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys fees, charges
and disbursements) incurred by any of the Company as result of any inaccuracy in
or breach of the representations, warranties or covenants made by such Purchaser
herein.
Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article 8 (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 8 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is
21
<PAGE> 28
brought against an indemnified party in respect of which indemnification is
sought hereunder, the indemnifying party shall be entitled to participate in
and, unless in the reasonable judgment of the indemnified party a conflict of
interest between it and the indemnifying party may exist with respect of such
action, proceeding or claim, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. In the event that the
indemnifying party advises an indemnified party that it will contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party's
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its written condition of its
consent. Notwithstanding anything in this Article 8 to the contrary, the
indemnifying party shall not, without the indemnified party's prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim. The indemnification required by this Article
8 shall be made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred so long as the indemnified party irrevocably
agrees to refund such moneys if it is ultimately determined by a court of
competent jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar rights of the indemnified party against the indemnifying party
or others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designations,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expense,
22
<PAGE> 29
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement, provided that the Company shall pay,
at the Closing, all due diligence fees and attorneys fees and expenses incurred
by Pacific Continental Securities Corporation up to the maximum stated in the
final letter agreement between the Company and Pacific Continental Securities
Corporation in connection with the preparation, negotiation, execution and
delivery of this Agreement, the Registration Rights Agreement and the
transactions contemplated hereunder. The Company shall pay all stamp or other
similar taxes and duties levied in connection with the issuance of the Preferred
Shares pursuant hereto.
Section 9.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of the
Registration Rights Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of the Registration Rights Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchasers do hereby agree that any
dispute involving the interpretation or application of any of the terms or
conditions of this Agreement which cannot by resolved between the parties shall
be determined in accordance with final and binding arbitration before the
American Arbitration Association in Los Angeles, California (the "AAA"), and in
accordance with the then obtaining rules and regulations of the AAA. There shall
be three arbitrators, one of whom shall be selected by the Company, one of whom
shall be selected by the Purchasers and the third arbitrator shall be selected
by mutual agreement of the other two arbitrators or, failing such agreement, by
the AAA. The decision of a majority of the arbitrators shall be final and
binding upon all parties hereto and may be enforced in any federal or state
court of competent jurisdiction. Each of the Company and the Purchasers consents
to process being served in any such arbitration proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Registration Rights
Agreement or the Certificate of Designations, neither the Company nor any of the
Purchasers makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required to permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address
23
<PAGE> 30
or number designated below (if delivered on a business day on or before 7:00
p.m. (New York time) where such notice is to be received), or the first business
day following such delivery (if delivered other than prior to 7:00 p.m. (New
York time) on a business day where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such communications
shall be:
If to the Company: Paul E. Hannesson, Chief Executive Officer
Commodore Applied Technologies, Inc.
6867 Elm Street, Suite 210
McLean, Virginia 22101
Telephone Number: (703) 748-0200
with copies to: Bentley J. Blum and Michael D. Fullwood
150 East 58th Street, Suite 3410
New York, New York 10155
Telephone Number: (212) 935-5400
Fax: (212) 753-0731
with copies to: Stephen A. Weiss, Esq.
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel
153 East 53rd Street
New York, New York 10022
Telephone Number: (212) 801-9253
Fax: (212) 223-7161 and (203) 222-0845
If to any Purchasers: At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser's counsel as set forth on Exhibit A or as
specified in writing by such Purchaser
with copies to: James A. Allen, President
Pacific Continental Securities Corporation
8484 Wilshire Blvd., Suite 744
Beverly Hills, CA 90211
Telephone Number: (213) 653-1212
Fax: (213) 653-1262
24
<PAGE> 31
with copies to: Mark J. Richardson, Esq.
1299 Ocean Avenue, Suite 900
Santa Monica, California 90401
Telephone Number: (310) 393-9992
Fax: (310) 393-2004
-and-
Robert J. Brantman, Esq.
Katten Muchin & Zavis
525 West Monroe Street - Suite 1600
Chicago, IL 60661-3693
Telephone Number: (312) 902-5200
Fax: (312) 902-1061
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
The parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment. After Closing, the assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the state of Delaware, without
giving effect to the choice of law provisions.
Section 9.10 Survival. The representations and warranties of the
Company and the
25
<PAGE> 32
Purchasers contained in Article II shall survive the execution and delivery
hereof and the Closing until the date two years from the Closing Date, and the
agreements and covenants set forth in Articles I, III, V, VII and VIII of this
Agreement shall survive the execution and delivery hereof and the Closing
hereunder until the Purchasers hold less than 1% of the total combined voting
power of all voting securities then outstanding, provided, that Sections 3.1,
3.2, 3.7, 3.8, 3.9, 3.10, 3.11 and 3.12 shall not expire until the Registration
Statement required by Section 2.2 of the Registration Rights Agreement is no
longer required to be effective under the terms and conditions of Registration
Rights Agreement. Notwithstanding the foregoing, the indemnification provisions
set forth in the Registration Rights Agreement and Article VIII hereof shall
survive indefinitely.
Section 9.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically delivered
to the other parties within five days of the execution and delivery hereof.
Section 9.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement, the
Certificate of Designations and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of a provisions contained in this
Agreement, the Certificate of Designations or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designations or the Registration Rights Agreement, and this Agreement, the
Certificate of Designations or the Registration Rights Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible.
Section 9.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Certificate of Designations, and
the Registration Rights Agreement.
26
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date hereof.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ PAUL E. HANNESSON
-----------------------------
Name: Paul E. Hannesson
Its: Chairman and Chief
Executive Officer
27
<PAGE> 34
THE PURCHASERS:
By: /s/ NELSON PARTNERS
-----------------------------
Name: Nelson Partners
Its:
Address:
By: /s/ OLYMPUS SECURITIES, LTD.
-----------------------------
Name: Olympus Securities,
Ltd.
Its:
Address:
By: /s/ LEONARDO, L.P.
------------------------------
Name: Leonardo, L.P.
Its:
Address:
By: /s/ RAPHAEL, L.P.
-----------------------------
Name: Raphael, L.P.
Its:
Address:
By: /s/ RAMIUS FUND, LTD.
-----------------------------
Name: Ramius Fund, Ltd.
Its:
Address:
By: /s/ FORTUNE FUND
------------------------------
Name: Fortune Fund
Its:
Address:
By: _______________________________
Name:
Its:
Address:
28
<PAGE> 1
CERTIFICATE OF DESIGNATIONS OF RIGHTS AND PREFERENCES
OF
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
(PAR VALUE $0.001 PER SHARE)
OF
COMMODORE APPLIED TECHNOLOGIES, INC.
----------------------------------
Delaware General Corporation Law
----------------------------------
Paul E. Hannesson and Michael D. Fullwood hereby certify that they are
the Chief Executive Officer and Secretary, respectively of Commodore Applied
Technologies, Inc. (the "Company"), a corporation organized and existing under
the General Corporation Law of the State of Delaware, as amended, and further
certify:
That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Company, as amended (the "Certificate of
Incorporation"), the Board of Directors of the Company (the "Board of
Directors") on July 9, 1997, adopted the following resolutions creating a series
of shares of Series A Convertible Preferred Stock, $0.001 per share par value.
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of the Certificate of
Incorporation and the General Corporation Law of the State of Delaware, as
amended, the Company is authorized to issue an aggregate of 5,000,000 shares of
the Company's preferred stock, par value $0.001 per share (the "Preferred
Stock"), in such series and with such rights, designations, and privileges as
the Board of Directors of the Corporation may, from time to time determine; and
FURTHER, RESOLVED, that the Board of Directors be and the same hereby
is authorized, and the Board of Directors hereby fixes the voting powers,
designations, preferences, limitations, restrictions and relative rights, and
the qualifications limitations and restrictions of such rights, of the shares of
such series of Preferred Stock (in addition to the voting powers, designations,
preferences, limitations, restrictions and relative rights, and the
qualifications, limitations and restrictions of such rights, set forth in the
Certificate of Incorporation that may be applicable to the Preferred Stock) as
follows:
1. Designation and Rank. The designation of such series of the Preferred Stock
shall be the Series A Convertible Redeemable Preferred Stock, par value $0.001
per share (the "Series A Preferred Stock"). The number of shares of Series A
Preferred Stock (the "Shares") shall be eighty thousand (80,000) Shares. The
Series A Preferred Stock shall have a liquidation preference of $100 per share
plus accrued and unpaid dividends thereon. The Series A Preferred Stock shall
rank prior to the common stock, par value $0.001 per share (the "Common Stock"),
prior to all other classes and series of equity securities of the Company now or
hereafter authorized, issued or outstanding (the Common Stock and such other
classes and series of equity
1
<PAGE> 2
securities are collectively referred to herein as the "Junior Stock"). The
Series A Preferred Stock shall be subordinate to and rank junior to all
indebtedness of the Company now or hereafter outstanding.
2. Cumulative Dividends; Priority.
(a) Payment of Dividends. The holders of record of shares of Series A
Preferred Stock are entitled to a cumulative noncompounded dividend equal to 7%
per annum, payable in cash as, when and if declared by the Company's Board of
Directors, and upon any conversion or redemption of the Preferred Stock.
Dividends shall be payable semi-annually by the Company, on December 31st and
June 30th of each year, either in cash or, at the election of the Company, by
delivery of additional shares of Series A Preferred Stock having an aggregate
liquidation value equal to the amount of such dividend.
3. Voting Rights.
(a) Class Voting Rights. The Series A Preferred Stock shall have the
following class voting rights (in addition to the voting rights set forth in
Section 3(b) hereof). So long as any shares of the Series A Preferred Stock
remain outstanding, the Company shall not, without the affirmative vote or
consent of the holders of at least a sixty-six and 2/3 (66-2/3%) percent of the
shares of the Series A Preferred Stock outstanding at the time, given in person
or by proxy, either in writing or at a meeting, in which the holders of the
Series A Preferred Stock vote separately as a class: (i) authorize, create,
issue or increase the authorized or issued amount of any class or series of
stock ranking prior to or on a parity with the Series A Preferred Stock, with
respect to payment of dividends or the distribution of assets on liquidation,
dissolution or winding up; (ii) amend, alter or repeal the provisions of the
Series A Preferred Stock, whether by merger, consolidation or otherwise, so as
to affect materially and adversely any right, preference, privilege or voting
power of the Series A Preferred Stock; provided, however, that any creation and
issuance of other series of Junior Stock shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers; (iii)
repurchase, or pay cash dividends on, shares of the Company's Junior Stock;
provided, that regularly scheduled dividends may be paid on Junior Stock so long
as such Junior Stock shall be preferred stock, and at the time of such payment
(A) all dividends on the Series A Preferred Stock shall have been paid in full,
and (B) if dividends on Junior Stock are payable in cash, all dividends on the
Series A Preferred Stock thereafter paid shall similarly be paid in cash, or
(iv) amend the Certificate of Incorporation or By-Laws of the Company so as to
affect materially and adversely any right, preference, privilege or voting power
of the Series A Preferred Stock; provided, however, that any creation and
issuance of other series of Junior Stock shall not be deemed to materially and
adversely affect such rights, preferences privileges or voting powers.
(b) General Voting Rights. Except with respect to transactions upon
which the Series A Preferred Stock shall be entitled to vote separately as a
class pursuant to Section 3(a) above and except as otherwise required by
Delaware law, the Series A Preferred Stock shall vote together with the Common
Stock and not as a separate class on any transaction with respect to which the
Common Stock is entitled to vote pursuant to applicable Delaware law or the
Certificate of Incorporation. Each share of Series A Preferred Stock shall be
entitled to a number of votes per share equal to (i) one (1) multiplied by (ii)
the number of shares of Common Stock into which each share of Series A Preferred
Stock is convertible on the record date used to determine shares eligible to
vote on such transaction.
2
<PAGE> 3
4. Liquidation Preference.
(a) In the event of the liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of shares of the Series A Preferred Stock then outstanding shall be
entitled to receive, out of the assets of the Company whether such assets are
capital or surplus of any nature, before any distribution shall be made to the
holders of the Common Stock or any other Junior Stock, an amount (the
"Liquidation Preference") per share equal to $100 per share of the Series A
Preferred Stock, plus cumulative and unpaid dividends at the rate of 7% per
annum, through the date of liquidation, dissolution or winding up, whether or
not declared, and no more, before any payment shall be made or any assets
distributed to the holders of the Common Stock or any other Junior Stock. If the
assets of the Company are not sufficient to pay in full the liquidation payment
payable to the holders of outstanding shares of the Series A Preferred Stock and
any series of preferred stock or any other class of stock on a parity, as to
rights on liquidation, dissolution or winding up, with the Series A Preferred
Stock (the "Parity Securities"); provided that the holders of a majority of the
shares of Series A Preferred Stock approve such Parity Securities in accordance
with Section 3(a) hereof, then the holders of outstanding shares of the Series A
Preferred Stock are entitled to be paid in on a pro-rata basis together with the
other Parity Securities, based on the relative liquidation value of shares of
Series A Preferred Stock and the other Parity Securities. The liquidation
payment with respect to each outstanding fractional share of Series A Preferred
Stock shall be equal to a ratably proportionate amount of the liquidation
payment with respect to each outstanding share of Series A Preferred Stock. All
payments for which this Section 4(a) provides shall be in cash, property (valued
at its fair market value as determined by an independent nationally recognized
investment banking firm) or a combination thereof; provided, however, that no
cash shall be paid to holders of Junior Stock unless each holder of the
outstanding shares of Series A Preferred Stock and each holder of Parity
Securities has been paid in cash the full amount of the Liquidation Preference
to which such holder is entitled as provided herein. After payment of the full
amount of the Liquidation Preference to which each holder is entitled, such
holders of shares of Series A Preferred Stock will not be entitled to any
further participation as such in any distribution of the assets of the Company.
(b) A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Company, shall not be deemed to be a liquidation, dissolution, or winding
up within the meaning of this Section 4.
(c) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, stating a payment date
and the place where the distributable amounts shall be payable, shall be given
by mail, postage prepaid, no less than 30 days prior to the payment date stated
therein, to the holders of record of the Series A Preferred Stock at their
respective addresses as the same shall appear on the books of the Company.
5. Conversion. Subject at all times to the Company's right of voluntary
redemption of the Series A Preferred Stock provided in Section 6 of this
Certificate of Designations, the holders
3
<PAGE> 4
of the Series A Preferred Stock shall have the following conversion rights (the
"Conversion Rights"):
(a) Voluntary Conversion. At any time or from time to time following
the earlier to occur of (i) the date (the "Effective Date") on which the
Company's registration statement on Form S-1 or Form S-3 filed under the
Securities Act of 1933, as amended (the "Act"), registering (in whole or in
part) under the Act the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock shall have been declared effective by the Securities
and Exchange Commission ("SEC"), or (ii) the 180th day following the date of the
initial issuance of the Series A Preferred Stock (the "Issuance Date"), the
holder of any shares of Series A Preferred Stock at his or her option may, by
written notice given to the Company in accordance with the provisions of Section
5(h) hereof (the "Conversion Notice"), elect to convert (a "Voluntary
Conversion") all or any portion of the shares of Series A Preferred Stock held
by such person into a number of fully paid and nonassessable shares of Common
Stock equal to the quotient which results when the Conversion Price (as defined
below) for a full Share of Series A Preferred Stock in effect as of the date of
such holder's notice of election to convert (the "Conversion Date") is divided
into $100. Such right of Voluntary Conversion shall be effected by the surrender
of certificates evidencing the shares of Series A Preferred Stock to be
converted to the Company at any time during normal business hours at the office
of the Company, accompanied (i) by the Conversion Notice, (ii) if so required by
the Company, by instruments of transfer, in form satisfactory to the Company,
duly executed by the registered holder or by his duly authorized attorney and
(iii) transfer tax stamps or funds therefore, if required pursuant to Section
5(g) herein.
(b) Automatic Conversion. Prior to July 31, 1999, the Company shall NOT
have the right to compel any holder of Series A Preferred Stock to convert such
Series A Preferred Stock into Common Stock or any other securities of the
Company. Effective as of August 1, 1999, to the extent not previously converted
by the holders, all remaining shares of Series A Preferred Stock shall
automatically and without further action on the part of such holders, be
converted into Common Stock of the Company at the Conversion Price then in
effect.
(c) Conversion Price. Subject to adjustment from time to time as
provided in Section 5(d) below, the term "Conversion Price" shall mean the
LESSER of (i) 100% of the Average Share Price (as defined below) for the five
(5) consecutive trading days immediately preceding the Issuance Date, or (ii)
the product of multiplying (A) the Average Share Price for the five consecutive
trading days preceding the Conversion Date of such conversion, by (B)
eighty-eight (88%) percent. Notwithstanding the foregoing, subject to the
adjustments provided in Section 5(d) below, in no event shall such Conversion
Price be less than $2.00 (the "Floor Conversion Price"); PROVIDED, HOWEVER, that
in the event that, on any one or more occasions, the Average Share Price shall
be LESS than the Floor Conversion Price for any period of sixty (60) consecutive
calendar days (a "Below Floor Conversion Price Period"), the holders of the
Series A Preferred Stock shall thereafter have the right, exercisable at their
sole option at any time within the sixty (60) day period immediately following
the expiration of each such Below Floor Conversion Price Period, to either (i)
exercise their rights of mandatory redemption set
4
<PAGE> 5
forth in Section 6(b) hereof, or (ii) convert all or any portion of their shares
of Series A Preferred Stock into Common Stock at the Conversion Price then in
effect, without regard to any Floor Conversion Price.
As used herein, the term "Average Share Price" shall mean the
average of the last sale price per share of the Company's shares of Common Stock
as reported by Bloomberg, L.P. ("Bloomberg"), on any one of the following
exchanges on which such Common Stock shall then be quoted; namely, (a) the AMEX,
(b) the NASDAQ National Market System ("NASDAQ NMS"), (c) the NASDAQ System
(other than the NASDAQ NMS), (d) the New York Stock Exchange, or (e) the
National Quotation Bureau, Inc. for quotes on the Electronic Bulletin or the
"Pink Sheets", as the case may be, for the applicable number of consecutive
trading days immediately preceding the Issuance Date, the Conversion Date, or
other applicable date specified in Section 5(c) or Section 5(d), as the case may
be.
(d) Adjustments of Conversion Price. The Conversion Price in effect
from time to time shall be subject to adjustment in accordance with the
provisions of this Section 5(d).
(i) Adjustments for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the Issuance Date, effect a
stock split of the outstanding Common Stock, the applicable Conversion
Price in effect immediately prior to the stock split shall be
proportionately decreased. If the Company shall at any time or from
time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately
prior to the combination shall be proportionately increased. Any
adjustments under this Section 5(d)(i) shall be effective at the close
of business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Company shall at any time or from time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in
shares of Common Stock, then, and in each event, the applicable
Conversion Price in effect immediately prior to such event shall be
decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such
record date, by multiplying, as applicable, the applicable Conversion
Price then in effect by a fraction;
(A) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the
close of business on such record date; and
(B) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding
immediately prior to the
5
<PAGE> 6
time of such issuance or the close of business on such
record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the Company
shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in
other than shares of Common Stock, then, and in each event, an
appropriate revision to the Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holders of Series A Preferred Stock shall
receive upon conversions thereof, in addition to the number of shares
of Common Stock receivable thereon, the number of securities of the
Company which they would have received had their Series A Preferred
Stock been converted into Common Stock on the date of such event and
had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with
any distributions payable thereon during such period), giving
application to all adjustments called for during such period under this
Section 5(d)(iii) with respect to the rights of the holders of the
Series A Preferred Stock.
(iv) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of the Series A Preferred Stock
at any time or from time to time after the Issuance Date shall be
changed into the same or different number of shares of any class or
classes of stock, whether by reclassification, exchange, substitution
or otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 5(d)(i), (ii) and
(iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 5(d)(v)), then, and in each event, an
appropriate revision to the Conversion Price shall by made and
provisions shall be made (by adjustments of the Conversion Price of
otherwise) so that the holder of each share of Series A Preferred Stock
shall have the right thereafter to convert such share of Series A
Preferred Stock into the kind and amount of shares of stock and other
securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into
which such share of Series A Preferred Stock might have been converted
immediately prior to such reclassification, exchange, substitution or
other change, all subject to further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date
there shall be a capital reorganization of the Company (other than by
way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 5(d)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in
Section 5(d)(iv)), or a merger or consolidation of the Company with or
into
6
<PAGE> 7
another corporation, or the sale of all or substantially all of the
Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate
revision to the Conversion Price shall be made and provision shall be
made (by adjustments of the Conversion Price or otherwise) so that the
holder of each share of Series A Preferred Stock shall have the right
thereafter to convert such share of Series A Preferred Stock into the
kind and amount of shares of stock and other securities or property of
the Company or any successor corporation resulting from such
reorganization, merger, consolidation, or sale, to which a holder of
Common Stock deliverable upon conversion of such shares would have been
entitled upon such reorganization, merger, consolidation, or sale, to
which a holder of Common Stock deliverable upon conversion of such
shares would have been entitled upon such reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 5(d)(v)
with respect to the rights of the holders of the Series A Preferred
Stock after the reorganization, merger, consolidation, or sale to the
end that the provisions of this Section 5(d)(v) (including any
adjustment in the applicable Conversion Ratio then in effect and the
number of shares of stock or other securities deliverable upon
conversion of the Series A Preferred Stock) shall be applied after that
event in as nearly an equivalent manner as may be practicable.
(vi) Adjustments for Issuance of Common Stock. If at any time or from
time to time after the Issuance Date, the Company shall issue or sell
any shares of Common Stock for a consideration per share which shall be
LESS than 88% of the Average Share Price per share of Common Stock for
the five (5) consecutive trading days immediately prior to the time of
such issue or sale (the "Trigger Price"), then forthwith upon such
issue or sale, the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock in effect immediately prior
to such issue or sale shall be adjusted by multiplying the number of
shares of Common Stock issuable upon conversion of the Series A
Preferred Stock in effect immediately prior to the time of such issue
or sale by a fraction:
(A) the numerator of which shall be (i) the total number of
shares of Common Stock issued and outstanding immediately
after such issue or sale, multiplied by (ii) the Trigger
Price; and
(B) the denominator of which shall be the sum of (i) the
number of shares of Common Stock outstanding immediately prior
to such issue or sale multiplied by the Trigger Price, plus
(ii) the consideration received by the Company upon such issue
or sale.
(vii) Other Adjustment Events and Provisions. For the purposes of this
Section 5, following shall also be applicable.
7
<PAGE> 8
(A) Issuance of Rights, Warrant or Options.
(i) In case at any time the Company shall grant, issue or sell
(whether directly or by assumption in a merger or otherwise)
any rights or warrants to subscribe for or to purchase, or any
options for the purchase of Common Stock or any stock or
securities convertible into or exchangeable for Common Stock
(such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), whether or not such
rights or warrants or options or the right to convert or
exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights or warrants or
options or upon conversion or exchange of such Convertible
Securities (determined as provided below) shall be less than
the Trigger Price as of the date of granting such rights or
warrants or options as the case may be, then the total maximum
number of shares of Common Stock issuable upon the exercise of
such rights (other than rights issued pursuant to a
stockholders rights plan adopted by the Company pursuant to
which the acquisition by any third party of a specified
percentage of shares of Common Stock triggers the
exercisability of such rights to purchase Common Stock, for so
long as no event has occurred triggering such right to
exercise) or warrants or options or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights or
warrants or options shall (as of the date of granting of such
rights or warrants or options) be deemed to be outstanding and
to have been issued for such price per share.
(ii) No further adjustments of the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock
shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such rights or
warrants or options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible
Securities.
(B) Issuance of Convertible Securities. In case of Company
shall issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the conversion or exchange of such Convertible
Securities (determined as provided below) shall be less than
the Trigger Price determined as of the date of such issue or
sale of such Convertible Securities, then the total maximum
number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for such
price per share; provided, however, that (a) except as
provided Section 5(d)(vii)(C), no further adjustments to the
number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock shall be made upon the actual
issue of such Common Stock upon conversion or
8
<PAGE> 9
exchange of such Convertible Securities, and (b) if any such
issue or sale of such Convertible Securities is made upon
exercise of any rights or warrants to subscribe for or to
purchase or any options to purchase any such Convertible
Securities for which adjustments of the number of shares of
Common Stock issuable upon conversion of the Series A
Preferred Stock have been or are to be made pursuant to
Section 5(d)(vii)(A), no further adjustment of the number of
shares of Common Stock issuable upon conversion of the Series
A Preferred Stock shall be made by reason of such issue or
sale. For the purposes of this Section 5(d)(vii)(B), the price
per share for which Common Stock is issuable upon conversion
or exchange of Convertible Securities shall be determined by
dividing (i) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities.
(C) Consideration for Stock. In case any shares of Common
Stock or Convertible Securities, other than the Series A
Preferred Stock, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities shall
be issued or sold:
(i) for cash, the consideration received therefor
shall be deemed to be the amount received by the
Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in
connection therewith;
(ii) for a consideration other than cash, the amount
of the consideration other than cash received by the
Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors
of the Company in good faith and in the exercise of
reasonable business judgment, without deduction of
any expense incurred or any underwriting commissions
or concessions paid or allowed by the Company in
connection therewith, which determination shall be
sent in writing by the Board of Directors to the
registered holders of Series A Preferred Stock;
(iii) in connection with any merger or consolidation
in which the Company is the surviving corporation
(other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the
Company shall be changed into or exchanged for the
stock or other securities of another corporation),
the amount of consideration therefor shall be deemed
to be the fair value, as determined reasonably and in
good faith by the Board of Directors of the Company,
of such portion of the assets and business of the
nonsurviving corporation as such Board may
9
<PAGE> 10
determine to be attributable to such shares of Common
Stock, Convertible Securities, rights or warrants or
options, as the case may be; or
(iv) in the event of any consolidation or merger of
the Company in which the Company is not the surviving
corporation or in which the previously outstanding
shares of Common Stock of the Company shall be
changed into or exchanged for the stock or other
securities of another corporation or in the event of
any sale of all or substantially all of the assets of
the Company for stock or other securities of any
corporation, the Company shall be deemed to have
issued a number of shares of its Common Stock for
stock or securities or other property of the other
corporation computed on the basis of the actual
exchange ratio on which the transaction was
predicated, and for a consideration equal to the fair
market value on the date of such transaction of all
such stock or securities or other property of the
other corporation. If any such calculation results in
adjustment of the applicable Conversion Price or the
number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, the
determination of the applicable Conversion Price or
the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock
immediately prior to such merger, consolidation or
sale, shall be made after giving effect to such
adjustment of the number of shares of Common Stock
issuable upon conversion of the Series A Preferred
Stock.
(D) Record Date. In case the Company shall take a record of
the holders of its Common Stock or any other Preferred Stock
for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon
the date of the granting of such right of subscription or
purchase.
(E) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any
adjustment of the number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock upon:
(i) the (x) issuance after the Issuance Date of or
exercise of options or warrants or rights to purchase
restricted securities issued after the Issuance Date,
or (y) issuance after the Issuance Date of or
exercise of options or warrants or rights granted or
provided under employee benefit plans or other
written employment agreements or arrangements
relating to the acquisition of Common Stock or
rights, options or warrants with respect thereto, in
each case currently in effect or adopted after the
Issuance Date or entered into by the Company after
the Issuance Date;
10
<PAGE> 11
provided, however, that any such issuance or grant
shall be for consideration or at the strike price,
respectively, not less than the Trigger Price on the
date of grant thereof or of the issuance of the
Common Stock subject thereto, and provided, further,
that the sum of (y) the number of shares Common Stock
referred to in this clause (i) so issued plus (z) the
aggregate number of shares of Common Stock referred
to in this clause (i) issuable upon the exercise of
such options, warrants or rights, exclusive of any
options, warrants or rights that have expired, been
canceled or are for other reasons (other than having
been exercised) no longer outstanding, shall not
exceed fifteen percent (15%) of the aggregate of (1)
the total outstanding shares of Common Stock at the
Initial Date, (2) the number of shares issuable in
respect of all outstanding warrants as of the Initial
Date, (3) the number of shares of Common Stock
issuable upon conversion of the Series A Preferred
Stock; plus (4) the summation derived from clauses
(y) and (z) of this clause. The Company shall not be
required to make any such adjustment upon the
issuance of shares or the granting of any options or
warrants or rights referred to in this Section
5(d)(vii)(E) if and to the extent that the issuance
of the shares covered thereby is excepted by this
clause.
(e) No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon occurrence of each adjustment
or readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish notice to each
holder of such Series A Preferred Stock, a certificate setting forth such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon written request of
the holder of such affected Series A Preferred Stock, at any time, furnish or
cause to be furnished to such holder a like certificate setting forth such
adjustments and readjustments, the applicable Conversion Price in effect at the
time and the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon the conversion
of a share of such Series A Preferred Stock. Notwithstanding the foregoing, the
Company shall not be obligated to deliver a certificate unless such certificate
would reflect an increase or decrease of at least one percent of such adjusted
amount.
11
<PAGE> 12
(g) Issue Taxes. The Company shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series A Preferred Stock pursuant hereto; provided, however, that the
Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
(h) Notices and Delivery of Shares. All notices and other
communications hereunder shall be in writing and shall be deemed given (i) on
the same date, if delivered personally or by facsimile by not later than 7:00
p.m. New York time (provided, that a copy of such facsimile shall be
simultaneously sent to Stephen A. Weiss, Esq. at (212) 223-7161 and at (203)
222- 0845), or (ii) three business days following being mailed by certified or
registered mail, postage prepaid, return-receipt requested, addressed to the
holder of record at its address appearing on the books of the Company. Not later
than five (5) Business Days following receipt of notice of conversion as
provided herein (the "Delivery Date"), the Company shall deliver to the holders
of Shares of Series A Preferred Stock, against delivery of one or more
certificates evidencing Series A Preferred Stock surrendered for conversion,
certificates evidencing all shares of Common Stock into which such Series A
Preferred Stock shall be converted. Subject to the foregoing, should Company,
for any reason, fail or refuse to timely deliver such certificates on the
Delivery Date, the Company shall be obligated to pay, to the holder(s) seeking
to so effect such conversion, a penalty for each day beyond such Delivery Date
and until such Common Stock certificates are delivered, which shall be equal to
$75,000, multiplied by a fraction (i) the numerator of which shall be the number
of shares of Common Stock issuable upon such conversion by the converting
holder, and (ii) the denominator of which shall be the aggregate number of
shares of Common Stock which would have then been issuable by the Company had
all holders of Series A Preferred Stock elected to convert all of their shares
of Series A Preferred Stock.
(i) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the Average
Share Price of one share of the Company's Common Stock on the applicable
Conversion Date.
(j) Reservation of Common Stock. The Company shall at all times reserve
and keep available, out of its authorized but unused shares of Common Stock,
solely for the purpose of effecting the conversion of the Series A Preferred
Stock, the full number of shares deliverable upon conversion of all the shares
of Series A Preferred Stock from time to time outstanding. The Company shall,
from time to time in accordance with the Delaware Corporations Law, as amended,
increase the authorized number of shares of Common Stock if at any time the
unused number of authorized shares shall not be sufficient to permit the
conversion of all of the Series A Preferred Stock at the time outstanding. In
such connection, the Company shall hold a special meeting of stockholders for
the purpose of authorizing additional shares of Common Stock not later than 120
days after any date in which the Company shall have insufficient shares of
Common Stock so reserved.
12
<PAGE> 13
(k) Retirement of Series A Preferred Stock. Conversion of Series A
Preferred Stock shall be deemed to have been effected on the applicable
Conversion Date. The converting holder shall be deemed to have become a
stockholder of record of the Common Stock on the applicable Conversion Date.
Upon conversion of only a portion of the number of shares of Series A Preferred
Stock represented by a certificate surrendered for conversion, the Company shall
issue and deliver to such holder at the expense of the Company, a new
certificate covering the number of shares of Series A Preferred Stock
representing the unconverted portion of the certificate so surrendered.
(l) Regulatory Compliance. If any shares of Common Stock to be reserved
for the purpose of conversion of Series A Preferred Stock require registration
or listing with or approval of any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or otherwise
before such shares may be validly issued or delivered upon conversion, the
Company shall, at its sole cost and expense, in good faith and as expeditiously
as possible, endeavor to secure such registration, listing or approval, as the
case may be.
(m) Limitations on Amount of Conversion. Notwithstanding anything
contained in this Certificate of Designations to the contrary, each individual
holder of the Series A Preferred Stock may not elect to convert into Common
Stock of the Company more than twenty (20%) percent of the aggregate number of
Shares of Series A Preferred Stock owned by such individual holder of Series A
Preferred Stock during any one calendar month pursuant to a Voluntary
Conversion, calculated from the first month during which a Voluntary Conversion
may occur; provided, that, such limitation on conversion shall be on a
cumulative basis so that so that any shares not converted by an individual
holder of Series A Preferred Stock in any one calendar month may be accumulated
with the number of shares of Series A Preferred Stock which may be converted in
the next calendar month. For example, if no shares of Series A Preferred Stock
are converted into Common Stock by an individual holder in any one month, then
in the next succeeding month 40% of aggregate number of Shares of Series A
Preferred Stock owned by such individual holder may be converted into Common
Stock.
Notwithstanding anything contained in this Certificate of
Designations to the contrary, in no event shall any holder of Series A Preferred
Stock be entitled or required to convert shares of Series A Preferred Stock in
excess of that number of shares of Series A Preferred Stock which, upon giving
effect to such conversion, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 4.9% of the
outstanding shares of the Company's Common Stock immediately following such
conversion. For purposes of the foregoing proviso, the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock with respect to which the determination of such proviso
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (i) conversion of the remaining, unconverted shares of
Series A Preferred Stock beneficially owned by such holder and its affiliates,
and (ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company (including without limitation any warrants)
which are beneficially owned by the holder
13
<PAGE> 14
and its affiliates and which are subject to a limitation on conversion or
exercise analogous to the limitation contained herein. Except as set forth in
the preceding sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. Any holder of Series A Preferred Stock may waive the
foregoing limitations set forth in this paragraph by written notice to the
Company upon not less than 61 days prior notice (with such waiver taking effect
only upon the expiration of such 61 day notice period).
6. Redemptions.
(a) Voluntary Redemption. Subject, at all times, to the right of the
holders of Series A Preferred Stock to effect a Voluntary Conversion of their
shares of Series A Preferred Stock into Common Stock at the applicable
Conversion Price then in effect by delivery of a Conversion Notice to the
Company at any time prior to the date fixed for redemption, subject to
compliance with the provisions of this Section 6(a), the Company shall have the
right, exercisable at any time on not more than sixty (60) days and not less
than fifteen (15) days prior written notice to the holders of Series A Preferred
Stock (the "Voluntary Redemption Notice"), to redeem all or any portion of the
Shares of Series A Preferred at a redemption price for each Share of Series A
Preferred Stock to be redeemed (the "Voluntary Redemption Price") which shall
equal to the sum of (i) $100 per Share, (ii) all accrued dividends on such Share
to the date fixed for redemption (the "Voluntary Redemption Date"), and (iii)
the Redemption Premium (as herein defined). Notwithstanding the foregoing, the
Company's rights to effect a voluntary redemption on the Voluntary Redemption
Date pursuant to this Section 6(a) shall be conditioned upon compliance with all
of the following:
(i) at the time the Voluntary Redemption Notice is given
and until the Voluntary Redemption Date, there shall be
available and in existence a current registration
statement on Form S-3 or Form S-1, as applicable, and
no stop order or other order suspending the
effectiveness of such registration statement shall be
issued by the Commission or any other governmental
agency;
(ii) at the time the Voluntary Redemption Notice is given
and until the Voluntary Redemption Date, the Company
shall have available to it all funds necessary to pay
in full the aggregate Voluntary Redemption Price;
(iii) at the time the Voluntary Redemption Notice is given
and until the Voluntary Redemption Date, the Company's
Common Stock shall continue to be listed for trading on
the AMEX or other securities exchange specified herein,
and no order suspending such listing shall have been
issued; and
(iv) from the date the Voluntary Redemption Notice is given
and until the Voluntary Redemption Date, the Company
shall timely honor all requests
14
<PAGE> 15
for conversion of shares of Series A Preferred Stock in
accordance with the provisions hereof.
(b) Mandatory Redemption. In the event, and ONLY in the event, that one
or more of the events set forth below in this Section 6(b) (each a "Triggering
Event") shall have occurred and be continuing, the holders of the Series A
Preferred Stock shall have the right (but not the obligation), exercisable only
by written notice to the Company given at any time within the sixty (60)
calendar day period immediately following the occurrence of such Triggering
Event (the "Mandatory Redemption Notice"), to cause the Company to redeem and
repurchase all or any portion of the Shares of Series A Preferred Stock at a
redemption price for each Share of Series A Preferred Stock to be redeemed (the
"Mandatory Redemption Price") which shall equal to the sum of (i) $100 per
Share, and (ii) all accrued dividends on such Share to the date fixed for
redemption (the "Mandatory Redemption Date").
As used herein a "Triggering Event" shall be deemed to have
occurred if:
(i) the Average Share Price of Company Common Stock for any
one or more sixty (60) consecutive calendar day Below Floor
Conversion Price Period shall be less than the $2.00 Floor
Conversion Price; or
(ii) the Shelf Registration Statement referred to in Section
2.2 of the Registration Rights Agreement shall not be declared
effective by the Commission on or prior to the date that is
240 days after the Initial Issuance Date; or
(iii) while a registration statement is required to be
maintained effective pursuant to the Registration Rights
Agreement, the effectiveness of such registration statement
lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holders of
the Series A Preferred Stock for sale of the Restricted
Securities (as defined in the Registration Rights Agreement)
in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a
period of 10 consecutive trading days (in addition to any
Blackout Period (as defined in Section 2.2(d) of the
Registration Rights Agreement)), provided that the cause of
such lapse or unavailability is not due to factors solely
within the control of such holder(s) of Series A Preferred
Stock; or
(iv) the failure of the Common Stock of the Company to be
listed on one of the securities exchanges referred to in
Section 5(c) hereof for a period of fifteen (15) consecutive
trading days (provided that such failure shall not constitute
a Triggering Event if caused by any holders of Series A
Preferred Stock); or
(v) the Company's notice to any holder of Series A Preferred
Stock, including by way of public announcement, at any time,
of its intention not to comply with
15
<PAGE> 16
proper requests for conversion of any shares of Series A
Preferred Stock into shares of Common Stock, or the Company
otherwise fails to deliver shares of Common Stock so converted
within thirty (30) calendar days of the date of receipt of a
Voluntary Conversion Notice or the Company fails to make the
payments required for failure to so deliver the shares of
Common Stock on a timely basis; or
(vi) the Company is unable to issue shares of Common Stock
without obtaining stockholder approval of the transactions due
to the rules or regulations of the AMEX or The Nasdaq Stock
Market, Inc. or any other principal securities exchange or
market on which the Common Stock is or becomes traded (the
"Market Cap"), and fails, for any reason, to obtain such
requisite stockholder approval within ninety (90) calendar
days thereafter.
(c) Method of Payment. The Company shall pay an aggregate amount for
all Shares of Series A Preferred Stock to be redeemed hereunder (the "Redemption
Payment"), calculated by multiplying the number of Shares so redeemed by the
applicable Voluntary Redemption Price or Mandatory Redemption Price, as the case
may be, not later than thirty (30) calendar days following the Voluntary
Redemption Notice or Mandatory Redemption Notice, as applicable, by payment of
the Voluntary Redemption Price by bank cashiers' or certified check payable to
the applicable holders of the Series A Preferred Stock or wire transfer of
immediately available funds to accounts designated by such holders. In the event
that, for any reason, the full applicable Redemption Payment is not timely made
pursuant to this Section 6(c), the holders of Series A Preferred Stock shall (i)
have the option to void such Voluntary Redemption Notice or Mandatory Redemption
Notice, as the case may be, and (ii) such defaulted Redemption Payment shall
thereafter bear default interest at the rate of 15% per annum, commencing on the
thirty first (31st) calendar day following the Voluntary Redemption Notice or
Mandatory Redemption Notice, as applicable, and continuing until paid in full.
(d) Delivery of Series A Preferred Stock. The holders of Series A
Preferred Stock whose Shares are to be redeemed pursuant to this Section 6 shall
deliver to the Company, against receipt of the applicable Voluntary Redemption
Payment or Mandatory Redemption Payment, all of their Shares of Series A
Preferred Stock to be redeemed, duly endorsed in blank for transfer or
accompanied by a duly executed stock power with the signature of the record
owner guaranteed by a bank or member firm of the New York Stock Exchange.
(e) Definition. As used herein, the term "Redemption Premium" shall
mean, with respect to each Share of Series A Preferred Stock to be redeemed
pursuant to a Voluntary Redemption, the product of multiplying (i) $100.00 by
(ii) 0.12 times a fraction (A) the numerator of which shall be the number of
days from the Issuance Date to the Redemption Date that such Share of Series A
Preferred Stock shall be issued and outstanding, and (B) the denominator of
which shall be 365.
16
<PAGE> 17
7. No Preemptive Rights. Except as provided in Section 5 hereof, no holder of
the Series A Preferred Stock shall be entitled as of right to subscribe for,
purchase or receive any part of any new or additional shares of any class,
whether now or hereinafter authorized, or of bonds or debentures, or other
evidences of indebtedness convertible into or exchangeable for shares of any
class, but all such new or additional shares of any class or bond or debentures,
or other evidences of indebtedness convertible into or exchangeable for shares
may be issued and disposed of by the Board of Directors on such terms and for
such consideration (to the extent permitted by law), and to such person or
persons as the Board of Directors in their absolute discretion may deem
advisable.
The authorized number of shares of Preferred Stock in the Company is
5,000,000 shares. The authorized number of Shares of Series A Preferred Stock is
80,000 of which no Shares have been issued.
IN WITNESS WHEREOF, the undersigned have executed this certificate as
of the 14th day of August 1997.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ PAUL E. HANNESSON
-------------------------------
Name: Paul E. Hannesson
Title: Chief Executive Officer
By: /s/ MICHAEL D. FULLWOOD
-------------------------------
Name: Michael D. Fullwood
Title: Corporate Secretary
17
<PAGE> 1
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
dated as of
August 15, 1997
among
COMMODORE APPLIED TECHNOLOGIES, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A HERETO
<PAGE> 2
EXHIBIT C
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS.................................................... 1
1.1 Definitions............................................ 1
ARTICLE 2 REGISTRATION RIGHTS............................................ 3
2.1 Securities Subject to this Agreement................... 3
2.2 Shelf Registration..................................... 3
2.3 Piggyback Registration................................. 5
2.4 Registration Procedures................................ 6
2.5 Preparation: Reasonable Investigation.................. 9
2.6 Certain Rights of Holders.............................. 10
2.7 Registration Expenses.................................. 10
2.8 Indemnification; Contribution.......................... 10
2.9 Participation in Underwritten Registrations............ 13
2.10 Selection of Underwriters.............................. 13
ARTICLE 3 LIQUIDATED DAMAGES............................................. 13
ARTICLE 4 RULE 144A...................................................... 14
ARTICLE 5 MISCELLANEOUS.................................................. 14
5.1 Entire Agreement....................................... 14
5.2 Successors and Assigns................................. 14
5.3 Notices................................................ 15
5.4 Headings............................................... 15
5.5 Counterparts........................................... 15
5.6 Applicable Law......................................... 15
5.7 Specific Enforcement................................... 15
5.8 Amendment and Waivers.................................. 15
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is dated as of
August 15, 1997 between COMMODORE APPLIED TECHNOLOGIES, INC. (the "Company") and
each of the Purchasers of shares of Series A Convertible Preferred stock (the
"Series A Convertible Preferred Stock") pursuant to that certain Series A
Convertible Preferred Stock Purchase Agreement, dated of even date herewith (the
"Stock Purchase Agreement"), whose names are set forth on Exhibit A hereto
(individually, a "Purchaser" and collectively, the "Purchasers").
RECITALS
WHEREAS, it is a condition precedent to the obligations of each
Purchaser under the Stock Purchase Agreement that the Company grant registration
rights for the Company's Series A Convertible Preferred Stock, and
WHEREAS, in connection with resales by the Purchasers of the Company's
Common Stock upon or after conversion of the Series A Convertible Preferred
Stock, the Company and the Purchasers now desire to enter into this Agreement in
order to facilitate such resales.
AGREEMENT
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings.
"Board" means the Board of Directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on
which banks in Los Angeles are authorized by law to close.
"Certificate of Determination" means the certificate of powers,
designations, preferences and relative, participating, optional or other rights
of the Company's Series A Convertible Preferred Stock and the qualifications,
limitations and restrictions thereof, as amended from time to time.
"Closing Date" shall mean the Closing Date of the Stock Purchase
Agreement.
1
<PAGE> 4
"COES Series D Preferred" shall mean up to an aggregate of 100,000
shares of 7% Series D Convertible Preferred Stock of Commodore Environmental
Services, Inc. ("COES") issued as of May 20, 1997 and as of August 15, 1997 to
the Other Holders.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001 per share, of
the Company.
"Company" means Commodore Applied Technologies, Inc., a Delaware
corporation.
"Company Registration Statement" means the Registration Statement of
the Company relating to the registration for sale of shares of the Company's
Common Stock contemplated by Section 2.3, including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
"Effective Time" means the date of effectiveness of any Registration
Statement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holders" has the meaning given to it in Section 2.1(b) hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"Other Holders" means the holders of the (a) the COES Series D
Preferred and (b) warrants to purchase a maximum of 1,000,000 shares of Company
Common Stock from COES (the "Warrants"), which are convertible and exercisable
for Other Registerable Securities
"Other Registerable Securities" means the shares of Company Common
Stock issuable upon conversion of the COES Series D Preferred and/or the
exercise of the Warrants.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means the Series A Convertible Preferred Stock, par
value $0.001 per share, of the Company.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
"Registration Statements" means the Company Registration Statement and
the Shelf Registration Statement.
2
<PAGE> 5
"Restricted Securities" means any Securities until (i) a registration
statement covering such Securities has been declared effective by the Commission
and such Securities have been disposed of pursuant to such effective
registration statement, (ii) such Securities are sold under circumstances in
which all the applicable conditions of Rule 144 (or any similar provisions then
in force) under the Securities Act are met, or such Securities may be sold
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act, and are freely tradable after such sale by the transferee, (iii)
such Securities are otherwise transferred, the Company has delivered a new
certificate or other evidence of ownership for such Securities not bearing a
legend restricting further transfer and such Securities may be resold without
registration under the Securities Act, or (iv) such Securities shall have ceased
to be outstanding.
"Securities" means the Company's Common Stock issuable upon conversion
of the Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the registration statement of the
Company relating to the shelf registration for resale of Restricted Securities
contemplated by Section 2.2 herein, including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
"Stock Purchase Agreement" has the meaning given to it in the recitals
to this Agreement.
As used in this Agreement, words in the singular include the plural,
and in the plural include the singular.
ARTICLE 2
REGISTRATION RIGHTS
2.1 Securities Subject to this Agreement.
(a) The Securities entitled to the benefits of this Agreement are the
Restricted Securities, but only for so long as they remain Restricted
Securities.
(b) A Person is deemed to be a holder of Restricted Securities (each, a
"Holder") whenever such Person is the registered holder of such Restricted
Securities on the Company's books and records.
3
<PAGE> 6
2.2 Shelf Registration.
(a) The Company shall:
(i) as expeditiously as practicable, but no later than 90
calendar days from the Closing Date, cause to be filed a Shelf Registration
Statement on Form S-1 or Form S-3, as applicable, pursuant to Rule 415 under the
Securities Act, which Shelf Registration Statement shall provide for resales of
all Restricted Securities the Holders of which shall have provided to the
Company the information required pursuant to Section 2.2(c) herein; and
(ii) use its best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission within 180 calendar days
from the Closing Date.
(b) In connection with the Shelf Registration Statement, the Company
shall comply with all the provisions of Section 2.4 below and shall use its
reasonable efforts to effect such registration to permit the sale of the
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 2.2.(c)). Subject to Section 2.2(d), the Company
shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 2.2(d) to the extent necessary to ensure that it is available for
resales of Restricted Securities by the Holders of Restricted Securities, and to
ensure that it conforms with the requirements of this Agreement, the Securities
Act and the policies, rules and regulations of the Commission as announced from
time to time, for a period of three (3) years from the Effective Time or such
longer period as required by Section 2.2(d) or such shorter period that will
terminate when all the Securities covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement or otherwise cease
to be Restricted Securities. Upon the occurrence of any event that would cause
any Shelf Registration Statement or the Prospectus contained therein (i) to
contain a material misstatement or omission or (ii) not to be effective and
usable for sale or resale of Restricted Securities during the period required by
this Agreement, the Company shall file promptly an appropriate amendment to such
Shelf Registration Statement or the related Prospectus or any document
incorporated therein by reference, in the case of clause (i), correcting any
such misstatement or omission, and, in the case of either clause (i) or (ii),
use its reasonable efforts to cause such amendment to be declared effective and
such Registration Statement and the related Prospectus to become usable for its
intended purpose(s) as soon as practicable thereafter.
(c) No Holder of Restricted Securities may include any of its
Restricted Securities in the Shelf Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Company in writing,
within 10 Business Days after receipt of a written request therefor, such
information specified in Item 507 of Regulation S-K under the Securities Act or
such other information as the Company may reasonably request for use in
connection with the Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein and in any application to the NASD. Each Holder as
to which the Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in
4
<PAGE> 7
order to make the information previously furnished to the Company by such Holder
not materially misleading.
(d) Notwithstanding anything to the contrary contained herein, if (x)
the Board determines in good faith that the registration and distribution of
Restricted Securities (or the use of such Shelf Registration Statement or the
Prospectus contained therein) would interfere with any proposed or pending
material corporate transaction involving the Company or any of its subsidiaries
or would require premature disclosure thereof or would require the Company to
disclose information that the Company has not otherwise made public and that the
Company reasonably determines is in the best interests of the Company not to
disclose at such time, and (y) the Company notifies the Holders in writing not
later than three (3) days following such determination (such notice a "Blackout
Notice"), the Company may (A) postpone the filing of such Shelf Registration
Statement or (B) allow such Shelf Registration Statement to fail to be effective
and usable or elect that such Shelf Registration Statement not be usable for a
reasonable period of time, but not in excess of 30 days (a "Blackout Period");
provided, however, that the aggregate number of days included in all Blackout
Periods shall not exceed 90 during any consecutive 12 months and shall not
exceed 150 during the period specified in Section 2.2(b) of this Agreement; and
provided, further, that the period referred to in Section 2.2(b) during which
the Shelf Registration Statement is required to be effective and usable shall be
extended by the aggregate number of days during which the Shelf Registration
Statement was not effective or usable pursuant to the foregoing provisions.
(e) The Company represents that, as at the date hereof, it qualifies
for a Form S-3 Registration Statement.
2.3 Piggyback Registration.
(a) At any time that the Company proposes to file a Company
Registration Statement, either for its own account or for the account of a
stockholder or stockholders, the Company shall give the Holders written notice
of its intention to do so and of the intended method of sale (the "Registration
Notice") within a reasonable time prior to the anticipated filing date of the
Company Registration Statement effecting such Company Registration. Each holder
may request inclusion of any Restricted Securities in such Company Registration
by delivering to the Company, within ten (10) Business Days after receipt of the
Registration Notice, a written notice (the "Piggyback Notice") stating the
number of Restricted Securities proposed to be included and that such shares are
to be included in any underwriting only on the same terms and conditions as the
shares of Common Stock otherwise being sold through underwriters under such
Company Registration Statement. The Company shall use its best efforts to cause
all Restricted Securities specified in the Piggyback Notice to be included in
the Company Registration Statement and any related offering, all to the extent
requisite to permit the sale by the Holders of such Restricted Securities in
accordance with the method of sale applicable to the other shares of Common
Stock included in such Company Registration Statement; provided, however, that
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the Company Registration Statement
filed in connection with such registration, the Company
5
<PAGE> 8
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder of Restricted Securities and, thereupon:
(i) in the case of a determination not to register, shall be
relieved of its obligation to register any Restricted Securities in
connection with such registration (but not from its obligation to pay
the Registration Expenses in connection therewith), and
(ii) in the case of a delay in registering, shall be permitted
to delay registering any Restricted Securities for the same period as
the delay in registering such other securities.
(b) The Company's obligation to include Restricted Securities in a
Company Registration Statement pursuant to Section 2.3(a) shall be subject to
the following limitations:
(i) The Company shall not be obligated to include any
Restricted Securities in a registration statement filed on Form S-4,
Form S-8 or such other similar successor forms then in effect under the
Securities Act.
(ii) If a Company Registration Statement involves an
underwritten offering and the managing underwriter advises the Company
in writing that, in its opinion, the number of securities requested to
be included in such Company Registration Statement exceeds the number
which can be sold in such offering without adversely affecting the
offering, the Company will include in such Company Registration
Statement the number of such Securities which the Company is so advised
can be sold in such offering without adversely affecting the offering,
determined as follows:
(A) first, the securities proposed by the Company to
be sold for it own account, and
(B) second, any Restricted Securities requested to be
included in such registration and any other securities of the
Company in accordance with the priorities, if any, then
existing among the holders of such securities pro rata among
the holders thereof requesting such registration on the basis
of the number of shares of such securities requested to be
included by such holders.
(ii) The Company shall not be obligated to include Restricted
Securities in more than two (2) Company Registration Statement(s).
(c) No Holder of Restricted Securities may include any of its
Restricted Securities in the Company Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Company in writing,
within 10 business days after receipt of a written request therefor, such
information specified in Item 507 of Regulation S-K under the Securities Act or
such other information as the Company may reasonably request for use in
connection with the
6
<PAGE> 9
Company Registration Statement or Prospectus or preliminary Prospectus included
therein and in any application to the NASD. Each Holder as to which the Company
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make all
information previously furnished to the Company by such Holder not materially
misleading.
2.4 Registration Procedures. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Restricted Securities, the Company shall:
(a) prepare and file with the Commission such amendments and
post-effective amendments to such Registration Statement as may be necessary to
keep such Registration Statement effective (i) if such Registration Statement is
a Company Registration Statement, until the earlier of such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such Company
Registration Statement or (ii) if such Registration Statement is a Shelf
Registration Statement, for the applicable period set forth in Section 2.2(b)
herein; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act, and to comply fully with the applicable provisions of Rules 424
and 430A, as applicable, under the Securities Act in a timely manner; and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement or the
Prospectus;
(b) promptly (and in respect of events covered by clause (i) hereof, on
the same day as the Company shall receive notice of effectiveness) advise the
Holders covered by such Registration Statement and, if requested by such
Persons, to confirm such advice in writing, (i) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and when the
same has become effective, (ii) of any request by the Commission for
post-effective amendments to such Registration Statement or post-effective
amendments to such Registration Statement or post-effective amendments or
supplements to the Prospectus or for additional information relating thereto,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of any such Registration Statement under the Securities Act or of
the suspension by any state securities commission of the qualification of the
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, and (iv) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in any such Registration Statement, the related Prospectus,
any amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
any such Registration Statement or the related Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of such Registration Statement, or any
state securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from
7
<PAGE> 10
qualification of the Restricted Securities under state securities or Blue Sky
laws, the Company shall use its reasonable efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(c) promptly furnish to each Holder of Restricted Securities covered by
any Registration Statement, and each underwriter, if any, without charge, at
least one conformed copy of any Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents incorporated
by reference therein and all exhibits (including exhibits incorporated therein
by reference) and such other documents as such Holder may reasonably request;
(d) deliver to each Holder covered by any Registration Statement, and
each underwriter, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such person reasonably may request.
(e) enter into such customary agreements and take all such other
reasonable action in connection therewith (including those reasonably requested
by the selling Holders or the underwriter(s), if any) required in order to
expedite or facilitate the disposition of such Restricted Securities pursuant to
such Registration Statement, including, but not limited to, dispositions
pursuant to an underwritten registration, and in such connection:
(i) make such representations and warranties to the selling
Holders and underwriter(s), if any, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings
(whether or not sales of securities pursuant to such Registration
Statement are to be to an underwriter(s)) and confirm the same if and
when requested;
(ii) obtain opinions of counsel to the Company (which counsel
and opinions, in form and substance, shall be reasonably satisfactory
to the selling Holders and the underwriter(s), if any, and their
respective counsel) addressed to each selling Holder and underwriter,
if any, covering the matters customarily covered in opinions requested
in underwritten offerings (whether or not sales of securities pursuant
to such Registration Statement are to be made to an underwriter(s)) and
dated the date of effectiveness of any Registration Statement (and, in
the case of any underwritten sale of securities pursuant to such
Registration Statement, each closing date of sales to the
underwriter(s) pursuant thereto);
(iii) use reasonable efforts to obtain comfort letters dated
the date of effectiveness of any Registration Statement (and, in the
case of any underwritten sale of securities pursuant to such
Registration Statement, each closing date of sales to the
underwriter(s) pursuant thereto) from the independent certified public
accountants of the Company addressed to each selling Holder and
underwriter, if any, such letters to be in customary form and covering
matters of the type customarily covered in comfort letters in
8
<PAGE> 11
connection with underwritten offerings (whether or not sales of
securities pursuant to such Registration Statement are to be made to an
underwriter(s));
(iv) provide for the indemnification provisions and procedures
of Section 2.6 hereof with respect to selling Holders and the
underwriter(s), if any, and;
(v) deliver such documents and certificates as may be
reasonably requested by the selling Holders or the underwriter(s), if
any, and which are customarily delivered in underwritten offerings
(whether of not sales of securities pursuant to such Registration
Statement are to be made to an underwriter(s), with such documents and
certificates to be dated the date of effectiveness of any Registration
Statement.
The actions required by clauses (i) through (v) above shall be done at
each closing under such underwriting or similar agreement, as and to the extent
required thereunder, and if at any time the representations and warranties of
the Company contemplated in clause (i) above cease to be true and correct, the
Company shall so advise the underwriter(s), if any, and each selling Holder
promptly, and, if requested by such Person, shall confirm such advice in
writing;
(f) prior to any public offering of Restricted Securities, cooperate
with the selling Holders, the underwriter(s), if any, and their respective
counsel in connection with the registration and qualification of the Restricted
Securities under the securities or Blue Sky laws of such U.S. jurisdictions as
the selling Holders or underwriter(s), if any, may reasonably request in writing
by the time any Registration Statement is declared effective by the Commission,
and do any and all other acts or filings necessary or advisable to enable
disposition in such U.S. jurisdictions of the Restricted Securities covered by
any Registration Statement and to file such consents to service of process or
other documents as may be necessary in order to effect such registration or
qualification; provided, however, that the Company shall not be required to
register or qualify as a foreign corporation in any jurisdiction where it is not
then so qualified or as a dealer in securities in any jurisdiction where it
would not otherwise be required to register or qualify but for this Section 2.4,
or to take any action that would subject it to the service of process in suits
or to taxation, in any jurisdiction where it is not then so subject;
(g) in connection with any sale of Restricted Securities that will
result in such securities no longer being Restricted Securities, cooperate with
the selling Holders and the underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Restricted Securities to
be sold and not bearing any restrictive legends; and enable such Restricted
Securities to be in such denominations and registered in such names as the
Holders or the underwriter(s), if any, may request at least two (2) Business
Days prior to any sale of Restricted Securities made by such underwriters;
(h) use its reasonable efforts to cause the disposition of the
Restricted Securities covered by any Registration Statement to be registered
with or approved by such other U.S. governmental agencies or authorities as may
be necessary to enable the seller or sellers thereof
9
<PAGE> 12
or the underwriter(s), if any, to consummate the disposition of such Restricted
Securities, subject to the proviso contained in Section 2.2(f);
(i) if any fact or event contemplated by Section 2.4(b) shall exist or
have occurred, prepare a supplement or post-effective amendment to any
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statement therein not misleading;
(j) cooperate and assist in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the rules and
regulations of the NASD, and use its reasonable efforts to cause any
Registration Statement to become effective and approved by such U.S.
governmental agencies or authorities as may be necessary to enable the Holders
selling Restricted Securities to consummate the disposition of such Restricted
Securities;
(k) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders with regard to such Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the requirements of Rule
158 (which need not be audited) for the twelve-month period (i) commencing at
the end of any fiscal quarter in which Restricted Securities are sold to the
underwriter in a firm or best efforts underwritten offering or (ii) if not sold
to an underwriter in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of any
Registration Statement;
(l) provide a CUSIP number for all Restricted Securities not later than
the effective date of any Registration Statement;
(m) use its best efforts to list, not later than the effective date of
such Registration Statement, all Restricted Securities covered by such
Registration Statement on the American Stock Exchange or any other trading
market on which any Common Stock of the Company are then admitted for trading,
and
(n) provide promptly to each Holder covered by any Registration
Statement upon request each document filed with the Commission pursuant to the
requirements of Section 12 and Section 14 of the Exchange Act.
Each Holder agrees by acquisition of a Restricted Security that, upon
receipt of any notice from the Company of the existence of any fact of the kind
described in Section 2.4(b)(iv) or the commencement of a Black-Out Period, such
Holder will forthwith discontinue disposition of Restricted Securities pursuant
to any Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 2.4(i), or until it
is advised in writing, in accordance with the notice provisions of Section 5.3
herein (the
10
<PAGE> 13
"Advice"), by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental fillings that are incorporated
by reference in the Prospectus. If so directed by the Company, each Holder will
deliver to the Company all copies, other than permanent file copies, then in
such Holder's possession, of the Prospectus covering such Restricted Securities
that was current at the time of receipt of such notice. In the event the Company
shall give any such notice, the time period regarding the effectiveness of the
Shelf Registration Statement set forth in Section 2.2(b) shall be extended by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 2.4(b)(iv) or the commencement of a Black-Out
Period to and including the date when each selling Holder covered by such
Registration Statement shall have received the copies of the supplemented or
amended Prospectus contemplated by Section 2.4(i) or shall have received (in
accordance with the notice provisions of Section 5.3) the Advice.
2.5 Preparation; Reasonable Investigation. In connection with preparation
and filing of each Registration Statement under the Securities Act, the Company
will give the Holders of Restricted Securities registered under such
Registration Statement, their underwriter, if any, and their respective counsel
and accountants, the opportunity to participate in the preparation of such
Registration Statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
to them access to its books and records and such opportunities to discuss the
business, finances and accounts of the Company and its subsidiaries with its
officers, directors and the independent public accountants who have certified
its financial statements as shall be necessary, in the opinion of such Holders
and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.6 Certain Rights of Holders. The Company will not file any registration
statement under the Securities Act which refers to any Holder of Restricted
Securities by name or otherwise without the prior approval of such Holder, which
consent shall not be unreasonably withheld or delayed.
2.7 Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made with the NASD
and reasonable counsel fees in connection therewith); (ii) all reasonable fees
and expenses of compliance with federal securities and state Blue Sky or
securities laws (including all reasonable fees and expenses of one counsel to
the underwriter(s) in any underwriting) in connection with compliance with state
Blue Sky or securities laws for up to 40 states; (iii) all expenses of printing,
messenger and delivery services and telephone calls; (iv) all fees and
disbursements of counsel for the Company; and (v) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance),
11
<PAGE> 14
but excluding from this paragraph, fees and expenses of counsel to the
underwriter(s), if any, unless otherwise set forth herein.
(b) In addition, in connection with the filing of the Shelf
Registration Statement required to be filed by this Agreement, the Company will
reimburse the Holders of the Restricted Securities being registered pursuant to
any Shelf Registration Statement for the reasonable fees and disbursements of
not more than one counsel to review such Registration Statement.
(c) Notwithstanding the foregoing, the Company will not be responsible
for any underwriting discounts, commissions or fees attributable to the sale of
Restricted Securities or any legal fees or disbursements (other than any such
fees or disbursements relating to Blue Sky compliance or otherwise as set for
the under Section 2.7(a)) incurred by any underwriter(s) in any underwritten
offering if the underwriter(s) participates in such underwritten offering at the
request of the Holders of Restricted Securities, or any transfer taxes that may
be imposed in connection with a sale or transfer of Restricted Securities.
(d) The Company shall, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
2.8 Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless (i) each Holder
covered by any Registration Statement, (ii) each other Person who participates
as an underwriter in the offering or sale of such securities, (iii) each person,
if any, who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) any such Holder or underwriter (any of the
persons referred to in this clause (iii) being hereinafter referred to as a
"controlling person") and (iv) the respective officers, directors, partners,
employees, representatives and agents of any such Holder or underwriter or any
controlling person (any person referred to in clause (i), (ii), (iii) or (iv)
may hereinafter be referred to as an "indemnified Person"), to the fullest
extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments or expenses, joint or several (or actions or proceedings,
whether commenced or threatened, in respect thereof) (collectively, "Claims"),
to which such indemnified Person may become subject under either Section 15 of
the Securities Act or Section 20 of the Exchange Act or otherwise, insofar as
such Claims arise out of or are based upon, or are caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (or any amendment or supplement thereto),
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
a violation by the Company of the Securities Act or any state securities law, or
any rule or regulation promulgated under the Securities Act or any state
securities law, or any other law applicable to the Company relating to any such
registration or qualification, except insofar as such losses, claims, damages,
liabilities, judgments or
12
<PAGE> 15
expenses of any such indemnified Person; (x) are caused by any such untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to such indemnified Person furnished in writing to the
Company by or on behalf of any of such indemnified Person expressly for use
therein; (y) with respect to the preliminary Prospectus, result from the fact
that such Holder sold Securities to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus, as amended or supplemented, if the Company shall have previously
furnished copies thereof to such Holder in accordance with this Agreement and
said Prospectus, as amended or supplemented, would have corrected such untrue
statement or omission; or (z) as a result of the use by an indemnified Person of
any Prospectus when, upon receipt of a Black-Out Notice or a notice from the
Company of the existence of any fact of the kind described in Section
2.4(b)(iv), the indemnified Person or the related Holder was not permitted to do
so. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any indemnified Person and shall survive
the transfer of such securities by such Holder.
In case any action shall be brought or asserted against any of the
indemnified Persons with respect to which indemnity may be sought against the
Company, such indemnified Person shall promptly notify the Company and the
Company shall assume the defence thereof. Such indemnified Person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified Person unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Company, (ii) the
Company shall have failed to assume the defence and employ counsel or (iii) the
named parties to any such action (including any implied parties) include both
the indemnified Person and the Company and the indemnified Person shall have
been advised in writing by its counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
assume the defense of such action on behalf of the indemnified Person), it being
understood, however, that the Company shall not, in connection with such action
or similar or related actions or proceedings arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for all the indemnified Persons, which firm shall be (x) designated by
such indemnified Persons and (y) reasonably satisfactory to the Company. The
Company shall not be liable for any settlement of any such action or proceeding
effected without the Company's prior written consent, which consent shall not be
withheld unreasonably, and the Company agrees to indemnify and hold harmless any
indemnified Person from and against any loss, claim, damage, liability, judgment
or expense by reason of any settlement of any action effected with the written
consent of the Company. The Company shall not, without the prior written consent
of each indemnified Person, settle or compromise or consent to the entry of
judgment on or otherwise seek to terminate any pending or threatened action,
claim, litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any indemnified Person is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each indemnified Person from all liability
arising out of such action, claim litigation or proceeding.
13
<PAGE> 16
(b) Each Holder of Restricted Securities covered by any Registration
Statement agrees, severally and not jointly, to indemnify and hold harmless the
Company and its directors, officers and any person controlling (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
the Company, and the respective officers, directors, partners, employees,
representatives and agents of each person, to the same extent as the foregoing
indemnity from the Company to each of the indemnified Persons, but only (i) with
respect to actions based on information relating to such Holder furnished in
writing by or on behalf of such Holder expressly for use in any Registration
Statement or Prospectus, and (ii) to the extent of the gross proceeds, if any,
received by such Purchaser from the sale or other disposition of his or its
Restricted Securities covered by such Registration Statement. In case any action
or proceeding shall be brought against the Company or its directors or officers
or any such controlling person in respect of which indemnity may be sought
against a Holder of Restricted Securities covered by any Registration Statement,
such Holder shall have the rights and duties given the Company in Section 2.8(a)
(except that the Holder may but shall not be required to assume the defense
thereof), and the Company or its directors or officers or such controlling
person shall have the rights and duties given to each Holder by Section 2.8(a).
(c) If the indemnification provided for in this Section 2.8 is
unavailable to an indemnified party under Section 2.7(a) or (b) (other than by
reason of exceptions provided in those Sections) in respect of any losses,
claims, damages, liabilities, judgments or expenses referred to therein, then
each applicable indemnifying party (in the case of the Holders severally and not
jointly), in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims damages, liabilities, judgments or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Holder on the other hand from sale of Restricted Securities or (ii)
if such allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and such Holder in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities, judgments or expenses, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of such Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by such Holder and the parties
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid to a party as a result of
the losses, claims, damages, liabilities judgments and expenses referred to
above shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 2.8(a), any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
The Company and each Holder of Restricted Securities covered by any
Registration Statement agree that it would not be just and equitable if
contribution pursuant to this Section 2.8(c) were determined by pro rata
allocation (even if the Holders were treated as one entity for
14
<PAGE> 17
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.8(c) no Holder (and
none of its related indemnified Persons) shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the dollar amount of
proceeds received by such Holder upon the sale of the Restricted Securities
exceeds the amount of any damages which such Holder has otherwise been required
to pay by reason of such untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentations (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
The indemnity, and contribution provisions contained in this Section
2.8 are in addition to any liability which the indemnifying person may otherwise
have to the indemnified persons referred to above.
2.9 Participation in Underwritten Registrations. No Holder may participate
in any underwritten registration hereunder unless such Holder (a) agrees to sell
such Holder's Restricted Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up letters and
other documents required under the terms of such underwriting arrangements.
2.10 Selection of Underwriters. The Holders of Restricted Securities covered
by any Registration Statement who desire to do so may sell such Restricted
Securities in an underwritten offering. In any such underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority of the
Restricted Securities included in such offering if such registration is pursuant
to the Shelf Registration Statement, and by the Company if such registration is
pursuant to a Company Registration Statement; provided, however, that such
investment bankers and managers must be reasonably satisfactory to the Company
or the Holders, respectively. Such investment bankers and managers are referred
to herein as the "underwriters".
ARTICLE 3
REGISTRATION OF OTHER REGISTRABLE SECURITIES
3.1 Company Obligations to Other Holders. Each of the Purchasers recognizes
that the Company shall include in the initial Shelf Registration Statement
referred to in Section 2.2 and in any Piggyback Registration Statement referred
to in Section 2.3 of this Agreement, all and not less than all of the Other
Registrable Securities in order to comply with the Company's covenants and
agreements set forth in the securities purchase agreements, dated as of May 20,
1997 and as of August 15, 1997 among COES, the Company and the Other Holders.
Accordingly, each of the Purchasers, whether or not a Holder, acknowledges and
agrees that the Other Registrable Securities shall be included in, and
registered under the Securities Act, under such Shelf Registration Statement
and/or Registration Statement(s) referred to in Section 2.3.
15
<PAGE> 18
In addition, to the extent that any managing underwriter shall require a
"cutback" of securities being offered in a Company Registration Statement
contemplated by Section 2.3 hereof, such cutback, if any, shall be pro-rata as
among the Holders and Other Holders on the basis of the number of shares of such
securities requested to be included by such Holders and Other Holders.
3.2 Lockup Agreements. Prior to filing the initial Shelf Registration Statement,
the Company shall obtain from the Other Holders agreements (the "Limited
Distribution Agreements") pursuant to which such Other Holders shall severally,
and not jointly, agree not to effect any public sale or distribution of their
individual Other Registrable Securities in aggregate amounts in excess of twenty
(20%) percent of the aggregate number of Other Registrable Securities owned by
each individual Other Holder during any one calendar month; provided, that such
limitation on sale of Other Registrable Securities by an individual Other Holder
shall be on a cumulative basis so that, if for example, no shares of Other
Registrable Securities are publicly sold or distributed in any one calendar
month by an individual Other Holder, then in the next month 40% of the aggregate
number of Other Registrable Securities owned by such Other Holder may be
publicly sold or distributed.
ARTICLE 4
LIQUIDATED DAMAGES
Each of the Company and the Purchasers (on behalf of themselves and
each subsequent Holder of Restricted Securities) agrees that each Holder of
Restricted Securities will suffer damages if the Shelf Registration Statement
covering all Registrable Securities is not filed with and declared effective by
the Commission and maintained in the manner and within the time period
contemplated by Article 2 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Shelf
Registration Statement is not filed and declared effective by the Commission on
or prior to the date that is 180 days after the Closing Date, or (ii) the Shelf
Registration Statement is filed and declared effective but shall thereafter
cease to be effective (without being succeeded immediately by an additional
Shelf Registration Statement filed and declared effective) for a period of time
which shall exceed 180 days in the aggregate per year (defined as a period of
365 days commencing on the date the Shelf Registration Statement is declared
effective) (each such event referred to in clauses (i) and (ii) is referred to
herein as a "Registration Default"), then the Company shall pay in cash as
Liquidated Damages to each Holder of Restricted Securities who has complied with
such Holder's obligations hereunder an amount equal to five (5%) percent per
month of the liquidation preference of the Preferred Stock originally issued to
such Holder under the Stock Purchase Agreement immediately following the
occurrence of such Registration Default. The rights and remedies contained in
this Article 4 are in addition to, and not in lieu of, the rights of the
Purchasers and other Holders of Restricted Securities (including, without
limitation, certain rights of mandatory redemption), all as set forth in the
Certificate of Designation for the Preferred Stock.
16
<PAGE> 19
ARTICLE 5
RULE 144A
The Company hereby agrees with each Holder of Restricted Securities,
for so long as any of the Restricted Securities remain outstanding and continue
to be "restricted securities" within the meaning of Rule 144 under the Act, and
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act, to make available to the Holders of Restricted Securities in
connection with any sale thereof, and to any prospective purchaser of Preferred
Stock or Common Stock from such Holders of Restricted Securities or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Restricted Securities pursuant to Rule 144A.
ARTICLE 6
MISCELLANEOUS
6.1 Entire Agreement. This Agreement, together with the Stock Purchase
Agreement and the Certificate of Determination, constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreement and understandings, both oral and written, between the parties
with respect to the subject matter hereof.
6.2 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Restricted Securities; provided, however, that this Agreement shall
not inure to the benefit of or be binding upon a successor or assign of a Holder
unless and to the extent such successor or assign acquired Restricted Securities
from such Holder at a time when such Holder could not transfer such Restricted
Securities pursuant to any Registration Statement or pursuant to Rule 144 under
the Securities Act as contemplated by clause (ii) of the definition of
Restricted Securities.
6.3. Notices. All notices and other communications given or made pursuant
hereto or pursuant to any other agreement among the parties, unless otherwise
specified, shall be in writing and shall be deemed to have been duly given or
made if sent by telecopy (with confirmation in writing), delivered personally or
by overnight courier or sent by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the telecopy number, if any, or
address set forth below or at such other addresses as shall be furnished by the
parties by like notice. Notices sent by telecopier shall be effective when
receipt is acknowledged, notices delivered personally or by overnight courier
shall be effective upon receipt and notices sent by registered or certified mail
shall be effective three days after mailing:
if to a Holder to such Holder at the address set forth on
the records of the Preferred Stock, the
register thereunder. In addition, copies of
all such notices
17
<PAGE> 20
or other communications shall be
concurrently delivered by the Person giving
the same to each person who has been
identified to the Company by such Holder as
a Person who is to receive copies of such
notice.
with copies to: Mark J. Richardson, Esq.
1299 Ocean Avenue, Suite 900
Santa Monica, California 90401
Telephone Number: (310) 393-9992
Fax: (310) 393-2004
-and-
Robert J. Brantman, Esq.
Katten Muchin & Zavis
525 West Monroe Street - Suite 1600
Chicago, IL 60661-3693
Telephone Number: (312) 902-5200
Fax: (312) 902-1061
if to the Company: Commodore Applied Technologies, Inc.
150 East 58th Street, Suite 3410
New York, New York 10155
Telephone Number: (212) 934-5400
Attention: Paul E. Hannesson, Chief Executive
Officer
with copies to: Bentley J. Blum and Michael D. Fullwood
150 East 58th Street, Suite 3410
New York, New York 10155
Telephone Number: (212) 935-5400
Fax: (212) 753-0731
with copies to: Stephen A. Weiss, Esq.
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel
153 East 53rd Street
New York, New York 10022
Telephone Number: (212) 801-9253
Fax: (212) 223-7161 and (203) 222-0845
6.4 Headings The headings contained in this Agreement are for convenience
only and shall not affect the meaning or interpretation of this Agreement.
18
<PAGE> 21
6.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
6.6 Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the state of Delaware, without giving
effect to the choice law provisions.
6.7 Specific Enforcement. Each party hereto acknowledges that the remedies
at law of the other parties for a breach or threatened breach of this Agreement
would be inadequate, and, in recognition of this fact, any party to this
Agreement, without posting any bond, and in addition to all other remedies which
may be available, shall be entitled to obtain equitable relief in the form of
specific performance, a temporary restraining order, a temporary to permanent
injunction or any other equitable remedy which may then be available.
6.8 Amendment and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the Restricted Securities.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ PAUL E. HANNESSON
---------------------------------
Name: Paul E. Hannesson
Its: President
[the balance of this page intentionally left blank]
19
<PAGE> 22
THE PURCHASERS:
By: /s/ NELSON PARTNERS
-----------------------------
Name: Nelson Partners
Its:
Address:
By: /s/ OLYMPUS SECURITIES, LTD.
-----------------------------
Name: Olympus Securities,
Ltd.
Its:
Address:
By: /s/ LEONARDO, L.P.
------------------------------
Name: Leonardo, L.P.
Its:
Address:
By: /s/ RAPHAEL, L.P.
-----------------------------
Name: Raphael, L.P.
Its:
Address:
By: /s/ RAMIUS FUND, LTD.
-----------------------------
Name: Ramius Fund, Ltd.
Its:
Address:
By: /s/ FORTUNE FUND
------------------------------
Name: Fortune Fund
Its:
Address:
By: _______________________________
Name:
Its:
Address:
20
<PAGE> 1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of September
26, 1997, between Commodore Applied Technologies, Inc., a Delaware corporation,
(the "Corporation"), and an entity advised by Dimensional Fund Advisors Inc.
whose name is set forth at the foot of this Agreement (the "Purchaser").
The Corporation and the Purchaser hereby agree as follows:
SECTION 1
Authorization Purchase and Sale of the Stock
1.1 Authorization of the Stock. The Corporation has authorized issuance
and sale of 300,300 shares of its common stock (the "Stock") to Purchaser as
herein provided.
1.2 Sale and Purchase of the Stock. At the Closing, subject to the terms
and conditions hereof and in reliance upon the representations, warranties and
agreements contained herein, the Purchaser will purchase the Stock from the
Corporation at a purchase price of $3.675 per share, $1,103,602.50 in total.
SECTION 2
Closing, Payment and Delivery
2.1 Closing Date and Place of Closing. The closing shall be held as soon
as practicable, and in no event more than 5 business days after execution of
this Agreement, on such date as the Corporation and the Purchaser may agree to
(the "Closing Date") and shall be held at the offices of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA 90401.
2.2 Payment and Delivery. At the Closing, the Purchaser will pay or cause
to be paid to the corporation by wire funds transfer the entire purchase price.
The Corporation will deliver in advance of the Closing to an institutional
custodian designated by the Purchaser a certificate or certificates, registered
in such name or names as Purchaser may designate, representing all of the Stock,
with instructions that such certificates are to be held for the account of
Purchaser upon payment of the purchase price.
2.3 Covenant of Best Efforts and Good Faith. The Corporation and the
Purchaser agree to use their respective best
1
<PAGE> 2
efforts and to act in good faith to cause to occur all conditions to Closing
which are in their respective control.
SECTION 3
Purchase Price Adjustment
3.1. Subsequent Sale at Lower Price. If during the twelve month period
following the Closing Date (the "Anniversary Period"), the Corporation shall, on
any one or more occasion, sell any shares of its common stock or any security
convertible into or exercisable in respect of common stock, or issue additional
shares of common stock upon conversion during the Anniversary Period of its
currently outstanding Series A Convertible Preferred Stock for a selling price
per share or a conversion price per share which shall be lower than the purchase
price per share of the Stock sold to Purchaser pursuant to Section 1.2 hereof
(such lower price or prices being the "Reset Price"), the purchase price per
share of the Stock sold to the Purchaser hereunder shall be adjusted downward as
at the end of the Anniversary Period so as to equal the Reset Price. The lowest
selling price per share or conversion price per share at which the Corporation
shall issue its common stock during the Anniversary Period shall determine the
applicable Reset Price; provided, that
(a) the lowest sales or conversion prices associated with issuances
by the Corporation of up to 10,000 shares of the Corporation's common
stock, and
(b) issuances of shares of the Corporation's common stock by
Commodore Environmental Services, Inc. ("COES"), the parent of the
Corporation, upon conversion of Series D Convertible Preferred Stock of
COES or upon exercise of certain warrants to purchase shares of the
Corporation's common stock granted by COES, irrespective of the conversion
or exercise price per share,
shall be excluded in determining such Reset Price.
3.2. Adjustment Mechanism. If an adjustment of the purchase price for the
Stock is required pursuant to this Section 3, the Corporation shall, not later
than five business days (subject to the provisions of Subsection 3.6 hereof)
following the expiration of the Anniversary Period, refund to Purchaser in cash
the amount of such downward adjustment which shall be equal to the product of
(a) the total number of shares of common stock originally delivered to Purchaser
hereunder, multiplied by (b) the difference between the purchase price per share
set forth in Section 1.2 and the final Reset Price. If for any reason the
corporation fails to make such cash refund within 10 days after it becomes due
pursuant to this Section 3.2, then the Corporation shall immediately deliver to
Purchaser such number of additional
2
<PAGE> 3
shares of coupon stock as will cause (i) the total number of shares of common
stock delivered to Purchaser hereunder, multiplied by (ii) the Reset Price, to
equal the total purchase price set forth in Section 1.2 hereof; provided,
however, that the Corporation shall effect such adjustment in cash, in whole or
in part, to the extent required by the following subsection.
3.3. Limitation on Number of Shares. Purchaser and other entities advised
by Dimensional Fund Advisors Inc. shall not be required to accept, by way of any
such adjustment, a number of shares of the Corporation such that the total
number of such shares held by Purchaser and such other entities, which were held
by them on the date of this Agreement or acquired by them pursuant to this
Agreement or agreements of like tenor with such other entities, would exceed
4.99% of the total outstanding stock of the Corporation. The Corporation shall
effect the adjustment required by this Section by cash refund to the extent
necessary to avoid causing the aforesaid limitation to be exceeded.
3.4 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the common stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the common stock
of the Corporation, the provisions of this Section shall be applied as if such
capital adjustment event had occurred immediately prior to the Closing Date and
the original purchase price had been fairly allocated to the stock resulting
from such capital adjustment; and in other respects the provisions of this
Section shall be applied in a fair, equitable and reasonable manner so as to
give effect, as nearly as may be, to the purposes hereof.
3.5. Exclusions. Section 3.1 shall not apply to sales of shares by the
Corporation (i) upon conversion or exercise of any convertible securities,
options or warrants outstanding on the date hereof, except that with respect to
the Corporation's Series A Convertible Preferred Stock, conversions during the
Anniversary Period shall be subject to Section 3.1, (ii) pursuant to the
provisions of any shareholder-approved employee benefit or incentive plan
heretofore or hereafter adopted by the Corporation, or (iii) to an entity which
is a strategic investor in the Corporation or an investor which is in a related
industry, as opposed to a financial investor.
3.6. Definitions. For purposes of Section 3.1 hereof, a sale of shares
shall mean and include the sale or issuance of rights, options, warrants or
convertible securities under which the Corporation is or may become obligated to
issue shares of common stock, and the "selling price" of the common stock
covered thereby shall be the exercise or conversion price thereof plus the
consideration (if any) received by the Corporation upon such sale or issuance.
If the selling price or the exercise or conversion price is not determined until
after the Anniversary Period, an adjustment pursuant to this Section shall be
made promptly
3
<PAGE> 4
following such determination, if required. If shares are issued for a
consideration other than cash, the "selling price" shall be the fair value of
the such consideration as determined in good faith by the Board of Directors of
the Corporation. The term "Stock" as used in this Agreement shall include shares
issued pursuant to this Section.
3A
<PAGE> 5
SECTION 4
Representations and Warranties of the Corporation
The Corporation hereby represents and warrants to the purchaser that:
4.1 Corporate Power, Qualification and Standing. The Corporation and its
subsidiaries are validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and each of them is qualified to
transact business in each jurisdiction in which its ownership of property or
conduct of activities requires such qualification. The Corporation has all
requisite corporate power and authority to enter into this Agreement, to sell
the Stock and to carry out and perform its other obligations under this
Agreement.
4.2 S.E.C. Reports; Financial Statements. The common stock of the
Corporation is registered under Section 12(b) or (g) of the Securities Exchange
Act of 1934 and the Corporation is in full compliance with its reporting and
filing obligations under said Act. The Corporation has delivered to Purchaser
all of its Annual Reports to shareholders and its reports on Form 10K; and all
its quarterly reports to shareholders, quarterly reports on Form 10Q, and each
other report, registration statement, definitive proxy statement or other
document filed with the S.E.C. since the beginning of said three fiscal years
(collectively, the "SEC Reports"). The SEC Reports do not (as of their
respective dates) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The audited and unaudited financial statements of the
Corporation included in the SEC Reports (the "Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as stated in such Financial Statements or the notes
thereto) and fairly present the financial position of the Corporation and its
consolidated subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended. Except
as publicly disclosed by the Corporation in the SEC Reports or otherwise, since
the end of the most recent of said fiscal years there has been no material
adverse change in the business, financial condition, or results of operations of
the Corporation and its subsidiaries taken together as a consolidated whole, and
there is no existing condition, event or series of events which can reasonably
be expected to have a material adverse effect on the business, financial
condition or results of operations of the Corporation and its subsidiaries taken
together as a consolidated whole, or its ability to perform its obligations
under this Agreement.
4
<PAGE> 6
4.3 Authorization; No Conflict. Execution and delivery of this Agreement
and issuance and sale of the Stock have been duly authorized by all necessary
corporate action of the Corporation, and the Stock when issued will be validly
issued, fully paid and non-assessable. Performance by the Corporation of its
obligations under this Agreement will not conflict with or violate (i) the
charter documents or bylaws of the Corporation, (ii) any indenture, loan
agreement, lease, mortgage or other material agreement binding on the
Corporation, (iii) any order of a court or administrative agency binding on the
Corporation, or (iv) any applicable law or governmental regulation; and such
performance does not and will not require the permission or approval of any
governmental agency, and will not result in the imposition or creation of any
lien or charge against any assets of the Corporation. Except as disclosed in the
Financial Statements or on Exhibit A hereto, (i) the Corporation has no
obligation to redeem or repurchase any of its equity securities, (ii) no
shareholder or other person has pre-emptive or other rights to acquire equity
securities of the Corporation, and (iii) the Corporation has no obligation to
register any of its securities otherwise than pursuant to Section 8 of this
Agreement or as disclosed on Exhibit A hereto.
4.4 Material Agreements; No Defaults. All material indentures, loan
agreements, leases, mortgages and other agreements binding on the Corporation or
its subsidiaries are identified in the list or exhibits contained in the
Corporation's most recent 10K report ("Other Agreements"). No material default
on the part of the Corporation or any or its subsidiaries (including any event
which, with notice or the passage of time, would constitute a default) exists
under any of the Other Agreements.
4.5 Material Liabilities. Except for liabilities disclosed in the
Financial Statements or the SEC Reports, and obligations under the Other
Agreements, the corporation and its subsidiaries have no material liabilities or
obligations, absolute or contingent, other than liabilities arising in the
ordinary course of business subsequent to the date of the most recent of the
Financial Statements.
4.6 Properties. The Corporation and its subsidiaries (i) have good title
to the properties and assets reflected in the Financial Statements as owned by
them, (ii) have valid leasehold interests in the properties leased by them, and
(iii) own or have the right to use under valid license agreements all
trademarks, trade names, copyrights, patents and other intellectual property
rights regularly utilized by them; subject in each case to no material liens,
security interests or adverse claims except as disclosed in the Financial
Statements.
4.7 Litigation. There are no material legal actions, arbitrations, or
administrative proceedings pending against the
5
<PAGE> 7
Corporation or its subsidiaries, except for the matters disclosed in the SEC
Reports.
4.8 Tax Matters. The Corporation and its subsidiaries have filed on a
timely basis all tax returns required to be filed by them and have paid their
taxes prior to delinquency, and have made adequate accruals for tax liabilities
on the Financial Statements in accordance with generally accepted accounting
principles.
4.9 ERISA Compliance. Neither the Corporation nor any of its subsidiaries
has incurred any material funding deficiency within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or any material
liability to the Pension Benefit Guarantee Corporation in connection with any
employee benefit plan. The Corporation and its subsidiaries are in compliance in
all material respects with all applicable provisions of ERISA, and have no
obligations with respect to any multi-employer plan. No "reportable event" as
such term is defined in ERISA, which may result in any material liability, has
occurred with respect to any employee benefit or other plan maintained for
employees of the Corporation or any subsidiary.
4.10 Environmental Matters. Except as disclosed in the SEC Reports,
neither the Corporation nor any of its subsidiaries (i) has been notified by any
governmental authority that it is, or may be, a Responsible Party with respect
to cleanup or remediation of any environmental condition or hazardous waste
site, (ii) has violated any law, regulation, order or requirement of
governmental authority with respect to Hazardous Substances, or (iii) has
incurred any material liability for violation or noncompliance with applicable
Environmental Regulations. The term "Environmental Regulations" means any law,
regulation, order or requirement relating to protection of the environment,
including without limitation, the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act and the Toxic Substances Control Act. The term "Hazardous Substances" means
any substance defined or listed as such in any Environmental Regulation.
4.11 Other Matters. The corporation is not now and will not be after
giving effect to the receipt of the proceeds from the sale of the Stock an
"Investment Company" within the meaning of the Investment Company Act of 1940,
nor will it be controlled by or acting on behalf of any person which is such an
investment company. The corporation is not selling the Stock "for the purpose of
purchasing or carrying any margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System. The Corporation has not
offered the Stock to any person other than the Purchaser.
6
<PAGE> 8
SECTION 5
Representations and Warranties of the Purchaser
The purchaser represents and warrants to the Corporation that:
5.1 Corporate Power and Authority. It is validly existing and in good
standing with all requisite power and authority to enter into this Agreement and
carry out its obligations hereunder and has taken all actions necessary to
authorize it to enter into this Agreement and carry out such obligations.
5.2 Investment. It is acquiring the Stock for investment and not with the
view to, or for resale in connection with, any distribution thereof. It is an
"accredited investor" within the meaning of the Securities Act of 1933 and the
rules thereunder. It understands that the Stock has not been registered under
the Securities Act of 1933 nor qualified under any State blue sky law by reason
of specified exemptions therefrom which depend upon, among other things, the
bona fide nature of its investment intent as expressed herein.
5.3 Rule 144. It acknowledges that the Stock must be held indefinitely
unless it is subsequently registered under the Securities Act of 1933 or an
exemption from such registration is available. It has been advised or is aware
of the provisions of Rule 144 promulgated under the Securities Act.
SECTION 6
Conditions to Obligations of the Purchaser
The obligation of the Purchaser to purchase the Stock is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions;
(a) Representations and Warranties. The representations and
warranties of the Corporation shall be true and correct in all material respects
on the Closing Date.
(b) Performance. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Corporation on or
prior to the Closing Date shall have been performed or complied with in all
material respects.
(c) Opinion of Corporation's Counsel. The Purchaser shall have
received from counsel to the Corporation an opinion confirming the
representations set forth in the first sentence of Section 4.3 hereof, and on
the basis of such counsel's review of the Other Agreements and certificates of
officers of the
7
<PAGE> 9
Corporation as to factual matters, confirming the representations set forth in
the second and third sentences of Section 4.3 hereof.
(d) Legal Issuance. At the time of the Closing, the issuance and
purchase of the Stock shall be legally permitted by all laws and regulations to
which the Purchaser and the Corporation are subject.
(e) proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in form and
substance to the purchaser and its counsel.
(f) Satisfaction of Obligations to Broker. The Corporation shall
have furnished the Purchaser with assurances satisfactory to the purchaser that
the Corporation has satisfied its obligations to any broker entitled to
compensation in connection with the sale of the Stock.
8
<PAGE> 10
SECTION 7
Conditions to Obligations of the Corporation
The Corporation's obligation to sell the Stock is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties made by the purchaser shall be true and correct in all material
respects on the Closing Date.
(b) Legal Issuance. At the time of the Closing, the issuance and
purchase of the Stock shall be legally permitted by all laws and regulations to
which the purchaser and the Corporation are subject.
(c) Payment. The Corporation shall concurrently receive payment for
the stock as provided in Section 2.
SECTION 8
Covenant to Register
(a) For purposes of this Section 8, the following definitions shall
apply:
(i) The terms "register", "registered", and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act") effected by preparing and filing a registration statement or
similar document in compliance with the Act or an amendment thereto, and
the declaration or ordering of effectiveness of such registration
statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the Stock and any
securities of the Corporation or securities of any successor corporation
issued as, or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as, a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Stock.
(b) (i) At any time after one hundred and twenty (120) days after
the date of this Purchase Agreement and from time to time thereafter,
Purchaser shall have the right to require by notice in writing that the
Corporation register all or any part of the Registrable Securities held by
purchaser (a "Demand Registration") and the Corporation shall thereupon
effect such registration in accordance herewith. The Corporation agrees to
file a registration statement (Form S-
9
<PAGE> 11
3) in order to register the Common Stock and to cause such registration
statement to be declared effective within ninety (90) days of Closing. A
3% cash penalty will accrue for every thirty (30) days after such date
that the securities remain unregistered. The penalty shall be pro-rated
for periods of less than thirty (30) days.
(ii) The Corporation shall not be obligated to effect Demand
Registration (i) if all of the Registrable Securities held by Purchaser
which are intended to be covered by the Demand Registration are, at the
time of the request of a Demand Registration, included in an effective
registration statement and the Corporation is in compliance with its
obligations under Subsection (d)(ii) through (v) hereof with respect to
such registration statement, or (ii) within 120 days after the effective
date of any other registration as to which Purchaser was given piggy-back
rights pursuant to subsection (c) hereof and in which purchaser was able
to register and sell at least eighty percent (80%) of the Registrable
Securities requested by Purchaser to be included in such registration.
(c) If the Corporation proposes to register (including for this
purpose a registration effected by the Corporation for shareholders other than
the Purchaser) any of its stock or other securities under the Act in connection
with a public offering of such securities (other than a registration on Form S-
4, Form S-8 or other limited purpose form) and the Registrable Securities have
not heretofore been included in a registration statement under Subsection (b),
which remains effective, the Corporation shall, at such time, promptly give the
Purchaser written notice of such registration. Upon the written request of the
Purchaser given within twenty (20) days after receipt of such notice by the
Purchaser, the Corporation shall cause to be registered under the Act all of the
Registrable Securities that the Purchaser has requested to be registered.
However, the Corporation shall have no obligation under this Subsection (c) to
the extent that, with respect to a public offering registration, any underwriter
of such public offering reasonably requests that the Registrable Securities or a
portion thereof be excluded therefrom.
(d) Whenever required under this Section 8 to effect the
registration of any Registrable Securities, the Corporation shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration to become effective and, upon the request of the
Purchaser, keep such registration statement effective for so long as
Purchaser desires to dispose of the securities covered by such
registration statement (but not after Purchaser in the reasonable opinion
of its counsel is free to sell such
10
<PAGE> 12
securities under the provisions of Rule 144(k) under the Act).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Purchaser such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as the Purchaser
may reasonably request in order to facilitate the disposition of
Registrable Securities owned by Purchaser.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by Purchaser, provided that the Corporation shall not be
required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service and process in any
such states or jurisdictions.
(v) Notify Purchaser of the happening of any event as a result
of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing.
(vi) Furnish, at the request of Purchaser, an opinion of
counsel of the Corporation, dated the effective date of the registration
statement, as to the due authorization and issuance of the securities
being registered and compliance with securities laws by the Corporation in
connection with the authorization and issuance thereof.
(e) The purchaser will furnish to the Corporation in connection with
any registration under this Section 8 such information regarding itself, the
Registrable Securities and other securities of the Corporation held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities held by Purchaser.
(f) (i) The Corporation shall indemnify, defend and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c), any
underwriter (as defined in the Act) for such holder, and the directors,
11
<PAGE> 13
officers and controlling persons of such holder or underwriter from and
against, and shall reimburse all of them with respect to, any and all
claims, suits, demands, causes of action, losses, damages, liabilities,
costs or expenses ("Liabilities") to which any of them may become subject
under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that the
Corporation shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such person in writing
specifically for use in the preparation thereof.
(ii) Each holder or Registrable Securities included in a
registration pursuant to the provisions of Subsection (b) or (c) shall
indemnify, defend, and hold harmless the Corporation, its directors and
officers, and shall reimburse the corporation, its directors and officers
with respect to, any and all Liabilities to which any of them may become
subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by or on behalf of such
holder specifically for use in the preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of Subsection (f)(i) or (f)(ii) of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party shall, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of
Subsection (f)(i) or (f)(ii), promptly notify the indemnifying party of
the commencement thereof; provided, however, that the failure to so notify
the indemnifying party shall not relieve it from its indemnification
obligations hereunder except to the extent that the indemnifying party is
materially prejudiced by such failure. If such action is
12
<PAGE> 14
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses different from or in
addition to those available to the indemnifying party, or if there is
conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party
shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party. After notice
from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party pursuant to Subsection (f)(i) or (f)(ii) for any
expense of counsel subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (A) the indemnified party shall have employed
counsel in accordance with the provisions of the preceding sentence, or
(B) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action. An
indemnifying party shall not be responsible for amounts paid in settlement
without its consent, provided that its consent may not be unreasonably
withheld.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to subsections (b) or (c), all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering shall be borne by the Corporation; provided, however, that any
securityholders participating in such registration shall bear their pro
rata share of the underwriting discounts and commissions, if any.
(ii) The fees, costs and expenses of registration to be borne
by the Corporation as provided in this Subsection (g) shall include,
without limitation, all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the
Corporation, and all legal fees and disbursements and other expenses of
complying with state securities or Blue Sky laws of any jurisdiction or
jurisdictions in which securities to be offered are to be registered and
qualified. Fees and disbursements of counsel and accountants for the
selling securityholders shall, however, be borne by the respective selling
securityholder.
13
<PAGE> 15
(h) The rights to cause the Corporation to register all or any
portion of Registrable Securities pursuant to this Section 8 may be assigned by
Purchaser to a transferee or assignee of 20% or more of the Stock. Within a
reasonable time after such transfer the Purchaser shall notify the Corporation
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned. Such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted
under the Act. Any transferee asserting registration rights hereunder shall be
bound by the provisions of this Section 8.
(i) From and after the date of this Agreement, the Corporation shall
not agree to allow the holders of any securities of the Corporation to include
any of their securities in any registration statement filed by the Corporation
pursuant to Subsection (b) unless the inclusion of such securities will not
reduce the amount of the Registrable Securities included therein.
SECTION 9
Affirmative Covenants of the Corporation
The Corporation hereby covenants that, during such time as the Purchaser
(or one of its affiliates) owns any Stock, or for four years, whichever period
is shorter:
9.1 Reports and Financial Statements.
(a) The Corporation will cause its common stock to continue to be
registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934,
will comply in all respects with its reporting and filing obligations under said
Act, and will not take any action or file any document (whether or not permitted
by said Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Act.
The Corporation will take all action necessary to continue the listing or
trading of its common stock on any national securities exchange or the Automated
Quotation System of the National Association of Securities Dealers on which such
common stock is listed or traded, and will comply in all respects with its
reporting, filing and other obligations under the bylaws or rules of said
exchange or Association.
(b) The Corporation will furnish to the Purchaser, concurrently with
the distribution or filing thereof, each annual and quarterly report to its
shareholders, its reports on Form 10K and 10Q, and each other report,
registration statement, definitive proxy statement or other document filed with
the S.E.C., and each press release or other public announcement issued by the
Corporation.
14
<PAGE> 16
9.2 Maintenance of Office. The Corporation will maintain an office or
agency in the United States at such address as may be designated in writing from
time to time to the registered holders of the Stock, where notices,
presentations and demands to or upon the Corporation in respect of the Stock may
be given or made. Unless or until another office or agency is designated by the
Corporation, such office shall be at the address set forth adjacent to the name
of the Corporation at the foot of this Agreement.
9.3 Maintenance and Compliance. The Corporation will (i) maintain its
corporate existence, rights, powers and privileges in good standing, (ii) comply
in all material respects with all laws and governmental regulations and
restrictions applicable to its business or properties, (iii) keep records and
books of account and maintain a system of internal accounting controls in
accordance with generally accepted accounting principles and in compliance with
Section 13(b)(2) of the Securities Exchange Act of 1934, and (iv) retain
independent public accountants of recognized national standing as auditors of
the Corporation's annual financial statements.
9.4 Assignment of Rights. The rights of the Purchaser hereunder may be
assigned by the Purchaser in connection with the transfer or assignment to a
single transferee of not less than 20% of the Stock originally purchased by the
Purchaser hereunder, and such rights may be further reassigned by such
transferee to another such single transferee. Any transferee asserting rights
under this Agreement shall be bound by its provisions.
9.5 Effect of Covenants. The covenants in Sections 9.1 and 9.3 shall not
be deemed to prohibit a merger, sale of all assets or other corporate
reorganization if (i) the entity surviving or succeeding to the Corporation is
bound by this Agreement with respect to its securities issued in exchange for or
replacement of the Stock, or (ii) the consideration received in exchange for or
replacement of the Stock is cash.
SECTION 10
Legend on Stock
Each certificate representing the Stock shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under any applicable state securities laws):
15
<PAGE> 17
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
Upon request of a holder of Stock the Corporation shall remove the
foregoing legend or issue to such holder a new certificate therefor free of any
such legend, if the Corporation shall have received either an opinion of counsel
or a "no-action" letter of the S.E.C., in either case reasonably satisfactory in
substance to the Corporation and its counsel, to the effect that such legend is
no longer required.
SECTION 11
Miscellaneous
11.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California. Any action or proceeding
relating to this Agreement may be brought in the courts of California sitting in
Los Angeles County, or in the United States courts located in Los Angeles
County, California, and each of the parties irrevocably consents to the
jurisdiction of such courts in any such action or proceeding.
11.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of and be binding upon
the successors and assigns of the parties.
11.3 Entire Agreement; Amendment. This Agreement (including any Exhibits
hereto) and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated except by a written instrument signed
by the Corporation and the Purchaser.
11.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be mailed by first-class mail, postage prepaid, or
delivered either by hand or by messenger, addressed (a) if to the Purchaser, as
indicated below the Purchaser's signature, or at such other address as the
Purchaser shall have furnished to the Corporation in writing, or (b) if to any
other holder of any Stock, at the address of such holder as shown on the records
of the Corporation, or (c) if to the Corporation, at its address set forth below
or at such other
16
<PAGE> 18
address as the Corporation shall have furnished to the Purchaser and each such
other holder in writing. All such notices or communications shall be deemed
given when actually delivered by hand, messenger, facsimile or mailgram or, if
mailed, three days after deposit in the U.S. mail.
11.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement (including any holder of
Stock), upon any breach or default of another party under this Agreement, shall
impair any such right, power or remedy of such party nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.6 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.7 Titles and Subtitles. The titles of the Sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as of the day and year first
written above.
Commodore Applied Technologies, Inc.
By: /s/ Michael D. Fullwood
---------------------------------
Michael D. Fullwood
Senior Vice President and Chief
Administrative and Financial Officer
Address: 150 East 58th Street
Suite 3490
New York, NY 10155
[Signatures continued on following page]
17
<PAGE> 19
DFA Group Trust - Small Company Subtrust
By: /s/
------------------------------------
Address: c/o Dimensional Fund Advisors
1299 Ocean Avenue, 12th floor
Santa Monica, CA 90401
18
<PAGE> 20
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of September
26, 1997, between Commodore Applied Technologies, Inc., a Delaware corporation,
(the "Corporation"), and an entity advised by Dimensional Fund Advisors Inc.
whose name is set forth at the foot of this Agreement (the "Purchaser").
The Corporation and the Purchaser hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Stock
1.1 Authorization of the Stock. The Corporation has authorized issuance
and sale of 157,700 shares of its common stock (the "Stock") to Purchaser as
herein provided.
1.2 Sale and Purchase of the Stock. At the Closing, subject to the terms
and conditions hereof and in reliance upon the representations, warranties and
agreements contained herein, the Purchaser will purchase the Stock from the
Corporation at a purchase price of $3.675 per share, $579,547.50 in total.
SECTION 2
Closing, Payment and Delivery
2.1 Closing Date and Place of Closing. The closing shall be held as soon
as practicable, and in no event more than 5 business days after execution of
this Agreement, on such date as the Corporation and the Purchaser may agree to
(the "Closing Date") and shall be held at the offices of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA 90401.
2.2 Payment and Delivery. At the Closing, the Purchaser will pay or cause
to be paid to the corporation by wire funds transfer the entire purchase price.
The Corporation will deliver in advance of the Closing to an institutional
custodian designated by the Purchaser a certificate or certificates, registered
in such name or names as Purchaser may designate, representing all of the Stock,
with instructions that such certificates are to be held for the account of
Purchaser upon payment of the purchase price.
2.3 Covenant of Best Efforts and Good Faith. The Corporation and the
Purchaser agree to use their respective best
1
<PAGE> 21
efforts and to act in good faith to cause to occur all conditions to Closing
which are in their respective control.
SECTION 3
Purchase Price Adjustment
3.1. Subsequent Sale at Lower Price. If during the twelve month period
following the Closing Date (the "Anniversary Period"), the Corporation shall, on
any one or more occasion, sell any shares of its common stock or any security
convertible into or exercisable in respect of common stock, or issue additional
shares of common stock upon conversion during the Anniversary Period of its
currently outstanding Series A Convertible Preferred Stock for a selling price
per share or a conversion price per share which shall be lower than the purchase
price per share of the Stock sold to Purchaser pursuant to Section 1.2 hereof
(such lower price or prices being the "Reset Price"), the purchase price per
share of the Stock sold to the Purchaser hereunder shall be adjusted downward as
at the end of the Anniversary Period so as to equal the Reset Price. The lowest
selling price per share or conversion price per share at which the Corporation
shall issue its common stock during the Anniversary Period shall determine the
applicable Reset Price; provided, that
(a) the lowest sales or conversion prices associated with issuances
by the Corporation of up to 10,000 shares of the Corporation's common
stock, and
(b) issuances of shares of the Corporation's common stock by
Commodore Environmental Services, Inc. ("COES"), the parent of the
Corporation, upon conversion of Series D Convertible Preferred Stock of
COES or upon exercise of certain warrants to purchase shares of the
Corporation's common stock granted by COES, irrespective of the conversion
or exercise price per share,
shall be excluded in determining such Reset Price.
3.2. Adjustment Mechanism. If an adjustment of the purchase price for the
Stock is required pursuant to this Section 3, the Corporation shall, not later
than five business days (subject to the provisions of Subsection 3.6 hereof)
following the expiration of the Anniversary Period, refund to Purchaser in cash
the amount of such downward adjustment which shall be equal to the product of
(a) the total number of shares of common stock originally delivered to Purchaser
hereunder, multiplied by (b) the difference between the purchase price per share
set forth in Section 1.2 and the final Reset Price. If for any reason the
corporation fails to make such cash refund within 10 days after it becomes due
pursuant to this Section 3.2, then the Corporation shall immediately deliver to
Purchaser such number of additional
2
<PAGE> 22
shares of common stock as will cause (i) the total number of shares of common
stock delivered to Purchaser hereunder, multiplied by (ii) the Reset Price, to
equal the total purchase price set forth in Section 1.2 hereof; provided,
however, that the Corporation shall effect such adjustment in cash, in whole or
in part, to the extent required by the following subsection.
3.3. Limitation on Number of Shares. Purchaser and other entities advised
by Dimensional Fund Advisors Inc. shall not be required to accept, by way of any
such adjustment, a number of shares of the Corporation such that the total
number of such shares held by Purchaser and such other entities, which were held
by them on the date of this Agreement or acquired by them pursuant to this
Agreement or agreements of like tenor with such other entities, would exceed
4.99% of the total outstanding stock of the Corporation. The Corporation shall
effect the adjustment required by this Section by cash refund to the extent
necessary to avoid causing the aforesaid limitation to be exceeded.
3.4 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the common stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the common stock
of the Corporation, the provisions of this Section shall be applied as if such
capital adjustment event had occurred immediately prior to the Closing Date and
the original purchase price had been fairly allocated to the stock resulting
from such capital adjustment; and in other respects the provisions of this
Section shall be applied in a fair, equitable and reasonable manner so as to
give effect, as nearly as may be, to the purposes hereof.
3.5. Exclusions. Section 3.1 shall not apply to sales of shares by the
Corporation (i) upon conversion or exercise of any convertible securities,
options or warrants outstanding on the date hereof, except that with respect to
the Corporation's Series A Convertible Preferred Stock, conversions during the
Anniversary Period shall be subject to Section 3.1, (ii) pursuant to the
provisions of any shareholder-approved employee benefit or incentive plan
heretofore or hereafter adopted by the Corporation, or (iii) to an entity which
is a strategic investor in the Corporation or an investor which is in a related
industry, as opposed to a financial investor.
3.6. Definitions. For purposes of Section 3.1 hereof, a sale of shares
shall mean and include the sale or issuance of rights, options, warrants or
convertible securities under which the Corporation is or may become obligated to
issue shares of common stock, and the "selling price" of the common stock
covered thereby shall be the exercise or conversion price thereof plus the
consideration (if any) received by the Corporation upon such sale or issuance.
If the selling price or the exercise or conversion price is not determined until
after the Anniversary Period, an adjustment pursuant to this Section shall be
made promptly
3
<PAGE> 23
following such determination, if required. If shares are issued for a
consideration other than cash, the "selling price" shall be the fair value of
the such consideration as determined in good faith by the Board of Directors of
the Corporation. The term "Stock" as used in this Agreement shall include shares
issued pursuant to this Section.
3A
<PAGE> 24
SECTION 4
Representations and Warranties of the Corporation
The Corporation hereby represents and warrants to the Purchaser that:
4.1 Corporate Power, Qualification and Standing. The Corporation and its
subsidiaries are validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and each of them is qualified to
transact business in each jurisdiction in which its ownership of property or
conduct of activities requires such qualification. The Corporation has all
requisite corporate power and authority to enter into this Agreement, to sell
the Stock and to carry out and perform its other obligations under this
Agreement
4.2 S.E.C. Reports; Financial Statements. The common stock of the
Corporation is registered under Section 12(b) or (g) of the Securities Exchange
Act of 1934 and the Corporation is in full compliance with its reporting and
filing obligations under said Act. The Corporation has delivered to Purchaser
all of its Annual Reports to shareholders and its reports on Form 10K; and all
its quarterly reports to shareholders, quarterly reports on Form 10Q, and each
other report, registration statement, definitive proxy statement or other
document filed with the S.E.C. since the beginning of said three fiscal years
(collectively, the "SEC Reports"). The SEC Reports do not (as of their
respective dates) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The audited and unaudited financial statements of the
Corporation included in the SEC Reports (the "Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as stated in such Financial Statements or the notes
thereto) and fairly present the financial position of the Corporation and its
consolidated subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended. Except
as publicly disclosed by the Corporation in the SEC Reports or otherwise, since
the end of the most recent of said fiscal years there has been no material
adverse change in the business, financial condition, or results of operations of
the Corporation and its subsidiaries taken together as a consolidated whole, and
there is no existing condition, event or series of events which can reasonably
be expected to have a material adverse effect on the business, financial
condition or results of operations of the Corporation and its subsidiaries taken
together as a consolidated whole, or its ability to perform its obligations
under this Agreement.
4
<PAGE> 25
4.3 Authorization; No Conflict. Execution and delivery of this Agreement
and issuance and sale of the Stock have been duly authorized by all necessary
corporate action of the Corporation, and the Stock when issued will be validly
issued, fully paid and non-assessable. Performance by the Corporation of its
obligations under this Agreement will not conflict with or violate (i) the
charter documents or bylaws of the Corporation, (ii) any indenture, loan
agreement, lease, mortgage or other material agreement binding on the
Corporation, (iii) any order of a court or administrative agency binding on the
Corporation, or (iv) any applicable law or governmental regulation; and such
performance does not and will not require the permission or approval of any
governmental agency, and will not result in the imposition or creation of any
lien or charge against any assets of the Corporation. Except as disclosed in the
Financial Statements or on Exhibit A hereto, (i) the Corporation has no
obligation to redeem or repurchase any of its equity securities, (ii) no
shareholder or other person has pre-emptive or other rights to acquire equity
securities of the Corporation, and (iii) the Corporation has no obligation to
register any of its securities otherwise than pursuant to Section 8 of this
Agreement or as disclosed on Exhibit A hereto.
4.4 Material Agreements; No Defaults. All material indentures, loan
agreements, leases, mortgages and other agreements binding on the Corporation or
its subsidiaries are identified in the list or exhibits contained in the
Corporation's most recent 10K report ("Other Agreements"). No material default
on the part of the Corporation or any or its subsidiaries (including any event
which, with notice or the passage of time, would constitute a default) exists
under any of the Other Agreements.
4.5 Material Liabilities. Except for liabilities disclosed in the
Financial Statements or the SEC Reports, and obligations under the Other
Agreements, the Corporation and its subsidiaries have no material liabilities or
obligations, absolute or contingent, other than liabilities arising in the
ordinary course of business subsequent to the date of the most recent of the
Financial Statements.
4.6 Properties. The Corporation and its subsidiaries (i) have good title
to the properties and assets reflected in the Financial Statements as owned by
them, (ii) have valid leasehold interests in the properties leased by them, and
(iii) own or have the right to use under valid license agreements all
trademarks, trade, names, copyrights, patents and other intellectual property
rights regularly utilized by them; subject in each case to no material liens,
security interests or adverse claims except as disclosed in the Financial
Statements.
4.7 Litigation. There are no material legal actions, arbitrations, or
administrative proceedings pending against the
5
<PAGE> 26
Corporation or its subsidiaries, except for the matters disclosed in the SEC
Reports.
4.8 Tax Matters. The Corporation and its subsidiaries have filed on a
timely basis all tax returns required to be filed by them and have paid their
taxes prior to delinquency, and have made adequate accruals for tax liabilities
on the Financial Statements in accordance with generally accepted accounting
principles.
4.9 ERISA Compliance. Neither the Corporation nor any of its subsidiaries
has incurred any material funding deficiency within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or any material
liability to the Pension Benefit Guarantee Corporation in connection with any
employee benefit plan. The Corporation and its subsidiaries are in compliance in
all material respects with all applicable provisions of ERISA, and have no
obligations with respect to any multi-employer plan. No "reportable event" as
such term is defined in ERISA, which may result in any material liability, has
occurred with respect to any employee benefit or other plan maintained for
employees of the Corporation or any subsidiary.
4.10 Environmental Matters. Except as disclosed in the SEC Reports,
neither the Corporation nor any of its subsidiaries (i) has been notified by any
governmental authority that it is, or may be, a Responsible Party with respect
to cleanup or remediation of any environmental condition or hazardous waste
site, (ii) has violated any law, regulation, order or requirement of
governmental authority with respect to Hazardous Substances, or (iii) has
incurred any material liability for violation or noncompliance with applicable
Environmental Regulations. The term "Environmental Regulations" means any law,
regulation, order or requirement relating to protection of the environment,
including without limitation, the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act and the Toxic Substances Control Act. The term "Hazardous Substances" means
any substance defined or listed as such in any Environmental Regulation.
4.11 Other Matters. The Corporation is not now and will not be after
giving effect to the receipt of the proceeds from the sale of the Stock an
"Investment Company" within the meaning of the Investment Company Act of 1940,
nor will it be controlled by or acting on behalf of any person which is such an
investment company. The Corporation is not selling the Stock "for the purpose of
purchasing or carrying any margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System. The Corporation has not
offered the Stock to any person other than the Purchaser.
6
<PAGE> 27
SECTION 5
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Corporation that:
5.1 Corporate Power and Authority. It is validly existing and in good
standing with all requisite power and authority to enter into this Agreement and
carry out its obligations hereunder and has taken all actions necessary to
authorize it to enter into this Agreement and carry out such obligations.
5.2 Investment. It is acquiring the Stock for investment and not with the
view to, or for resale in connection with, any distribution thereof. It is an
"accredited investor" within the meaning of the Securities Act of 1933 and the
rules thereunder. It understands that the Stock has not been registered under
the Securities Act of 1933 nor qualified under any State blue sky law by reason
of specified exemptions therefrom which depend upon, among other things, the
bona fide nature of its investment intent as expressed herein.
5.3 Rule 144. It acknowledges that the Stock must be held indefinitely
unless it is subsequently registered under the Securities Act of 1933 or an
exemption from such registration is available. It has been advised or is aware
of the provisions of Rule 144 promulgated under the Securities Act.
SECTION 6
Conditions to Obligations of the Purchaser
The obligation of the Purchaser to purchase the Stock is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Corporation shall be true and correct in all material respects
on the Closing Date.
(b) Performance. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Corporation on or
prior to the Closing Date shall have been performed or complied with in all
material respects.
(c) Opinion of Corporation's Counsel. The Purchaser shall have
received from counsel to the Corporation an opinion confirming the
representations set forth in the first sentence of Section 4.3 hereof, and on
the basis of such counsel's review of the Other Agreements and certificates of
officers of the
7
<PAGE> 28
Corporation as to factual matters, confirming the representations set forth in
the second and third sentences of Section 4.3 hereof.
(d) Legal Issuance. At the time of the Closing, the issuance and
purchase of the Stock shall be legally permitted by all laws and regulations to
which the Purchaser and the Corporation are subject.
(e) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in form and
substance to the purchaser and its counsel.
(f) Satisfaction of Obligations to Broker. The Corporation shall
have furnished the Purchaser with assurances satisfactory to the Purchaser that
the Corporation has satisfied its obligations to any broker entitled to
compensation in connection with the sale of the Stock.
8
<PAGE> 29
SECTION 7
Conditions to Obligations of the Corporation
The Corporation's obligation to sell the Stock is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties made by the purchaser shall be true and correct in all material
respects on the Closing Date.
(b) Legal Issuance. At the time of the Closing, the issuance and
purchase of the Stock shall be legally permitted by all laws and regulations to
which the purchaser and the Corporation are subject.
(c) Payment. The Corporation shall concurrently receive payment for
the Stock as provided in Section 2.
SECTION 8
Covenant to Register
(a) For purposes of this Section 8, the following definitions shall
apply:
(i) The terms "register", "registered", and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act") effected by preparing and filing a registration statement or
similar document in compliance with the Act or an amendment thereto, and
the declaration or ordering of effectiveness of such registration
statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the Stock and any
securities of the Corporation or securities of any successor corporation
issued as, or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Stock.
(b) (i) At any time after one hundred and twenty (120) days after
the date of this Purchase Agreement and from time to time thereafter,
Purchaser shall have the right to require by notice in writing that the
Corporation register all or any part of the Registrable Securities held by
Purchaser (a "Demand Registration") and the Corporation shall thereupon
effect such registration in accordance herewith. The Corporation agrees to
file a registration statement (Form S-
9
<PAGE> 30
3) in order to register the Common Stock and to cause such registration
statement to be declared effective within ninety (90) days of Closing. A
3% cash penalty will accrue for every thirty (30) days after such date
that the securities remain unregistered. The penalty shall be pro-rated
for periods of less than thirty (30) days.
(ii) The Corporation shall not be obligated to effect Demand
Registration (i) if all of the Registrable Securities held by purchaser
which are intended to be covered by the Demand Registration are, at the
time of the request of a Demand Registration, included in an effective
registration statement and the Corporation is in compliance with its
obligations under Subsection (d) (ii) through (v) hereof with respect to
such registration statement, or (ii) within 120 days after the effective
date of any other registration as to which Purchaser was given piggy-back
rights pursuant to subsection (c) hereof and in which Purchaser was able
to register and sell at least eighty percent (80%) of the Registrable
Securities requested by Purchaser to be included in such registration.
(c) If the Corporation proposes to register (including for this
purpose a registration effected by the Corporation for shareholders other than
the Purchaser) any of its stock or other securities under the Act in connection
with a public offering of such securities (other than a registration on Form S-
4, Form S-8 or other limited purpose form) and the Registrable Securities have
not heretofore been included in a registration statement under Subsection (b),
which remains effective, the Corporation shall, at such time, promptly give the
Purchaser written notice of such registration. Upon the written request of the
Purchaser given within twenty (20) days after receipt of such notice by the
Purchaser, the Corporation shall cause to be registered under the Act all of the
Registrable Securities that the Purchaser has requested to be registered.
However, the Corporation shall have no obligation under this Subsection (c) to
the extent that, with respect to a public offering registration, any underwriter
of such public offering reasonably requests that the Registrable Securities or a
portion thereof be excluded therefrom.
(d) Whenever required under this Section 8 to effect the
registration of any Registrable Securities, the Corporation shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration to become effective and, upon the request of the
Purchaser, keep such registration statement effective for so long as
Purchaser desires to dispose of the securities, covered by such
registration statement (but not after Purchaser in the reasonable opinion
of its counsel is free to sell such
10
<PAGE> 31
securities under the provisions of Rule 144(k) under the Act).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Purchaser such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as the Purchaser
may reasonably request in order to facilitate the disposition of
Registrable Securities owned by Purchaser.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by Purchaser, provided that the Corporation shall not be
required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service and process in any
such states or jurisdictions.
(v) Notify Purchaser of the happening of any event as a result
of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing.
(vi) Furnish, at the request of Purchaser, an opinion of
counsel of the Corporation, dated the effective date of the registration
statement, as to the due authorization and issuance of the securities
being registered and compliance with securities laws by the Corporation in
connection with the authorization and issuance thereof.
(e) The Purchaser will furnish to the Corporation in connection with
any registration under this Section 8 such information regarding itself, the
Registrable Securities and other securities of the Corporation held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities held by Purchaser.
(f) (i) The Corporation shall indemnify, defend and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c), any
underwriter (as defined in the Act) for such holder, and the directors,
11
<PAGE> 32
officers and controlling persons of such holder or underwriter from and
against, and shall reimburse all of them with respect to, any and all
claims, suits, demands, causes of action, losses, damages, liabilities,
costs or expenses ("Liabilities") to which any of them may become subject
under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that the
Corporation shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such person in writing
specifically for use in the preparation thereof.
(ii) Each holder of Registrable Securities included in a
registration pursuant to the provisions of Subsection (b) or (c) shall
indemnify, defend, and hold harmless the Corporation, its directors and
officers, and shall reimburse the Corporation, its directors and officers
with respect to, any and all Liabilities to which any of them may become
subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by or on behalf of such
holder specifically for use in the preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of Subsection (f)(i) or (f)(ii) of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party shall, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of
Subsection (f)(i) or (f)(ii), promptly notify the indemnifying party of
the commencement thereof; provided, however, that the failure to so notify
the indemnifying party shall not relieve it from its indemnification
obligations hereunder except to the extent that the indemnifying party is
materially prejudiced by such failure. If such action is
12
<PAGE> 33
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses different from or in
addition to those available to the indemnifying party, or if there is
conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party
shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party. After notice
from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party pursuant to Subsection (f)(i) or (f)(ii) for any
expense of counsel subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (A) the indemnified party shall have employed
counsel in accordance with the provisions of the preceding sentence, or
(B) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action. An
indemnifying party shall not be responsible for amounts paid in settlement
without its consent, provided that its consent may not be unreasonably
withheld.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to subsections (b) or (c), all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering shall be borne by the Corporation; provided, however, that any
securityholders participating in such registration shall bear their pro
rata share of the underwriting discounts and commissions, if any.
(ii) The fees, costs and expenses of registration to be borne
by the Corporation as provided in this Subsection (g) shall include,
without limitation, all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the
Corporation, and all legal fees and disbursements and other expenses of
complying with state securities or Blue Sky laws of any jurisdiction or
jurisdictions in which securities to be offered are to be registered and
qualified. Fees and disbursements of counsel and accountants for the
selling securityholders shall, however, be borne by the respective selling
securityholder.
13
<PAGE> 34
(h) The rights to cause the Corporation to register all or any
portion of Registrable Securities pursuant to this Section 8 may be assigned by
Purchaser to a transferee or assignee of 20% or more of the Stock. Within a
reasonable time after such transfer the Purchaser shall notify the Corporation
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned. Such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted
under the Act. Any transferee asserting registration rights hereunder shall be
bound by the provisions of this Section 8.
(i) From and after the date of this Agreement, the Corporation shall
not agree to allow the holders of any securities of the Corporation to include
any of their securities in any registration statement filed by the Corporation
pursuant to Subsection (b) unless the inclusion of such securities will not
reduce the amount of the Registrable Securities included therein.
SECTION 9
Affirmative Covenants of the Corporation
The Corporation hereby covenants that, during such time as the Purchaser
(or one of its affiliates) owns any Stock, or for four years, whichever period
is shorter:
9.1 Reports and Financial Statements.
(a) The Corporation will cause its common stock to continue to be
registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934,
will comply in all respects with its reporting and filing obligations under said
Act, and will not take any action or file any document (whether or not permitted
by said Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Act.
The Corporation will take all action necessary to continue the listing or
trading of its common stock on any national securities exchange or the Automated
Quotation System of the National Association of Securities Dealers on which such
common stock is listed or traded, and will comply in all respects with its
reporting, filing and other obligations under the bylaws or rules of said
exchange or Association.
(b) The Corporation will furnish to the Purchaser, concurrently with
the distribution or filing thereof, each annual and quarterly report to its
shareholders, its reports on Form 10K and 10Q, and each other report,
registration statement, definitive proxy statement or other document filed with
the S.E.C., and each press release or other public announcement issued by the
Corporation.
14
<PAGE> 35
9.2 Maintenance of Office. The Corporation will maintain an office or
agency in the United States at such address as may be designated in writing from
time to time to the registered holders of the Stock, where notices,
presentations and demands to or upon the Corporation in respect of the Stock may
be given or made. Unless or until another office or agency is designated by the
Corporation, such office shall be at the address set forth adjacent to the name
of the Corporation at the foot of this Agreement.
9.3 Maintenance and Compliance. The Corporation will (i) maintain its
corporate existence, rights, powers and privileges in good standing, (ii) comply
in all material respects with all laws and governmental regulations and
restrictions applicable to its business or properties, (iii) keep records and
books of account and maintain a system of internal accounting controls in
accordance with generally accepted accounting principles and in compliance with
Section 13(b)(2) of the Securities Exchange Act of 1934, and (iv) retain
independent public accountants of recognized national standing as auditors of
the Corporation's annual financial statements.
9.4 Assignment of Rights. The rights of the Purchaser hereunder may be
assigned by the Purchaser in connection with the transfer or assignment to a
single transferee of not less than 20% of the Stock originally purchased by the
Purchaser hereunder, and such rights may be further reassigned by such
transferee to another such single transferee. Any transferee asserting rights
under this Agreement shall be bound by its provisions.
9.5 Effect of Covenants. The covenants in Sections 9.1 and 9.3 shall not
be deemed to prohibit a merger, sale of all assets or other corporate
reorganization if (i) the entity surviving or succeeding to the Corporation is
bound by this Agreement with respect to its securities issued in exchange for or
replacement of the Stock, or (ii) the consideration received in exchange for or
replacement of the Stock is cash.
SECTION 10
Legend on Stock
Each certificate representing the Stock shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under any applicable state securities laws):
15
<PAGE> 36
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
Upon request of a holder of Stock the Corporation shall remove the
foregoing legend or issue to such holder a new certificate therefor free of any
such legend, if the Corporation shall have received either an opinion of counsel
or a "no-action" letter of the S.E.C., in either case reasonably satisfactory in
substance to the Corporation and its counsel, to the effect that such legend is
no longer required.
SECTION 11
Miscellaneous
11.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California. Any action or proceeding
relating to this Agreement may be brought in the courts of California sitting in
Los Angeles County, or in the United States courts located in Los Angeles
County, California, and each of the parties irrevocably consents to the
jurisdiction of such courts in any such action or proceeding.
11.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of and be binding upon
the successors and assigns of the parties.
11.3 Entire Agreement; Amendment. This Agreement (including any Exhibits
hereto) and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated except by a written instrument signed
by the Corporation and the Purchaser.
11.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be mailed by first-class mail, postage prepaid, or
delivered either by hand or by messenger, addressed (a) if to the Purchaser, as
indicated below the Purchaser's signature, or at such other address as the
Purchaser shall have furnished to the Corporation in writing, or (b) if to any
other holder of any Stock, at the address of such holder as shown on the records
of the Corporation, or (c) if to the Corporation, at its address set forth below
or at such other
16
<PAGE> 37
address as the Corporation shall have furnished to the Purchaser and each such
other holder in writing. All such notices or communications shall be deemed
given when actually delivered by hand, messenger, facsimile or mailgram or, if
mailed, three days after deposit in the U.S. mail.
11.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement (including any holder of
Stock), upon any breach or default of another party under this Agreement, shall
impair any such right, power or remedy of such party nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.6 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.7 Titles and Subtitles. The titles of the Sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as of the day and year first
written above.
Commodore Applied Technologies, Inc.
By: /s/ Michael D. Fullwood
---------------------------------
Michael D. Fullwood
Senior Vice President and Chief
Administrative and Financial Officer
Address: 150 East 58th Street
Suite 3400
New York, NY 10155
[Signatures continued on following page]
17
<PAGE> 38
U.S. 9-10 Small Company Portfolio of DFA
Investment Group Inc.
By: /s/
---------------------------------
Address: c/o Dimensional Fund Advisors
1299 Ocean Avenue, 12th floor
Santa Monica, CA 90401
18
<PAGE> 39
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of
September 26, 1997, between Commodore Applied Technologies, Inc., a Delaware
corporation, (the "Corporation"), and an entity advised by Dimensional Fund
Advisors Inc. whose name is set forth at the foot of this Agreement (the
"Purchaser").
The Corporation and the Purchaser hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Stock
1.1 Authorization of the Stock. The Corporation has authorized
issuance and sale of 125,400 shares of its common stock (the "Stock") to
Purchaser as herein provided.
1.2 Sale and Purchase of the Stock. At the Closing, subject to the
terms and conditions hereof and in reliance upon the representations, warranties
and agreements contained herein, the Purchaser will purchase the Stock from the
Corporation at a purchase price of $3.675 per share, $460,845.00 in total.
SECTION 2
Closing, Payment and Delivery
2.1 Closing Date and Place of Closing. The closing shall be held as
soon as practicable, and in no event more than 5 business days after execution
of this Agreement, on such date as the Corporation and the Purchaser may agree
to (the "Closing Date") and shall be held at the offices of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA 90401.
2.2 Payment and Delivery. At the Closing, the Purchaser will pay or
cause to be paid to the Corporation by wire funds transfer the entire purchase
price. The Corporation will deliver in advance of the Closing to an
institutional custodian designated by the Purchaser a certificate or
certificates, registered in such name or names as Purchaser may designate,
representing all of the Stock, with instructions that such certificates are to
be held for the account of Purchaser upon payment of the purchase price.
2.3 Covenant of Best Efforts and Good Faith. The Corporation and the
Purchaser agree to use their respective best
1
<PAGE> 40
efforts and to act in good faith to cause to occur all conditions to Closing
which are in their respective control.
SECTION 3
Purchase Price Adjustment
3.1. Subsequent Sale at Lower Price. If during the twelve month
period following the Closing Date (the "Anniversary Period"), the Corporation
shall, on any one or more occasion, sell any shares of its common stock or any
security convertible into or exercisable in respect of common stock, or issue
additional shares of common stock upon conversion during the Anniversary Period
of its currently outstanding Series A Convertible Preferred Stock for a selling
price per share or a conversion price per share which shall be lower than the
purchase price per share of the Stock sold to Purchaser pursuant to Section 1.2
hereof (such lower price or prices being the "Reset Price"), the purchase price
per share of the Stock sold to the Purchaser hereunder shall be adjusted
downward as at the end of the Anniversary Period so as to equal the Reset Price.
The lowest selling price per share or conversion price per share at which the
Corporation shall issue its common stock during the Anniversary Period shall
determine the applicable Reset Price; provided, that
(a) the lowest sales or conversion prices associated with
issuances by the Corporation of up to 10,000 shares of the Corporation's
common stock, and
(b) issuances of shares of the Corporation's common stock by
Commodore Environmental Services, Inc. ("COES"), the parent of the
Corporation, upon conversion of Series D Convertible Preferred Stock of
COES or upon exercise of certain warrants to purchase shares of the
Corporation's common stock granted by COES, irrespective of the conversion
or exercise price per share,
shall be excluded in determining such Reset Price.
3.2. Adjustment Mechanism. If an adjustment of the purchase price
for the Stock is required pursuant to this Section 3, the Corporation shall, not
later than five business days (subject to the provisions of Subsection 3.6
hereof) following the expiration of the Anniversary Period, refund to Purchaser
in cash the amount of such downward adjustment which shall be equal to the
product of (a) the total number of shares of common stock originally delivered
to Purchaser hereunder, multiplied by (b) the difference between the purchase
price per share set forth in Section 1.2 and the final Reset Price. If for any
reason the Corporation fails to make such cash refund within 10 days after it
becomes due pursuant to this Section 3.2, then the Corporation shall immediately
deliver to Purchaser such number of additional
2
<PAGE> 41
shares of common stock as will cause (i) the total number of shares of common
stock delivered to Purchaser hereunder, multiplied by (ii) the Reset Price, to
equal the total purchase price set forth in Section 1.2 hereof; provided,
however, that the Corporation shall effect such adjustment in cash, in whole or
in part, to the extent required by the following subsection.
3.3. Limitation on Number of Shares. Purchaser and other entities
advised by Dimensional Fund Advisors Inc. shall not be required to accept, by
way of any such adjustment, a number of shares of the Corporation such that the
total number of such shares held by Purchaser and such other entities, which
were held by them on the date of this Agreement or acquired by them pursuant to
this Agreement or agreements of like tenor with such other entities, would
exceed 4.99% of the total outstanding stock of the Corporation. The Corporation
shall effect the adjustment required by this Section by cash refund to the
extent necessary to avoid causing the aforesaid limitation to be exceeded.
3.4 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the common stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the common stock
of the Corporation, the provisions of this Section shall be applied as if such
capital adjustment event had occurred immediately prior to the Closing Date and
the original purchase price had been fairly allocated to the stock resulting
from such capital adjustment; and in other respects the provisions of this
Section shall be applied in a fair, equitable and reasonable manner so as to
give effect, as nearly as may be, to the purposes hereof.
3.5. Exclusions. Section 3.1 shall not apply to sales of shares by
the Corporation (i) upon conversion or exercise of any convertible securities,
options or warrants outstanding on the date hereof, except that with respect to
the Corporation's Series A Convertible Preferred Stock, conversions during the
Anniversary Period shall be subject to Section 3.1, (ii) pursuant to the
provisions of any shareholder-approved employee benefit or incentive plan
heretofore or hereafter adopted by the Corporation, or (iii) to an entity which
is a strategic investor in the Corporation or an investor which is in a related
industry, as opposed to a financial investor.
3.6. Definitions. For purposes of Section 3.1 hereof, a sale of
shares shall mean and include the sale or issuance of rights, options, warrants
or convertible securities under which the Corporation is or may become obligated
to issue shares of common stock, and the "selling price" of the common stock
covered thereby shall be the exercise or conversion price thereof plus the
consideration (if any) received by the Corporation upon such sale or issuance.
If the selling price or the exercise or conversion price is not determined until
after the Anniversary Period, an adjustment pursuant to this Section shall be
made promptly
3
<PAGE> 42
following such determination, if required. If shares are issued for a
consideration other than cash, the "selling price" shall be the fair value of
the such consideration as determined in good faith by the Board of Directors of
the Corporation. The term "Stock" as used in this Agreement shall include shares
issued pursuant to this Section.
3A
<PAGE> 43
SECTION 4
Representations and Warranties of the Corporation
The Corporation hereby represents and warrants to the Purchaser
that:
4.1 Corporate Power, Qualification and Standing. The Corporation and
its subsidiaries are validly existing and in good standing under the laws of
their respective jurisdictions of incorporation and each of them is qualified to
transact business in each jurisdiction in which its ownership of property or
conduct of activities requires such qualification. The Corporation has all
requisite corporate power and authority to enter into this Agreement, to sell
the Stock and to carry out and perform its other obligations under this
Agreement.
4.2 S.E.C. Reports; Financial Statements. The common stock of the
Corporation is registered under Section 12(b) or (g) of the Securities Exchange
Act of 1934 and the Corporation is in full compliance with its reporting and
filing obligations under said Act. The Corporation has delivered to Purchaser
all of its Annual Reports to shareholders and its reports on Form 10K, and all
its quarterly reports to shareholders, quarterly reports on Form 10Q, and each
other report, registration statement, definitive proxy statement or other
document filed with the S.E.C. since the beginning of said three fiscal years
(collectively, the "SEC Reports"). The SEC Reports do not (as of their
respective dates) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The audited and unaudited financial statements of the
Corporation included in the SEC Reports (the "Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as stated in such Financial Statements or the notes
thereto) and fairly present the financial position of the Corporation and its
consolidated subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended. Except
as publicly disclosed by the Corporation in the SEC Reports or otherwise, since
the end of the most recent of said fiscal years there has been no material
adverse change in the business, financial condition, or results of operations of
the Corporation and its subsidiaries taken together as a consolidated whole, and
there is no existing condition, event or series of events which can reasonably
be expected to have a material adverse effect on the business, financial
condition or results of operations of the Corporation and its subsidiaries taken
together as a consolidated whole, or its ability to perform its obligations
under this Agreement.
4
<PAGE> 44
4.3 Authorization; No Conflict. Execution and delivery of this
Agreement and issuance and sale of the Stock have been duly authorized by all
necessary corporate action of the Corporation, and the Stock when issued will be
validly issued, fully paid and non-assessable. Performance by the Corporation
of its obligations under this Agreement will not conflict with or violate (i)
the charter documents or bylaws of the Corporation, (ii) any indenture, loan
agreement, lease, mortgage or other material agreement binding on the
Corporation, (iii) any order of a court or administrative agency binding on the
Corporation, or (iv) any applicable law or governmental regulation; and such
performance does not and will not require the permission or approval of any
governmental agency, and will not result in the imposition or creation of any
lien or charge against any assets of the Corporation. Except as disclosed in the
Financial Statements or on Exhibit A hereto, (i) the Corporation has no
obligation to redeem or repurchase any of its equity securities, (ii) no
shareholder or other person has pre-emptive or other rights to acquire equity
securities of the Corporation, and (iii) the Corporation has no obligation to
register any of its securities otherwise than pursuant to Section 8 of this
Agreement or as disclosed on Exhibit A hereto.
4.4 Material Agreements; No Defaults. All material indentures, loan
agreements, leases, mortgages and other agreements binding on the Corporation or
its subsidiaries are identified in the list of exhibits contained in the
Corporation's most recent 10K report ("Other Agreements"). No material default
on the part of the Corporation or any of its subsidiaries (including any event
which, with notice or the passage of time, would constitute a default) exists
under any of the Other Agreements.
4.5 Material Liabilities. Except for liabilities disclosed in the
Financial Statements or the SEC Reports, and obligations under the Other
Agreements, the Corporation and its subsidiaries have no material liabilities
or obligations, absolute or contingent, other than liabilities arising in the
ordinary course of business subsequent to the date of the most recent of the
Financial Statements.
4.6 Properties. The Corporation and its subsidiaries (i) have good
title to the properties and assets reflected in the Financial Statements as
owned by them, (ii) have valid leasehold interests in the properties leased by
them, and (iii) own or have the right to use under valid license agreements all
trademarks, trade names, copyrights, patents and other intellectual property
rights regularly utilized by them; subject in each case to no material liens,
security interests or adverse claims except as disclosed in the Financial
statements.
4.7 Litigation. There are no material legal actions, arbitrations,
or administrative proceedings pending against the
5
<PAGE> 45
Corporation or its subsidiaries, except for the matters disclosed in the SEC
Reports.
4.8 Tax Matters. The Corporation and its subsidiaries have filed on
a timely basis all tax returns required to be filed by them and have paid their
taxes prior to delinquency, and have made adequate accruals for tax liabilities
on the Financial Statements in accordance with generally accepted accounting
principles.
4.9 ERISA Compliance. Neither the Corporation nor any of its
subsidiaries has incurred any material funding deficiency within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any
material liability to the Pension Benefit Guarantee Corporation in connection
with any employee benefit plan. The Corporation and its subsidiaries are in
compliance in all material respects with all applicable provisions of ERISA, and
have no obligations with respect to any multi-employer plan. No "reportable
event" as such term is defined in ERISA, which may result in any material
liability, has occurred with respect to any employee benefit or other plan
maintained for employees of the Corporation or any subsidiary.
4.10 Environmental Matters. Except as disclosed in the SEC Reports,
neither the Corporation nor any of its subsidiaries (i) has been notified by any
governmental authority that it is, or may be, a Responsible Party with respect
to cleanup or remediation of any environmental condition or hazardous waste
site, (ii) has violated any law, regulation, order or requirement of
governmental authority with respect to Hazardous Substances, or (iii) has
incurred any material liability for violation or noncompliance with applicable
Environmental Regulations. The term "Environmental Regulations" means any law,
regulation, order or requirement relating to protection of the environment,
including without limitation, the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act and the Toxic Substances Control Act. The term "Hazardous Substance" means
any substance defined or listed as such in any Environmental Regulation.
4.11 Other Matters. The Corporation is not now and will not be after
giving effect to the receipt of the proceeds from the sale of the Stock an
"Investment Company" within the meaning of the Investment Company Act of 1940,
nor will it be controlled by or acting on behalf of any person which is such an
investment company. The Corporation is not selling the Stock "for the purpose of
purchasing or carrying any margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System. The Corporation has not
offered the Stock to any person other than the Purchaser.
6
<PAGE> 46
SECTION 5
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Corporation that:
5.1 Corporate Power and Authority. It is validly existing and in
good standing with all requisite power and authority to enter into this
Agreement and carry out its obligations hereunder and has taken all actions
necessary to authorize it to enter into this Agreement and carry out such
obligations.
5.2 Investment. It is acquiring the Stock for investment and not
with the view to, or for resale in connection with, any distribution thereof. It
is an "accredited investor" within the meaning of the Securities Act of 1933 and
the rules thereunder. It understands that the Stock has not been registered
under the Securities Act of 1933 nor qualified under any State blue sky law by
reason of specified exemptions therefrom which depend upon, among other things,
the bona fide nature of its investment intent as expressed herein.
5.3 Rule 144. It acknowledges that the Stock must be held
indefinitely unless it is subsequently registered under the Securities Act of
1933 or an exemption from such registration is available. It has been advised or
is aware of the provisions of Rule 144 promulgated under the Securities Act.
SECTION 6
Conditions to Obligations of the Purchaser
The obligation of the Purchaser to purchase the stock is subject to
the fulfillment on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Corporation shall be true and correct in, all material
respects on the Closing Date.
(b) Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Corporation
on or prior to the Closing Date shall have been performed or complied with in
all material respects.
(c) Opinion of Corporation's Counsel. The Purchaser shall have
received from counsel to the Corporation an opinion confirming the
representations set forth in the first sentence of Section 4.3 hereof, and on
the basis of such counsel's review of the Other Agreements and certificates of
officers of the
7
<PAGE> 47
Corporation as to factual matters, confirming the representations set forth in
the second and third sentences of Section 4.3 hereof.
(d) Legal Issuance. At the time of the Closing, the issuance
and purchase of the Stock shall be legally permitted by all laws and regulations
to which the Purchaser and the Corporation are subject.
(e) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be satisfactory in
form and substance to the Purchaser and its counsel.
(f) Satisfaction of Obligations to Broker. The Corporation
shall have furnished the Purchaser with assurances satisfactory to the Purchaser
that the Corporation has satisfied its obligations to any broker entitled to
compensation in connection with the sale of the Stock.
8
<PAGE> 48
SECTION 7
Conditions to Obligations of the Corporation
The Corporation's obligation to sell the Stock is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties made by the Purchaser shall be true and correct in all material
respects on the Closing Date.
(b) Legal Issuance. At the time of the Closing, the issuance
and purchase of the Stock shall be legally permitted by all laws and regulations
to which the Purchaser and the Corporation are subject.
(c) Payment. The Corporation shall concurrently receive
payment for the Stock as provided in Section 2.
SECTION 8
Covenant to Register
(a) For purposes of this Section 8, the following definitions shall
apply:
(i) The terms "register", "registered", and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act" effected by preparing and filing a registration statement or similar
document in compliance with the Act or an amendment thereto, and the
declaration or ordering of effectiveness of such registration statement,
document or amendment thereto.
(ii) The term "Registrable Securities" means the Stock and
any securities of the Corporation or securities of any successor
corporation issued as, or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as, a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Stock.
(b) (i) At any time after one hundred and twenty (120) days after
the date of this Purchase Agreement and from time to time thereafter,
Purchaser shall have the right to require by notice in writing that the
Corporation register all or any part of the Registrable Securities held by
Purchaser (a "Demand Registration") and the Corporation shall thereupon
effect such registration in accordance herewith. The Corporation agrees to
file a registration statement (Form S-
9
<PAGE> 49
3) in order to register the Common Stock and to cause such registration
statement to be declared effective within ninety (90), days of Closing. A
3% cash penalty will accrue for every thirty (30) days after such date
that the securities remain unregistered. The penalty shall be pro-rated
for periods of less than thirty (30) days.
(ii) The Corporation shall not be obligated to effect Demand
Registration (i) if all of the Registrable Securities held by Purchaser
which are intended to be covered by the Demand Registration are, at the
time of the request of a Demand Registration, included in an effective
registration statement and the Corporation is in compliance with its
obligations under Subsection (d) (ii) through (v) hereof with respect to
such registration statement, or (ii) within 120 days after the effective
date of any other registration as to which Purchaser was given piggy-back
rights pursuant to subsection (c) hereof and in which Purchaser was able
to register and sell at least eighty percent (80%) of the Registrable
Securities requested by Purchaser to be included in such registration.
(c} If the Corporation proposes to register (including for this
purpose a registration effected by the Corporation for shareholders other than
the Purchaser) any of its stock or other securities under the Act in connection
with a public offering of such securities (other than a registration on Form
S-4, Form S-8 or other limited purpose form) and the Registrable Securities have
not heretofore been included in a registration statement under Subsection (b),
which remains effective, the Corporation shall, at such time, promptly give the
Purchaser written notice of such registration. Upon the written request of the
Purchaser given within twenty (20) days after receipt of such notice by the
Purchaser, the Corporation shall cause to be registered under the Act all of the
Registrable Securities that the Purchaser has requested to be registered.
However, the Corporation shall have no obligation under this Subsection (c) to
the extent that, with respect to a public offering registration, any underwriter
of such public offering reasonably requests that the Registrable Securities or a
portion thereof be excluded therefrom.
(d) Whenever required under this Section 8 to effect the
registration of any Registrable Securities, the Corporation shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration to become effective and, upon the request of the
Purchaser, keep such registration statement effective for so long as
Purchaser desires to dispose of the securities covered by such
registration statement (but not after Purchaser in the reasonable opinion
of its counsel is free to sell such
10
<PAGE> 50
securities under the provisions of Rule 144(k) under the Act).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Purchaser such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as the Purchaser
may reasonably request in order to facilitate the disposition of
Registrable Securities owned by Purchaser.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky Laws of such jurisdictions as shall be reasonably
requested by Purchaser, provided that the Corporation shall not be
required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service and process in any
such states or jurisdictions.
(v) Notify Purchaser of the happening of any event as a result
of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing.
(vi) Furnish, at the request of Purchaser, an opinion of
counsel of the Corporation, dated the effective date of the registration
statement, as to the due authorization and issuance of the securities
being registered and compliance with securities laws by the Corporation in
connection with the authorization and issuance thereof.
(e) The Purchaser will furnish to the Corporation in connection
with any registration under this Section 8 such information regarding itself,
the Registrable Securities and other securities of the Corporation held by it,
and the intended method of disposition of such securities as shall be required
to effect the registration of the Registrable Securities held by Purchaser.
(f) (i) The Corporation shall indemnify, defend and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c), any
underwriter (as defined in the Act) for such holder, and the directors,
11
<PAGE> 51
officers and controlling persons of such holder or underwriter from and
against, and shall reimburse all of them with respect to, any and all
claims, suits, demands, causes of action, losses, damages, liabilities,
costs or expenses ("Liabilities") to which any of them may become subject
under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that the
Corporation shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such person in writing
specifically for use in the preparation thereof.
(ii) Each holder of Registrable Securities included in a
registration pursuant to the provisions of Subsection (b) or (c) shall
indemnify, defend, and hold harmless the Corporation, its directors and
officers, and shall reimburse the Corporation, its directors and officers
with respect to, any and all Liabilities to which any of them may become
subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by or on behalf of such
holder specifically for use in the preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of Subsection (f)(i) or (f)(ii) of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party shall, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of
Subsection (f)(i) or (f)(ii), promptly notify the indemnifying party of
the commencement thereof; provided, however, that the failure to so notify
the indemnifying party shall not relieve it from its indemnification
obligations hereunder except to the extent that the indemnifying party is
materially prejudiced by such failure. If such action is
12
<PAGE> 52
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses different from or in
addition to those available to the indemnifying party, or if there is
conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party
shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party. After notice
from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party pursuant to Subsection (f)(i) or (f)(ii) for any
expense of counsel subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (A) the indemnified party shall have employed
counsel in accordance with the provisions of the preceding sentence, or
(B) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action. An
indemnifying party shall not be responsible for amounts paid in settlement
without its consent, provided that its consent may not be unreasonably
withheld.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to subsections (b) or (c), all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering shall be borne by the Corporation; provided, however, that any
securityholders participating in such registration shall bear their pro
rata share of the underwriting discounts and commissions, if any.
(ii) The fees, costs and expenses of registration to be borne
by the Corporation as provided in this Subsection (g) shall include,
without limitation, all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the
Corporation, and all legal fees and disbursements and other expenses of
complying with state securities or Blue Sky laws of any jurisdiction or
jurisdictions in which securities to be offered are to be registered and
qualified. Fees and disbursements of counsel and accountants for the
selling securityholders shall, however, be borne by the respective selling
securityholder.
13
<PAGE> 53
(h) The rights to cause the Corporation to register all or any
portion of Registrable Securities pursuant to this Section 8 may be assigned by
Purchaser to a transferee or assignee of 20% or more of the Stock. Within a
reasonable time after such transfer the Purchaser shall notify the Corporation
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned. Such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Act. Any transferee asserting registration rights hereunder shall be bound
by the provisions of this Section 8.
(i) From and after the date of this Agreement, the Corporation shall
not agree to allow the holders of any securities of the Corporation to include
any of their securities in any registration statement filed by the Corporation
pursuant to Subsection (b) unless the inclusion of such securities will not
reduce the amount of the Registrable Securities included therein.
SECTION 9
Affirmative Covenants of the Corporation
The Corporation hereby covenants that, during such time as the
Purchaser (or one of its affiliates) owns any Stock, or for four years,
whichever period is shorter:
9.1 Reports and Financial Statements.
(a) The Corporation will cause its common stock to continue to
be registered under Sections 12(b) or 12(g) of the Securities Exchange Act of
1934, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act. The Corporation will take all action necessary to continue the
listing or trading of its common stock on any national securities exchange or
the Automated Quotation System of the National Association of Securities Dealers
on which such common stock is listed or traded, and will comply in all respects
with its reporting, filing and other obligations under the bylaws or rules of
said exchange or Association.
(b) The Corporation will furnish to the Purchaser,
concurrently with the distribution or filing thereof, each annual and quarterly
report to its shareholders, its reports on Form 10K and 10Q, and each other
report, registration statement, definitive proxy statement or other document
filed with the S.E.C., and each press release or other public announcement
issued by the Corporation.
14
<PAGE> 54
9.2 Maintenance of Office. The Corporation will maintain an office
or agency in the United States at such address as may be designated in writing
from time to time to the registered holders of the Stock, where notices,
presentations and demands to or upon the Corporation in respect of the Stock may
be given or made. Unless or until another office or agency is designated by the
Corporation, such office shall be at the address set forth adjacent to the name
of the Corporation at the foot of this Agreement.
9.3 Maintenance and Compliance. The Corporation will (i) maintain
its corporate existence, rights, powers and privileges in good standing, (ii)
comply in all material respects with all laws and governmental regulations and
restrictions applicable to its business or properties, (iii) keep records and
books of account and maintain a system of internal accounting controls in
accordance with generally accepted accounting principles and in compliance with
section 13(b)(2) of the Securities Exchange Act of 1934, and (iv) retain
independent public accountants of recognized national standing as auditors of
the Corporation's annual financial statements.
9.4 Assignment of Rights. The rights of the Purchaser hereunder may
be assigned by the Purchaser in connection with the transfer or assignment to a
single transferee of not less than 20% of the Stock originally purchased by the
Purchaser hereunder, and such rights may be further reassigned by such
transferee to another such single transferee. Any transferee asserting rights
under this Agreement shall be bound by its provisions.
9.5 Effect of Covenants. The covenants in Sections 9.1 and 9.3 shall
not be deemed to prohibit a merger, sale of all assets or other corporate
reorganization if (i) the entity surviving or succeeding to the Corporation is
bound by this Agreement with respect to its securities issued in exchange for or
replacement of the Stock, or (ii) the consideration received in exchange for or
replacement of the Stock is cash.
SECTION 10
Legend on Stock
Each certificate representing the Stock shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under any applicable state securities laws):
15
<PAGE> 55
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
Upon request of a holder of Stock the Corporation shall remove the
foregoing legend or issue to such holder a new certificate therefor free of any
such legend, if the Corporation shall have received either an opinion of
counsel or a "no-action" letter of the S.E.C., in either case reasonably
satisfactory in substance to the Corporation and its counsel, to the effect that
such legend is no longer required.
SECTION 11
Miscellaneous
11.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. Any action or
proceeding relating to this Agreement may be brought in the courts of California
sitting in Los Angeles County, or in the United States courts located in Los
Angeles County, California, and each of the parties irrevocably consents to the
jurisdiction of such courts in any such action or proceeding.
11.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of and be binding upon
the successors and assigns of the parties.
11.3 Entire Agreement; Amendment. This Agreement (including any
Exhibits hereto) and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated except by a written instrument
signed by the Corporation and the Purchaser.
11.4 Notices. etc. All notices and other communications required or
permitted hereunder shall be mailed by first-class mail, postage prepaid, or
delivered either by hand or by messenger, addressed (a) if to the Purchaser, as
indicated below the Purchaser's signature, or at such other address as the
Purchaser shall have furnished to the Corporation in writing, or (b) if to any
other holder of any Stock, at the address of such holder as shown on the records
of the Corporation, or (c) if to the Corporation, at its address set forth below
or at such other
16
<PAGE> 56
address as the Corporation shall have furnished to the Purchaser and each such
other holder in writing. All such notices or communications shall be deemed
given when actually delivered by hand, messenger, facsimile or mailgram or, if
mailed, three days after deposit in the U.S. mail.
11.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party to this Agreement (including any
holder of Stock), upon any breach or default of another party under this
Agreement, shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. All remedies, either
under this Agreement or by law or otherwise afforded to any party, shall be
cumulative and not alternative.
11.6 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.7 Titles and Subtitles. The titles of the Sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
Commodore Applied Technologies, Inc.
By: /s/ Michael D. Fullwood
----------------------------------------
Michael D. Fullwood
Senior Vice President and Chief
Administrative and Financial Officer
Address: 150 East 58th Street
Suite 3400
New York, NY 10155
[Signatures continued on following page]
17
<PAGE> 57
DFA Group Trust - 6-10 Subtrust
By: /s/
----------------------------------------
Address: c/o Dimensional Fund Advisors
1299 Ocean Avenue, 12th floor
Santa Monica, CA 90401
18
<PAGE> 58
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of
September 26, 1997, between Commodore Applied Technologies, Inc., a Delaware
corporation, (the "Corporation"), and an entity advised by Dimensional Fund
Advisors Inc. whose name is set forth at the foot of this Agreement (the
"Purchaser").
The Corporation and the Purchaser hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Stock
1.1 Authorization of the Stock. The Corporation has authorized
issuance and sale of 16,600 shares of its common stock (the "Stock") to
purchaser as herein provided.
1.2 Sale and Purchase of the Stock. At the Closing, subject to the
terms and conditions hereof and in reliance upon the representations, warranties
and agreements contained herein, the Purchaser will purchase the Stock from the
Corporation at a purchase price of $3.675 per share, $61,005.00 in total.
SECTION 2
Closing, Payment and Delivery
2.1 Closing Date and Place of Closing. The closing shall be held as
soon as practicable, and in no event more than 5 business days after execution
of this Agreement, on such date as the Corporation and the Purchaser may agree
to (the "Closing Date") and shall be held at the offices of Dimensional Fund
Advisors Inc., 1299 Ocean Avenue, Santa Monica, CA 90401.
2.2 Payment and Delivery. At the Closing, the Purchaser will pay or
cause to be paid to the Corporation by wire funds transfer the entire purchase
price. The Corporation will deliver in advance of the Closing to an
institutional custodian designated by the Purchaser a certificate or
certificates, registered in such name or names as Purchaser may designate,
representing all of the stock, with instructions that such certificates are to
be held for the account of Purchaser upon payment of the purchase price.
2.3 Covenant of Best efforts and Good Faith. The Corporation and the
Purchaser agree to use their respective best
1
<PAGE> 59
efforts and to act in good faith to cause to occur all conditions to Closing
which are in their respective control.
SECTION 3
Purchase Price Adjustment
3.1. Subsequent Sale at Lower Price. If during the twelve month
period following the Closing Date (the "Anniversary Period"), the Corporation
shall, on any one or more occasion, sell any shares of its common stock or any
security convertible into or exercisable in respect of common stock, or issue
additional shares of common stock upon conversion during the Anniversary Period
of its currently outstanding Series A Convertible Preferred Stock for a selling
price per share or a conversion price per share which shall be lower than the
purchase price per share of the Stock sold to Purchaser pursuant to Section 1.2
hereof (such lower price or prices being the "Reset Price"), the purchase price
per share of the Stock sold to the Purchaser hereunder shall be adjusted
downward as at the end of the Anniversary Period so as to equal the Reset Price.
The lowest selling price per share or conversion price per share at which the
Corporation shall issue its common stock during the Anniversary Period shall
determine the applicable Reset Price; provided, that
(a) the lowest sales or conversion prices associated with
issuances by the Corporation of up to 10,000 shares of the Corporation's
common stock, and
(b) issuances of shares of the Corporation's common stock by
Commodore Environmental Services, Inc. ("COES"), the parent of the
Corporation, upon conversion of Series D Convertible Preferred Stock of
COES or upon exercise of certain warrants to purchase shares of the
Corporation's common stock granted by COES, irrespective of the conversion
or exercise price per share,
shall be excluded in determining such Reset Price.
3.2. Adjustment Mechanism. If an adjustment of the purchase price
for the Stock is required pursuant to this Section 3, the Corporation shall, not
later than five business days (subject to the provisions of Subsection 3.6
hereof) following the expiration of the Anniversary Period, refund to Purchaser
in cash the amount of such downward adjustment which shall be equal to the
product of (a) the total number of shares of common stock originally delivered
to Purchaser hereunder, multiplied by (b) the difference between the purchase
price per share set forth in Section 1.2 and the final Reset Price. If for any
reason the Corporation fails to make such cash refund within 10 days after it
becomes due pursuant to this Section 3.2, then the Corporation shall immediately
deliver to Purchaser such number of additional
2
<PAGE> 60
shares of common stock as will cause (i) the total number of shares of common
stock delivered to Purchaser hereunder, multiplied by (ii) the Reset Price, to
equal the total purchase price set forth in Section 1.2 hereof; provided,
however, that the Corporation shall effect such adjustment in cash, in whole or
in part, to the extent required by the following subsection.
3.3. Limitation on Number of Shares. Purchaser and other entities
advised by Dimensional Fund Advisors Inc. shall not be required to accept, by
way of any such adjustment, a number of shares of the Corporation such that the
total number of such shares held by Purchaser and such other entities, which
were held by them on the date of this Agreement or acquired by them pursuant to
this Agreement or agreements of like tenor with such other entities, would
exceed 4.99% of the total outstanding stock of the Corporation. The Corporation
shall effect the adjustment required by this Section by cash refund to the
extent necessary to avoid causing the aforesaid limitation to be exceeded.
3.4 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the common stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the common stock
of the Corporation, the provisions of this Section shall be applied as if such
capital adjustment event had occurred immediately prior to the Closing Date and
the original purchase price had been fairly allocated to the stock resulting
from such capital adjustment; and in other respects the provisions of this
Section shall be applied in a fair, equitable and reasonable manner so as to
give effect, as nearly as may be, to the purposes hereof.
3.5. Exclusions. Section 3.1 shall not apply to sales of shares by
the Corporation (i) upon conversion or exercise of any convertible securities,
options or warrants outstanding on the date hereof, except that with respect to
the Corporation's Series A Convertible Preferred Stock, conversions during the
Anniversary Period shall be subject to Section 3.1, (ii) pursuant to the
provisions of any shareholder-approved employee benefit or incentive plan
heretofore or hereafter adopted by the Corporation, or (iii) to an entity which
is a strategic investor in the Corporation or an investor which is in a related
industry, as opposed to a financial investor.
3.6. Definitions. For purposes of Section 3.1 hereof, a sale of
shares shall mean and include the sale or issuance of rights, options, warrants
or convertible securities under which the Corporation is or may become obligated
to issue shares of common stock, and the "selling price" of the common stock
covered thereby shall be the exercise or conversion price thereof plus the
consideration (if any) received by the Corporation upon such sale or issuance.
If the selling price or the exercise or conversion price is not determined until
after the Anniversary Period, an adjustment pursuant to this Section shall be
made promptly
3
<PAGE> 61
following such determination, if required. If shares are issued for a
consideration other than cash, the "selling price" shall be the fair value of
the such consideration as determined in good faith by the Board of Directors of
the Corporation. The term "Stock" as used in this Agreement shall include shares
issued pursuant to this Section.
3A
<PAGE> 62
SECTION 4
Representations and Warranties of the Corporation
The Corporation hereby represents and warrants to the purchaser
that:
4.1 Corporate Power, Qualification and Standing. The Corporation and
its subsidiaries are validly existing and in good standing under the laws of
their respective jurisdictions of incorporation and each of them is qualified to
transact business in each jurisdiction in which its ownership of property or
conduct of activities requires such qualification. The Corporation has all
requisite corporate power and authority to enter into this Agreement, to sell
the stock and to carry out and perform its other obligations under this
Agreement.
4.2 S.E.C. Reports; Financial Statements. The common stock of the
Corporation is registered under Section 12(b) or (g) of the Securities Exchange
Act of 1934 and the Corporation is in full compliance with its reporting and
filing obligations under said Act. The Corporation has delivered to Purchaser
all of its Annual Reports to shareholders and its reports on Form 10K, and all
its quarterly reports to shareholders, quarterly reports on Form l0Q, and each
other report, registration statement, definitive proxy statement or other
document filed with the S.E.C. since the beginning of said three fiscal years
(collectively, the "SEC Reports"). The SEC Reports do not (as of their
respective dates) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The audited and unaudited financial statements of the
Corporation included in the SEC Reports (the "Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as stated in such Financial Statements or the notes
thereto) and fairly present the financial position of the Corporation and its
consolidated subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended. Except
as publicly disclosed by the Corporation in the SEC Reports or otherwise, since
the end of the most recent of said fiscal years there has been no material
adverse change in the business, financial condition, or results of operations of
the Corporation and its subsidiaries taken together as a consolidated whole, and
there is no existing condition, event or series of events which can reasonably
be expected to have a material adverse effect on the business, financial
condition or results of operations of the Corporation and its subsidiaries taken
together as a consolidated whole, or its ability to perform its obligations
under this Agreement.
4
<PAGE> 63
4.3 Authorization; No Conflict. Execution and delivery of this
Agreement and issuance and sale of the Stock have been duly authorized by all
necessary corporate action of the Corporation, and the Stock when issued will be
validly issued, fully paid and non-assessable. Performance by the Corporation of
its obligations under this Agreement will not conflict with or violate (i) the
charter documents or bylaws of the Corporation, (ii) any indenture, loan
agreement, lease, mortgage or other material agreement binding on the
Corporation, (iii) any order of a court or administrative agency binding on the
Corporation, or (iv) any applicable law or governmental regulation; and such
performance does not and will not require the permission or approval of any
governmental agency, and will not result in the imposition or creation of any
lien or charge against any assets of the Corporation. Except as disclosed in the
Financial Statements or on Exhibit A hereto, (i) the Corporation has no
obligation to redeem or repurchase any of its equity securities, (ii) no
shareholder or other person has pre-emptive or other rights to acquire equity
securities of the Corporation, and (iii) the corporation has no obligation to
register any of its securities otherwise than pursuant to Section 8 of this
Agreement or as disclosed on Exhibit A hereto.
4.4 Material Agreements; No Defaults. All material indentures, loan
agreements, leases, mortgages and other agreements binding on the Corporation or
its subsidiaries are identified in the list of exhibits contained in the
Corporation's most recent 10K report ("Other Agreements"). No material default
on the part of the Corporation or any of its subsidiaries (including any event
which, with notice or the passage of time, would constitute a default) exists
under any of the Other Agreements.
4.5 Material Liabilities. Except for liabilities disclosed in the
Financial Statements or the SEC Reports, and obligations under the Other
Agreements, the Corporation and its subsidiaries have no material liabilities or
obligations, absolute or contingent, other than liabilities arising in the
ordinary course of business subsequent to the date of the most recent of the
Financial Statements.
4.6 Properties. The Corporation and its subsidiaries (i) have good
title to the properties and assets reflected in the Financial Statements as
owned by them, (ii) have valid leasehold interests in the properties leased by
them, and (iii) own or have the right to use under valid license agreements all
trademarks, trade names, copyrights, patents and other intellectual property
rights regularly utilized by them; subject in each case to no material liens,
security interests or adverse claims except as disclosed in the Financial
Statements.
4.7 Litigation. There are no material legal actions, arbitrations,
or administrative proceedings pending against the
5
<PAGE> 64
Corporation or its subsidiaries, except for the matters disclosed in the SEC
Reports.
4.8 Tax Matters. The Corporation and its subsidiaries have filed on
a timely basis all tax returns required to be filed by them and have paid their
taxes prior to delinquency, and have made adequate accruals for tax liabilities
on the Financial Statements in accordance with generally accepted accounting
principles.
4.9 ERISA Compliance. Neither the Corporation nor any of its
subsidiaries has incurred any material funding deficiency within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any
material liability to the Pension Benefit Guarantee Corporation in connection
with any employee benefit plan. The Corporation and its subsidiaries are in
compliance in all material respects with all applicable provisions of ERISA, and
have no obligations with respect to any multi-employer plan. No "reportable
event" as such term is defined in ERISA, which may result in any material
liability, has occurred with respect to any employee benefit or other plan
maintained for employees of the Corporation or any subsidiary.
4.10 Environmental Matters. Except as disclosed in the SEC Reports,
neither the Corporation nor any of its subsidiaries (i) has been notified by any
governmental authority that it is, or may be, a Responsible Party with respect
to cleanup or remediation of any environmental condition or hazardous waste
site, (ii) has violated any law, regulation, order or requirement of
governmental authority with respect to Hazardous Substances, or (iii) has
incurred any material liability for violation or noncompliance with applicable
Environmental Regulations. The term "Environmental Regulations" means any law,
regulation, order or requirement relating to protection of the environment,
including without limitation, the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act and the Toxic Substances Control Act. The term "Hazardous Substance" means
any substance defined or listed as such in any Environmental Regulation.
4.11 Other Matters. The Corporation is not now and will not be after
giving effect to the receipt of the proceeds from the sale of the Stock an
"Investment Company" within the meaning or the Investment Company Act of 1940,
nor will it be controlled by or acting on behalf of any person which is such an
investment company. The Corporation is not selling the Stock "for the purpose of
purchasing or carrying any margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System. The Corporation has not
offered the Stock to any person other than the Purchaser.
6
<PAGE> 65
SECTION 5
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Corporation that:
5.1 Corporate Power and Authority. It is validly existing and in
good standing with all requisite power and authority to enter into this
Agreement and carry out its obligations hereunder and has taken all actions
necessary to authorize it to enter into this Agreement and carry out such
obligations.
5.2 Investment. It is acquiring the Stock for investment and not
with the view to, or for resale in connection with, any distribution thereof. It
is an "accredited investor" within the meaning of the Securities Act of 1933 and
the rules thereunder. It understands that the Stock has not been registered
under the Securities Act of 1933 nor qualified under any State blue sky law by
reason of specified exemptions therefrom which depend upon, among other things,
the bona fide nature of its investment intent as expressed herein.
5.3 Rule 144. It acknowledges that the Stock must be held
indefinitely unless it is subsequently registered under the Securities Act of
1933 or an exemption from such registration is available. It has been advised or
is aware of the provisions of Rule 144 promulgated under the Securities Act.
SECTION 6
Conditions to Obligations of the Purchaser
The obligation of the Purchaser to purchase the Stock is subject to
the fulfillment on or prior to the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Corporation shall be true and correct in all material respects
on the Closing Date.
(b) Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Corporation
on or prior to the Closing Date shall have been performed or complied with in
all material respects.
(c) Opinion of Corporation's Counsel. The Purchaser shall have
received from counsel to the Corporation an opinion confirming the
representations set forth in the first sentence of Section 4.3 hereof, and on
the basis of such counsel's review of the Other Agreements and certificates of
officers of the
7
<PAGE> 66
Corporation as to factual matters, confirming the representations set forth in
the second and third sentences of Section 4.3 thereof.
(d) Legal Issuance. At the time of the Closing, the issuance
and purchase of the Stock shall be legally permitted by all laws and regulations
to which the Purchaser and the Corporation are subject.
(e) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be satisfactory in
form and substance to the Purchaser and its counsel.
(f) Satisfaction of Obligations to Broker. The corporation
shall have furnished the Purchaser with assurances satisfactory to the Purchaser
that the Corporation has satisfied its obligations to any broker entitled to
compensation in connection with the sale of the Stock.
8
<PAGE> 67
SECTION 7
Conditions to Obligations of the Corporation
The Corporation's obligation to sell the Stock is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties made by the Purchaser shall be true and correct in all material
respects on the Closing Date.
(b) Legal Issuance. At the time of the Closing, the issuance
and purchase of the Stock. shall be legally permitted by all laws and
regulations to which the Purchaser and the Corporation are subject.
(c) Payment. The Corporation shall concurrently receive
payment for the Stock as provided in Section 2.
SECTION 8
Covenant to Register
(a) For purposes of this Section 8, the following definitions shall
apply:
(i) The terms "register", "registered", and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act") effected by preparing and filing a registration statement or
similar document in compliance with the Act or an amendment thereto, and
the declaration or ordering of effectiveness of such registration
statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the Stock and any
securities of the Corporation or securities of any successor corporation
issued as, or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as, a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Stock.
(b) (i) At any time after one hundred and twenty (120) days
after the date of this Purchase Agreement and from time to time
thereafter, Purchaser shall have the right to require by notice in writing
that the Corporation register all or any part of the Registrable
Securities held by Purchaser (a "Demand Registration") and the Corporation
shall thereupon effect such registration in accordance herewith. The
corporation agrees to file a registration statement (Form S-
9
<PAGE> 68
3) in order to register the Common Stock and to cause such registration
statement to be declared effective within ninety (90) days of Closing. A
3% cash penalty will accrue for every thirty (30) days after such date
that the securities remain unregistered. The penalty shall be pro-rated
for periods of less than thirty (30) days.
(ii) The Corporation shall not be obligated to effect Demand
Registration (i) if all of the Registrable Securities held by Purchaser
which are intended to be covered by the Demand Registration are, at the
time of the request of a Demand Registration, included in an effective
registration statement and the Corporation is in compliance with its
obligations under Subsection (d) (ii) through (v) hereof with respect to
such registration statement, or (ii) within 120 days after the effective
date of any other registration as to which Purchaser was given piggy-back
rights pursuant to subsection (c) hereof and in which Purchaser was able
to register and sell at least eighty percent (80%) of the Registrable
Securities requested by Purchaser to be included in such registration.
(c) If the Corporation proposes to register (including for this
purpose a registration effected by the Corporation for shareholders other than
the Purchaser) any of its stock or other securities under the Act in connection
with a public offering of such securities (other than a registration on Form
S-4, Form S-8 or other limited purpose form) and the Registrable Securities have
not heretofore been included in a registration statement under Subsection (b),
which remains effective, the Corporation shall, at such time, promptly give the
Purchaser written notice of such registration. Upon the written request of the
Purchaser given within twenty (20) days after receipt of such notice by the
Purchaser, the Corporation shall cause to be registered under the Act all of
the Registrable Securities that the Purchaser has requested to be registered.
However, the Corporation shall have no obligation under this Subsection (c) to
the extent that, with respect to a public offering registration, any underwriter
of such public offering reasonably requests that the Registrable Securities or a
portion thereof be excluded therefrom.
(d) Whenever required under this Section 8 to effect the
registration of any Registrable Securities, the Corporation shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration to become effective and, upon the request of the
Purchaser, keep such registration statement effective for so long as
Purchaser desires to dispose of the securities covered by such
registration statement (but not after Purchaser in the reasonable
opinion of its counsel is free to sell such
10
<PAGE> 69
securities under the provisions of Rule 144(k) under the Act).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Purchaser such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as the Purchaser
may reasonably request in order to facilitate the disposition of
Registrable Securities owned by Purchaser.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by Purchaser, provided that the Corporation shall not be
required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service and process in any
such states or jurisdictions.
(v) Notify Purchaser of the "happening" of any event as a
result of which the prospectus included in such registration statement,
as then in effect, includes an untrue statement of material fact or omits
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances
then existing.
(vi) Furnish, at the request of Purchaser, an opinion of
counsel of the Corporation, dated the effective date of the registration
statement, as to the due authorization and issuance of the securities
being registered and compliance with securities laws by the Corporation in
connection with the authorization and issuance thereof.
(e) The Purchaser will furnish to the Corporation in connection
with any registration under this Section 8 such information regarding itself,
the Registrable Securities and other securities of the Corporation held by it,
and the intended method of disposition of such securities as shall be required
to effect the registration of the Registrable Securities held by Purchaser.
(f) (i) The Corporation shall indemnify, defend and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c), any
underwriter (as defined in the Act) for such holder, and the directors,
11
<PAGE> 70
officers and controlling persons of such holder or underwriter from and
against, and shall reimburse all of them with respect to, any and all
claims, suits, demands, causes of action, losses, damages, liabilities,
costs or expenses ("Liabilities") to which any of them may become subject
under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that the
Corporation shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by such person in writing
specifically for use in the preparation thereof.
(ii) Each holder of Registrable Securities included in a
registration pursuant to the provisions of Subsection (b) or (c) shall
indemnify, defend, and hold harmless the Corporation, its directors and
officers, and shall reimburse the Corporation, its directors and officers
with respect to, any and all Liabilities to which any of them may become
subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by or on behalf of such
holder specifically for use in the preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of Subsection (f)(i) or (f)(ii) of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party shall, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of
subsection (f)(i) or (f)(ii), promptly notify the indemnifying party of
the commencement thereof; provided, however, that the failure to so notify
the indemnifying party shall not relieve it from its indemnification
obligations hereunder except to the extent that the indemnifying party is
materially prejudiced by such failure. If such action is
12
<PAGE> 71
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, if the defendants in any action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses different from or
in addition to those available to the indemnifying party, or if there is
conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party
shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party. After notice
from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party pursuant to subsection (f)(i) or (f)(ii) for
any expense of counsel subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation, unless (A) the indemnified party shall have employed
counsel in accordance with the provisions of the preceding sentence, or
(B) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action. An
indemnifying party shall not be responsible for amounts paid in settlement
without its consent, provided that its consent may not be unreasonably
withheld.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to subsections (b) or (c), all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering shall be borne by the Corporation; provided, however, that any
securityholders participating in such registration shall bear their pro
rata share of the underwriting discounts and commissions, if any.
(ii) The fees, costs and expenses of registration to be borne
by the Corporation as provided in this Subsection (g) shall include,
without limitation, all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the
Corporation, and all legal fees and disbursements and other expenses of
complying with state securities or Blue Sky laws of any jurisdiction or
jurisdictions in which securities to be offered are to be registered and
qualified. Fees and disbursements of counsel and accountants for the
selling securityholders shall, however, be borne by the respective
selling securityholder.
13
<PAGE> 72
(h) The rights to cause the Corporation to register all or any
portion of Registrable Securities pursuant to this Section 8 may be
assigned by Purchaser to a transferee or assignee of 20% or more of the
Stock. Within a reasonable time after such transfer the Purchaser shall
notify the Corporation of the name and address of such transferee of
assignee and the securities with respect to which such registration rights
are being assigned. Such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act. Any transferee
asserting registration rights hereunder shall be bound by the provisions
of this Section 8.
(i) From and after the date of this Agreement, the
Corporation shall not agree to allow the holders of any securities of the
Corporation to include any of their securities in any registration
statement filed by the Corporation pursuant to Subsection (b) unless
the inclusion of such securities will not reduce the amount of the
Registrable Securities included therein.
SECTION 9
Affirmative Covenants of the Corporation
The Corporation hereby covenants that, during such time as
the Purchaser (or one of its affiliates) owns any Stock, or for four
years, whichever period is shorter:
9.1 Reports and Financial Statements.
(a) The Corporation will cause its common stock to continue
to be registered under Sections 12(b) or 12(g) of the Securities Exchange Act of
1934, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file arty document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act. The Corporation will take all action necessary to continue the
listing or trading of its common stock on any national securities exchange or
the Automated Quotation System of the National Association of Securities Dealers
on which such common stock is listed or traded, and will comply in all respects
with its reporting, filing and other obligations under the bylaws or rules of
said exchange or Association.
(b) The Corporation will furnish to the Purchaser,
concurrently with the distribution or filing thereof, each annual and quarterly
report to its shareholders, its reports on Form 10K and 10Q, and each other
report, registration statement, definitive proxy statement or other document
filed with the S.E.C., and each press release or other public announcement
issued by the Corporation.
14
<PAGE> 73
9.2 Maintenance of Office. The Corporation will maintain an office
or agency in the United States at such address as may be designated in writing
from time to time to the registered holders of the Stock, where notices,
presentations and demands to or upon the Corporation in respect of the Stock may
be given or made. Unless or until another office or agency is designated by the
Corporation, such office shall be at the address set forth adjacent to the name
of the Corporation at the foot of this Agreement.
9.3 Maintenance and Compliance. The Corporation will (i) maintain
its corporate existence, rights, powers and privileges in good standing, (ii)
comply in all material respects with all laws and governmental regulations and
restrictions applicable to its business or properties, (iii) keep records and
books of account and maintain a system of internal accounting controls in
accordance with generally accepted accounting principles and in compliance with
Section 13(b)(2) of the Securities Exchange Act of 1934, and (iv) retain
independent public accountants of recognized national standing as auditors of
the Corporation's annual financial statements.
9.4 Assignment of Rights. The rights of the Purchaser hereunder may
be assigned by the Purchaser in connection with the transfer or assignment to a
single transferee of not less than 20% of the Stock originally purchased by the
Purchaser hereunder, and such rights may be further reassigned by such
transferee to another such single transferee. Any transferee asserting rights
under this Agreement shall be bound by its provisions.
9.5 Effect of Covenants. The covenants in Sections 9.1 and 9.3 shall
not be deemed to prohibit a merger, sale of all assets or other corporate
reorganization if (i) the entity surviving or succeeding to the Corporation is
bound by this Agreement with respect to its securities issued in exchange for or
replacement of the Stock, or (ii) the consideration received in exchange for or
replacement of the Stock is cash.
SECTION 10
Legend on Stock
Each certificate representing the Stock shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under any applicable state securities laws):
15
<PAGE> 74
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
Upon request of a holder of Stock the Corporation shall remove the
foregoing legend or issue to such holder a new certificate therefor free of
any such legend, if the Corporation shall have received either an opinion of
counsel or a "no-action" letter of the S.E.C., in either case reasonably
satisfactory in substance to the Corporation and its counsel, to the effect that
such legend is no longer required.
SECTION 11
Miscellaneous
11.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. Any action or
proceeding relating to this Agreement may be brought in the courts of California
sitting in Los Angeles County, or in the United States courts located in Los
Angeles County, California, and each of the parties irrevocably consents to the
jurisdiction of such courts in any such action or proceeding.
11.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of and be binding upon
the successors and assigns of the parties.
11.3 Entire Agreement; Amendment. This Agreement (including any
Exhibits hereto) and the Other documents delivered pursuant hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated except by a written instrument
signed by the Corporation and the Purchaser.
11.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be mailed by first-class mail, postage prepaid, or
delivered either by hand or by messenger, addressed (a) if to the Purchaser, as
indicated below the Purchaser's signature, or at such other address as the
Purchaser shall have furnished to the Corporation in writing, or (b) if to any
other holder of any Stock, at the address or such holder as shown on the records
of the Corporation, or (c) if to the Corporation, at its address set forth below
or at such other
16
<PAGE> 75
address as the Corporation shall have furnished to the Purchaser and each such
other holder in writing. All such notices or communications shall be deemed
given when actually delivered by hand, messenger, facsimile or mailgram or, if
mailed, three days after deposit in the U.S. mail.
11.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party to this Agreement (including any
holder of Stock), upon any breach or default of another party under this
Agreement, shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore, or thereafter occurring. All remedies, either
under this Agreement or by law or otherwise afforded to any party, shall be
cumulative and not alternative.
11.6 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired
thereby.
11.7 Titles and Subtitles. The titles of the Sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
Commodore Applied Technologies, Inc.
By: /s/ Michael D. Fullwood
------------------------------------
Michael D. Fullwood
Senior Vice President and Chief
Administrative and Financial Officer
Address: 150 East 58th Street
Suite 3400
New York, NY 10155
[Signatures continued on following page]
17
<PAGE> 76
U.S 6-10 Small Company Series of the
DFA Investment Trust Company
By: /s/
----------------------------------
Address: c/o Dimensional Fund Advisors
1299 Ocean Avenue 12th floor
Santa Monica, CA 90401
18
