================================================================================
U. S. S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
WASHINGTON, D.C. 20549
-------------------
Form 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1997
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
----------------------
Commission File Number 0-22169
----------------------
SOY ENVIRONMENTAL PRODUCTS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 48-1192445
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9135 Barton Street
Overland Park, Kansas 66214
(Address of Principal Executive Offices)
913-599-0800
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
Issuer's revenues for the most recent fiscal year were $56,678.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of September 30, 1997 was: No Current
Market.
The number of shares outstanding of each of the issuer's classes of
common equity was 5,445,200 shares of Common Stock, par value $.001, as of
September 30, 1997.
Transitional Small Business Format (Check One):
Yes [_] No [_]
================================================================================
<PAGE>
PART I
Except for historical information contained herein, this Annual Report
on Form 10-KSB contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
Soy Environmental Products, Inc. (the "Company") intends that such
forward-looking statements be subject to the safe harbors created thereby.
Wherever possible, the Company has identified these forward-looking statements
by words such as "anticipates," "believes," "estimates," "expects" and similar
expressions. Such forward-looking statements involve risks and uncertainties and
include, but are not limited to, statements regarding future events and the
Company's plans and expectations. The Company's actual results may differ
materially from such statements. Factors that may cause or contribute to such
differences include, but are not limited to, those discussed in "ITEM 1.
DESCRIPTION OF BUSINESS - FACTORS AFFECTING FUTURE PERFORMANCE AND ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," as well as those discussed elsewhere in this Annual Report and the
exhibits hereto and incorporated by reference. Although the Company believes
that the assumptions underlying the forward-looking statements herein are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the results contemplated in such forward-looking
statements will be realized. In addition, as disclosed under "ITEM 1. BUSINESS -
FACTORS AFFECTING FUTURE PERFORMANCE," the business and operations of the
Company are subject to substantial risks which increase the uncertainties
inherent in the forward-looking statements included in this Annual Report. The
inclusion of such forward-looking information should not be regarded as a
representation by the company or any other person that the future events, plans
or expectations contemplated by the Company will be achieved.
ITEM 1. DESCRIPTION OF BUSINESS.
Overview
The Company is a development stage company that has acquired rights to
non-toxic and biodegradable consumer and commercial products processed from
soybean oil. The Company intends to develop a distribution network for and to
market these products directly and through retail outlets. The Company's current
product line, sold under registered trademarks of "SoyClean," "SoyRelease" and
"Naturen," includes cleaners, lubricants, paint removers and strippers, adhesive
removers and other products. These products are processed from methyl esters
that are derived from processing soybean oil and possess unique characteristics
that provide an effective and environmentally friendly alternative to petroleum
and chemical based solvents and lubricants. This line of products is believed to
be the most comprehensive line of non-toxic and biodegradable products in the
marketplace.
The Company's existing line of products, as a result of independent
testing, have proven to meet or exceed industry standards for competing products
as well as having properties superior to petroleum and chemical based products
with respect to environmental safety. The trend toward utilizing solvents and
products that are safer to workers as well as the environment creates increasing
demand for non-hazardous and non-polluting products such as the Company's. This
trend, coupled with governmental regulation of the use of hazardous or toxic
substances, is believed to have created an opportunity for the Company's
trademark branded products to gain consumer acceptance and market share.
The Company was incorporated on January 10, 1996 and changed its name
from Denom Acquisition Corp. to Soy Environmental Products, Inc. on April 3,
1997. Effective October 21, 1996 the Company acquired 100% of the outstanding
stock of Delta Environmental, Inc. ("DEI") in exchange for shares of the
Company's Common Stock. DEI had been formed as a Delaware corporation on October
1, 1996 and had entered into a license agreement in September 1996 entitling DEI
to the exclusive use, sales and distribution rights to the "SoyClean" line of
products.
Strategy
The Company plans to become a leading distributor of non-toxic and
biodegradable products. The Company intends to increase public awareness,
through advertising and public relations campaigns, of the environmental
concerns caused by petroleum and chemical based products and contrast the
environmentally friendly nature of its products. The Company's strategy is to
aggressively market its products to consumers and to automotive and industrial
users through manufacturer representative relationships it seeks to develop over
the near-term. While the Company's products are currently marketed to industrial
users, it intends to increase this marketing effort and to heavily concentrate
on consumer and automotive users. The home consumers and automotive user
marketing efforts will concentrate on introducing the Company's products first
through home centers and then through automotive supply, food, drug and variety
stores. The Company's efforts in the industrial user market will focus on
developing and expanding its current manufacturer representative force that will
market the Company's products directly to manufacturers, municipalities, schools
and other industrial users. The Company hopes to penetrate the lubricant,
solvent and cleaner market and establish market share in this segment by
providing its non-toxic and biodegradable products that are as effective as and
priced competitive with similar petroleum and chemical based products.
-2-
<PAGE>
Products
The Company's products include lines that are currently sold to
industrial and automotive users and lines that will be marketed for consumer
use. All of the Company's products are "environmentally friendly" in that they
are biodegradable, non-hazardous and lack volatile emissions. When used in an
industrial environment, the Company's products may reduce worker illness or
injury resulting from exposure to petroleum and chemical based solvents and
cleaners. In addition to the commercial product line, the Company is developing
products that it believes will meet or exceed competitive standards in the
retail consumer market. These branded products focus on common cleaning uses
found throughout the home and small businesses. The Company believes that the
biodegradable, non-toxic nature of these products, in addition to their
effective cleaning characteristics, position these products for consumer
acceptance.
Industrial Lines. The Company's industrial product line consists of
SoyClean Graffiti Remover, SoyRelease3, SoyFormula3 and Naturen.
o SoyClean Graffiti Remover. This product is formulated for use
by municipalities, institutions, school districts, utility
companies and law enforcement organizations. It effectively
removes graffiti from a wide range of surfaces and is
available in five package sizes. SoyClean Graffiti Remover
replaces petroleum and hydrocarbon based graffiti cleaners.
o SoyRelease3. This product is designed for state, local and
federal departments of transportation and the paving and
general contracting industries. This product prevents asphalt
from adhering to truck beds, paving equipment and other metal
surfaces and is also effective for removing asphalt and tar
from vehicles and other surfaces. SoyRelease3 is a
biodegradable substitute for diesel and other petroleum based
products used for similar cleaning operations at construction
sites.
o SoyFormula3. This product is designed primarily for use in
manufacturing as a replacement for hazardous mineral spirits
or petroleum based solvents used primarily in manufacturing.
o Naturen. This product is formulated for cleaning printing
press blankets as well as other press components. Naturen has
been in use in Europe since 1991 and meets regulatory
standards in the United States printing industry.
Consumer Lines. The "SoyClean" retail line is composed of products that
can be used by the homeowner as well as in industrial, commercial and
institutional settings. The "SoyClean" retail line consists of the following
products:
o Graffiti Remover. This product effectively removes graffiti
from a variety of surfaces. It is effective on paints as well
as markers and has been used by numerous municipalities,
schools, utilities and homeowners. The product is offered in
three container sizes for commercial or home use.
o Barbecue Grill Cleaner. This product is designed to clean
grease and char on barbecue cookers and grills by softening
and loosening the soil on the grill surfaces prior to rinsing.
o Adhesive/Mastic Remover. This product is specially formulated
to remove adhesive and mastic from hard surfaces.
o Paint Stripper. This product strips paint, varnish and other
similar finishes from a variety of surfaces. This product is
packaged in container sizes appropriate for both the homeowner
and the commercial customer.
o Driveway Cleaner. This product cleans driveways, sidewalks and
other concrete surfaces. It can be useful in commercial
workshops, automotive repair shops and by homeowners for
garage, basement, patio or driveway clean up.
o Lubricant. This multi-purpose lubricant is designed for use
around the home, garage, shop, factory or office. This product
is a biodegradable, non-toxic lubricant that penetrates rust,
loosens frozen parts, provides a light coating for lubrication
of moving parts and protects against corrosion.
o Hard Surface Stain Remover. This biodegradable, waterless
cleaner effectively cleans oil, grease and other stains on
hard surfaces.
Product Testing
SoyClean products have been independently tested as follows:
-3-
<PAGE>
The U.S. Army Material Command Logistics Center in Pennsylvania
evaluated SoyClean for military vehicle degreasing operations and issued a
report of its results in September 1995. The test resulted in recommendation
that the cleaner be used.
ARCO Chemical Company evaluated SoyClean's graffiti remover and
concluded that the product effectively removed graffiti while having low
flammability compared to other products.
Scientific Certification Systems certified five SoyClean product types
for its SCS environmental label (Green Cross Seal) in June 1997.
Consumer Testing Laboratories, Inc., in May of 1997, tested SoyClean
products, including the graffiti remover, the lubricant and the driveway
cleaner, and issued a rating for their intended uses.
Marketing
The Company's marketing strategy for the industrial and retail product
lines is designed to increase awareness and knowledge of "SoyClean" benefits and
value. The Company intends to utilize the strengths of management to open the
appropriate channels of distribution, and use cost effective advertising and
promotion techniques to create consumer awareness.
The Company has not yet established the distribution system for its
consumer products, and no assurance can be given that its consumer product will
be accepted, or that a satisfactory distribution network can be established
which will result in its consumer products being a success. The attributes of
the Company's products being environmentally friendly alternatives to products
currently in use are believed to be the most significant advantage of such
products. The Company intends to use television and other mass media to create
awareness of its total product line as the Company's revenues and other
resources allow.
Industrial Products. The industrial product line is in the early growth
stage of a product life cycle. The Company expects demand for environmental
products by industrial users to continue and to expand. Sales for the industrial
line will be directed through an in house employee sales person that will
develop manufacturer's representative relationships with distributors that will
market the Company's products directly to users. Industries that utilize
hazardous products in manufacturing will be primarily targeted.
Consumer Products. The Company's Chairman, Mr. Sean F. Lee, has an
extensive background in the home center retail market segment and has been
actively involved in senior management of several major national companies
involved in the sales and distribution of retail products. The Company's
strategy is to utilize its management's knowledge of the distribution channels
required in order to establish a line of branded products with the appropriate
retail outlets.
The Company is launching the consumer product line by concentrating on
the penetration of the home center market segment. As in the industrial segment,
the Company intends to engage manufacturer's representatives that will promote
its products to home center product buyers. In this segment the Company will
compete directly with petro/chemical based products that have applications
similar to many of the "SoyClean" environmental friendly products. It is
anticipated that the reputation of the Company's Chairman within this market
segment will have the effect of minimizing many of the obstacles to market entry
by new products and new companies. Other retailers, such as automotive, food,
drug and variety discount stores will be targeted for distribution of the
Company's products at retail after the home center retailers.
Since the Company's retail products are price competitive and price
elastic, its strategy is to penetrate targeted markets by educating and
informing consumers about the attributes of "SoyClean." The Company intends to
get maximum exposure for "SoyClean" products by utilizing a national advertising
campaign to achieve this objective. This approach is appropriate for mass
promotion and affords efficient communication of the Company's message to a
large number of consumers. The campaign will help establish the "SoyClean" brand
identity and convey to the consumer the availability of products that satisfy
their needs.
Proprietary Rights
The Company has acquired the world wide rights to the registered
tradenames of "SoyClean" and "SoyRelease" through a licensing agreement with
Interchem Environmental, Inc. The licensing agreement also grants the Company
the exclusive rights to distribution of the "SoyClean" and "SoyRelease"
products. The Company has also acquired through an agreement with Interchem
Environmental, Inc. the United States rights for the tradename "Naturen."
The Company intends to rely on a combination of trade secret and
copyright laws, license agreements and confidentiality and non-compete
agreements to establish and protect its proprietary rights. There can be no
assurance that any confidentiality agreements between the Company and its
employees and consultants or any license agreements will
-4-
<PAGE>
provide meaningful protection for the Company's proprietary information in the
event of any unauthorized use or disclosure of such proprietary information.
Production Facility
The Company owns an interest in a 2,000,000 gallon a year manufacturing
facility in Ralston, Iowa consisting of 6,000 square feet of production space
plus outdoor storage tanks. This interest is owned by virtue of a 25% profits
interest in Interwest, L.C., a limited liability company organized in Iowa. The
facility is co-owned and managed by West Central Cooperative also of Ralston,
Iowa. The production facility is utilized to process soybean oil which is
further distilled into methyl esters and glycerin. The methyl esters are then
formulated with various additives to produce the Company's final products. The
glycerin by-product is sold to third parties for use in unrelated products. The
Ralston facility is expected to meet the production needs for the Company into
the near future. In the event this facility is unable to meet the Company's
needs for product, the Company anticipates the facility would be expanded or an
additional facility would be located.
Competition
Because the Company's consumer products are new, the scope of the
Company's competition is difficult to assess accurately. Currently, most
cleaners, solvents and other products competitive with those of the Company are
petroleum based and are not biodegradable. The Company will compete with
numerous well-established chemical and consumer products companies all of which
possess substantially greater experience, financial, marketing, personnel and
other resources than the Company and have established greater recognition for
their brand names than the Company. Many of the Company's competitors have
achieved significant national, retail and local brand name and product
recognition and engage in extensive advertising and promotional programs, both
generally and in response to efforts by additional competitors to enter new
markets and/or to introduce new products. The Company's ability to compete
successfully will depend on the Company's success at penetrating the industrial
and consumer markets with its product lines, the consumer acceptance of its
products and the Company's ability to research and develop new and improved
products. There can be no assurance that the Company will be able to compete
successfully, that its products will meet with consumer approval, that
competitors will not develop and market products that are similar or superior to
the Company's products or that the Company will be able to successfully enhance
its products or develop new products meeting with consumer approval.
Regulation
The use of certain chemicals and other substances is subject to
extensive and frequently changing federal, state, provincial and local laws and
substantial regulation under these laws by governmental agencies, including the
United States Environmental Protection Agency, the Occupational Health and
Safety Administration, various state agencies and county and local authorities
acting in conjunction with federal and state authorities. Among other things,
these regulatory bodies impose requirements to control air, soil and water
pollution, to protect against occupational exposure to chemicals, including
health and safety risks, and to require notification or reporting of the
storage, use, and release of certain hazardous chemicals and substances. The
Company's products do not utilize chemicals that are classified under applicable
laws as hazardous chemicals or substances. The production of the Company's
products does not currently produce waste or by-products, and none are expected
to be generated by potential new products. The Company does not intend to
maintain insurance to compensate it for any liabilities it may incur if it were
to violate environmental protection laws or regulations. However, there can be
no assurance that the Company will not incur environmental liability arising out
of the use of hazardous substances. To date, the Company does not believe that
it has incurred any such liability in their operations.
The Company believes that it is in substantial compliance with all laws
and regulations governing its material business operations and has obtained all
required licenses and permits for the operation of its business. There can be no
assurance that the Company in the future will be able to comply with, or
continue to comply with, current or future government regulations in every
jurisdiction in which it will conduct its material business operations without
substantial cost or interruption of its operations, or that any present or
future federal, state, provincial or local environmental protection regulations
may not restrict the Company's present and possible future activities. In the
event that the Company is unable to comply with such requirements, the Company
could be subject to substantial sanctions, including restrictions on its
business operations, monetary liability and criminal sanctions, any of which
could have a material adverse effect upon the Company's business.
Employees
At September 30, 1997, the Company employed five full time personnel,
two administrative and three marketing employees. The Company's employees are
not covered by any collective bargaining agreements or unions. The Company
considers its relationship with its employees to be good.
-5-
<PAGE>
Factors Affecting Future Performance
Limited Operating History; Recent Losses. The Company has only been
operating since August 1996 and is a developmental stage company. Accordingly,
the Company has a limited operating history with respect to the distribution and
marketing of consumer and industrial solvent, cleaner and lubricant products,
its sole line of business. The Company has had negative cash flow since
inception and expects to continue to have insufficient liquidity and cash
resources until such time as its sales revenues increase substantially. The
Company's immediate strategy is to expand its sales and marketing efforts and to
continue its research and development activities. The Company's independent
auditors have qualified their audit report with respect to the ability of the
Company to continue as a going concern. The Company will require significant
additional capital to fully implement its business plan and expand its
operations. There can be no assurance that the Company will be able to achieve,
or maintain, profitable operations or positive cash flow at any time in the
future.
Outstanding Obligations. The Company recently issued $924,000 of its
Senior Secured Convertible Notes due January 31, 1998. Of the $924,000
outstanding, $720,000 of such Senior Secured Convertible Notes were converted
into 720,00 shares of the Company's Common Stock and the remaining $204,000
principal amount went into default. The Senior Secured Convertible Notes are
secured by a lien on essentially all of the assets of the Company. No collection
activity with respect to such defaulted notes has been commenced and the Company
anticipates that the notes will ultimately be converted or otherwise satisfied.
However, there is no assurance that the Company will have sufficient funds to
satisfy the obligations under such Senior Secured Convertible Notes. If the
Company fails to satisfy its obligations under such notes, it is possible that
the holders thereof would exercise their remedies and seek to satisfy their
obligation through a sale or forfeiture of the Company's assets. In such event,
in all likelihood, the Company could not continue as a going concern.
Capital Requirements. The Company anticipates that substantial
additional funding will be required to adequately meet management's growth
objectives and fully implement its business plan. The Company may seek
additional debt or equity financing through banks, other financial institutions,
companies or individuals. No assurance can be given that the Company will be
able to obtain any such additional equity or debt financing on satisfactory
terms or at all. No assurance can be given that any such financing, if obtained,
will be adequate to meet the Company's needs for the foreseeable future. If the
Company is not able to successfully obtain sufficient capital, the Company's
ability to continue as a viable business enterprise will be substantially
impaired.
Need to Develop Distribution Network. The Company has only recently
commenced development of a distribution system for its industrial and retail
products. Establishment of a distribution network sufficient to supply customer
demand for the Company's product will be critical to the success of the Company.
Numerous factors, including lack of sufficient inventory or capital, failure of
the Company's products to generate sufficient demand and lack of sufficient
qualified, experienced personnel may contribute to the difficulties the Company
will face in establishing an efficient distribution network. No assurance can be
given that the Company's products will be accepted by consumers or industries,
that a satisfactory distribution network can be established or that the
Company's proposed operations will be profitable.
Uncertainty of Widespread Market Acceptance of Products, Limited
Marketing Experience. The Company has just started marketing its line of
consumer products. There have been limited sales of its industrial products, and
the Company has conducted only limited marketing activities and has limited
marketing experience with respect to all of its product lines. As is typical
with new products, demand and market acceptance for the Company's consumer
products are subject to a high level of uncertainty. Achieving widespread market
acceptance for these products will require substantial marketing efforts and the
expenditure of sufficient funds to create brand recognition and customer demand
and to cause potential customers to consider the potential benefits of the
Company's products as against the traditional products to which they have long
been accustomed. Moreover, the Company has limited marketing capabilities and
resources. To date, substantially all of the Company's marketing activities have
been conducted by members of management. The prospects for the Company's product
line will be largely dependent upon the Company's ability to achieve market
penetration for such products. Achieving market penetration will require
sufficient efforts by the Company to create awareness of and demand for the
Company's products and services. The Company's ability to build its customer
base will depend in part on the Company's ability to locate, hire and retain
sufficient qualified marketing personnel and to fund marketing efforts,
including advertising. There can be no assurance that the Company's products
will achieve widespread market acceptance or that the Company's marketing
efforts will result in profitable operations.
Supply, Capacity and Distribution Constraints. In order for the Company
to successfully market its products, the Company must be able to timely fill
orders for its product lines. The ability of the Company to timely meet its
supply requirements will depend on numerous factors including the ability of the
Company to successfully establish an effective distribution network and to
maintain adequate inventories and the ability of the Company's sole supplier to
adequately produce the Company's products in volumes sufficient to meet demand.
Failure of the Company to adequately supply its products to retailers or of the
Company's supplier to adequately produce products to meet demand could
materially adversely impact the operations of the Company.
-6-
<PAGE>
Competition. The market for environmentally friendly chemical products
is recent and a rapidly growing segment of the United States economy. Numerous
companies similar to the Company have entered the market in the last few years
in anticipation of the perceived opportunities surrounding environmentally safe
products and as a result the markets for the Company's products are highly
competitive. The Company believes that its products can compete and that its
management's qualifications will enable it to compete effectively. A significant
factor in the ability of the Company's consumer products to compete successfully
in the market will be its ability to secure and maintain shelf space with major
national retail chains. There is no assurance that the Company's business plan
to acquire and maintain such shelf space can be successfully implemented. The
consumer product industry is highly competitive and the Company will compete
with established manufacturers and distributors, many of which will have
significantly greater operating history, name recognition and resources than the
Company. Other companies and vendors may also enter into competition with the
Company as a result of the Company's increased marketing efforts as expected
after this Offering is successfully completed. The lack of financial strength of
the Company may be a negative factor for the Company's ability to penetrate the
home center market even if the Company's products are superior.
Dependence Upon Raw Materials and Suppliers. The Company's products are
manufactured from soybeans. As a commodity, soybeans are subject to significant
price fluctuations based upon supply and demand of such product. The supply of
soybeans may be affected by numerous factors, including general weather and
planting conditions, drought, pestilence and governmental subsidies or
regulation. The Company's sole supplier of its products is Interwest, L.C., an
affiliate of the Company. Interruption of the Company's product supply could
result from several factors, such as disruption of supply of raw product, work
stoppages, strikes or other labor difficulties, changes in governmental
regulations or natural or man caused disasters occurring with respect to its
supplier. Any increase of costs of the Company's raw products or disruption of
its supplier could severely affect the Company's business operations.
License Agreement. The Company's rights to a substantial portion of its
product lines are dependent upon its rights under the license agreement with and
the rights of Interchem Environmental, Inc. with respect to such products and
the process, formulae and other proprietary rights related to such products. Any
termination or impairment of the rights of Interchem Environmental, Inc. to such
proprietary rights or to the rights of the Company under the license agreement
would materially adversely affect the Company.
Limited Patent and Proprietary Information Protection. The Company
believes that the proprietary processes used in production of its products does
not infringe on the proprietary rights of others. In the event that the
Company's products infringe the patent or proprietary rights of others, the
Company may be required to modify its process or obtain a license. There can be
no assurance that the Company would be able to do so in a timely manner, upon
acceptable terms and conditions or at all. The failure to do so would have a
material adverse effect on the Company. In addition, there can be no assurance
that the Company will have the financial or other resources necessary to defend
a patent infringement or proprietary rights action. Moreover, if any of the
Company's products infringe patents or proprietary rights of others, the Company
could, under certain circumstances, become liable for damages, which could have
a material adverse effect on the Company. The Company also relies on proprietary
know-how and confidential information and employs various methods to protect the
processes, concepts, ideas and documentation associated with its proprietary
rights. However, such methods may not afford complete protection and there can
be no assurance that others will not independently develop such processes,
concepts, ideas and documentation. Although the Company requires all of its
employees to sign confidentiality agreements, there can be no assurance that
such agreements will be enforceable or will provide meaningful protection to the
Company. There can be no assurance that the Company will be able to adequately
protect its trade secrets or that other companies will not acquire information
which the Company considers to be proprietary. Moreover, there can be no
assurance that other companies will not independently develop know-how
comparable to or superior to that of the Company.
Adequacy of Product Liability Insurance. The use of the Company's
products entails inherent risks of adverse effects which could expose the
Company to product liability claims. Product liability claims could have a
material adverse effect on the business and financial condition of the Company.
While the Company has obtained $2,000,000 in product liability insurance, there
can be no assurance that the Company will be able to maintain such product
liability insurance on acceptable terms or if maintained that such insurance
will provide adequate coverage against all potential claims.
Need for Additional Development of Certain Products. The Company
believes that development work on its products is substantially complete.
However, testing of these products has been limited. The Company anticipates
that its future research and development activities combined with experience
gained from commercial production and use of the products could result in the
need for further refinement and development. The Company also expects to modify
the products for particular customer applications. There can be no assurance
that unforeseen circumstances will not require expensive additional development
of the Company's products and their applications. In addition, the Company may
in the future need to make improvements in its product line in order for such
products to remain competitive.
Reliance on Management; Limited Personnel. The Company is highly
dependent on the services of its officers and on the sales and marketing
activities conducted by its Chairman, Sean F. Lee. While the Company has an
employment agreement with Mr. Lee, the loss of his services or the inability to
attract or retain alternative or additional qualified
-7-
<PAGE>
personnel will have a materially adverse affect on the Company. Attracting and
retaining qualified personnel is critical to the Company's business plan. No
assurances can be given that the Company will be able to retain or attract such
qualified personnel or agents, or to successfully implement its business plan.
Management of Growth. The Company anticipates rapid growth in the
future if its financing and marketing efforts are successful. This growth, if
achieved, will place significant strains on the Company's financial, managerial
and other resources. Failure to effectively manage growth could have a
materially adverse effect on the Company's business and profitability.
Seasonal Fluctuations. The Company's limited experience suggests that a
greater demand for its products will occur in summer months, which is
anticipated to result in more revenues in the Company's third and fourth fiscal
quarters. Fluctuations in quarterly operating results may impact the market for
the Company's Common Stock and result in high volatility the price of the
Company's Common Stock, if a market is established.
Control by Existing Shareholders. The Company's officers, directors and
principal shareholders and their affiliates own or control a majority of the
Company's outstanding Common Stock. As a result, these shareholders, if acting
together, would be able to effectively control matters requiring approval by the
shareholders of the Company, including the election of the Company's Board of
Directors.
International Sales. The Company anticipates engaging in foreign sales.
Currency fluctuation and other normal risks of conducting business
internationally, including regulatory changes and requirements, fluctuating
exchange rates, tariffs and other barriers, management difficulties, potentially
adverse tax consequences and potentially difficult legal enforcement and
collection problems could have a materially adverse impact on the financial
condition of the Company.
Securities Law Compliance. The Company has been involved in complex
merger and acquisition transactions and in offerings of securities which may
have associated compliance defects by the Company or one or more of its
shareholders. While management is not aware that the Company has failed to
comply with applicable rules and regulations, no assurances can be made that all
such transactions were in complete compliance with applicable federal and state
securities laws or that a claim with respect to non-compliance will not be made.
Similarly, a claim of non-compliance may be made with respect to this Offering.
Costs may be incurred by the Company to defend any claim of non-compliance and
the Company may be required to offer rescission rights with respect to sales of
its securities which would severely affect the operations and financial
condition of the Company.
Illiquidity and Lack of Public Market. At the present time there is no
public market for any of the Company's securities. The Company is in the process
of qualifying its Common Stock for over-the-counter trading through listing on
the NASDAQ Electronic Bulletin Board and by attracting qualified broker/dealers
to make a market in its Common Stock. There can be no assurance that an active
trading market in the Company's Common Stock will develop or be sustained. If a
market for the Company's Common Stock does develop, the market price of the
Common Stock may be highly volatile. Any broker/dealer that makes a market in
the Company's securities may have a significant influence over the market for
the Company's Common Stock, if such market develops, and the price and liquidity
of the Common Stock may be affected by the degree of participation of any person
in such market. Even if a market develops, there can be no assurance that all
market making activity may cease at any time. As a result, purchasers of the
Company's Common Stock may be unable to liquidate their investment readily or at
all.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company through its wholly-owned subsidiary DEI sub-leases, on a
month-to-month basis, approximately 3,800 square feet of office space at its
principal place of business in Overland Park, Kansas. The primary tenant is
Interchem (N.A.) Industries, Inc. and the primary lease expires on October 31,
2000. The monthly rental paid by the Company is $3,565. The space is used for
the general administration of the Company including all marketing of the
Company's products.
The Company also leases approximately 2,000 square feet of office space
in Phoenix, Arizona at a cost of $1,207 per month on a month-to-month basis
which is utilized as a marketing office.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any litigation and is not
aware of any threatened litigation involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
-8-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market
No public trading market currently exists for the Company's Common
Stock. The Company is currently in the process of qualifying its Common Stock
for over-the-counter trading on the NASDAQ Electronic Bulletin Board. If the
Company's Common Stock is approved for such trading, it is anticipated that only
a limited public market would initially develop and no assurance can be given
that any significant public market for the Company's Common Stock will
ultimately develop or be sustained.
Dividends
The Company has never declared or paid dividends, intends to retain
earnings for future business uses and does not intend to pay dividends in the
foreseeable future. The timing and payment of future dividends will depend upon
numerous factors, including future earnings, operations, capital requirements,
restrictions in future financing agreements, general financial conditions of the
Company and general business conditions. Additionally, the Company is
contractually restricted from declaring or paying dividends under a Note
Agreement entered into on July 3, 1997 until all Senior Secured Convertible
Notes issued pursuant to such agreement have been paid or converted into Common
Stock under their terms. The final maturity of the Senior Secured Convertible
Notes under the Note Agreement is July 31, 1998.
Sale of Unregistered Securities
On January 12, 1996, the Company issued 1,469,500 shares of its Common
Stock to shareholders of Cactus Patch Farms, Inc. in exchange for the payment of
certain legal and accounting fees in the amount of $8,817. This offering was
conducted by prior management of the Company and was made in reliance upon the
exemption from registration provided under Rule 504 of Regulation D. Current
management is unaware of all facts and circumstances forming a basis for
reliance on this exemption, but believes the offering was exempt from
registration under Section 4(2) of the Securities Act.
Effective October 21, 1996, the Company acquired all outstanding stock
of DEI in exchange for 2,530,500 shares of its Common Stock. The Company relied
upon the exemption from registration of the shares issued in this transaction
afforded by Section 4(2) of the Securities Act.
From September 23, 1996 through March 13, 1997, DEI, the Company's
wholly-owned subsidiary, placed 1,393,800 shares of its common stock for total
consideration of $464,600 through Capital West Investment Group that acted as
its placement agent. Capital West Investment Group received $46,460 as a
placement agent fee in connection with this offering. The offering was made
solely to "accredited investors" as defined in Rule 501(a) of Regulation D and
the shares were offered in reliance on the exemption from registration as
provided in Rules 504 and 506 of Regulation D. The Company assumed the
obligations of DEI after its acquisition and issued a total of 1,393,800 shares
of its Common Stock in exchange for the DEI shares issued prior to acquisition
and directly thereafter in reliance on Rules 504 and 506 of Regulation D.
From June 27, 1997 through September 23, 1997, the Company issued a
total of $924,000 of its Senior Secured Convertible Notes and 924,000 Class A
Warrants as units for total consideration of $770,000. The Senior Secured
Convertible Notes were placed by Fox & Company Investments, Inc. for total
commissions and fees of $115,500 and the issuance of 462,000 Class B Warrants.
The offering was solely to "accredited investors" and made in reliance on Rule
506 of Regulation D. The Senior Secured Convertible Notes were due January 31,
1998 with a final maturity of July 31, 1998, predicated upon payment of
extension fees and additional interest. The Senior Secured Convertible Notes are
convertible into shares of Company Common Stock on the basis of $1.00 of
principal per share and as of January 31, 1998, $720,000 principal amount of the
Senior Secured Convertible Notes had been converted into 720,000 shares of the
Company's Common Stock. The remaining $204,000 principal amount of the Senior
Secured Convertible Notes are outstanding and in default. The Class A Warrants
entitle the holder thereof to purchase one share of the Company's Common Stock
per Warrant for $1.00 per share. The Class A Warrants expire on September 30,
2000, and are cancelable by the Company upon 45 days written notice, subject to
prior exercise, in the event the Company's Common Stock closing bid price in any
public market equals or exceeds $3.00 per share for 120 consecutive trading
days. The Class B Warrants are exercisable commencing July 3, 1998 for shares of
Company Common Stock at $1.20 per share. The Class B Warrants are not subject to
redemption or cancellation and expire on September 30, 2007.
From December 8, 1997 through January 31, 1998, the Company issued a
total of $241,500 of Convertible Subordinate Notes and 241,500 Warrants as units
for total consideration of $200,000. The Convertible Subordinate Notes were
placed through Capital West Investments Holding Company, Inc. for total
commissions of $14,000. The offering was solely to "accredited investors" and
made in reliance on Rule 506 of Regulation D. Each Convertible Subordinate Note
-9-
<PAGE>
is due four months from issuance and is convertible into shares of the Company's
Common Stock on the basis of $1.00 of principal per share. The Warrants allow
the holder thereof the right to purchase one share of Common Stock per Warrant
at $1.00 for three years from the date of issuance.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
The following discussion of the results of operations and financial
condition should be read in conjunction with the Financial Statements and notes
thereto for the year ended September 30, 1997 and the period ended September 30,
1996. See Item 7 below. Prior to October 21, 1996, the Company had no operating
history. Subsequent to October 21, 1996 all of the Company's operations were
carried out by its wholly-owned subsidiary DEI. Therefore, all discussions below
concerning the Company prior to the acquisition of DEI relate to and reflect the
operations of DEI only.
Results of Operations
The Company generated nominal revenues for the year ended September 30,
1997. Additionally, prior to October 21, 1996, the date DEI was acquired, no
activity had occurred with respect to the Company resulting in no significant
prior year's operations to compare to the Company's current operations.
For the year ended September 30, 1997, the Company had sales of $56,678
with cost of sales equal to $43,090 resulting in a gross profit of $13,588. Cost
of sales as a percentage of sales was 76.03% for this period. General and
administrative expenses were $614,093 for the year ended September 30, 1997
which resulted in a loss from operations of $600,505 for the period. The
Company's net loss for the year ended September 30, 1997 was $780,032 or $(.15)
per share.
The Company anticipates that its operating expenses will be increasing
and that the Company's future profitability will depend upon significant
increases in revenue from operations. While the Company believes that sales
revenue will increase due to the Company's marketing activities, there can be no
assurance as to the amount of income which the Company may be able to generate
from distributions and sales operations. Losses have primarily resulted from
high start-up and general administrative costs compared to the Company's initial
low sales volume. Given the Company's financial resources, its anticipated
expenses and the highly competitive environment in which it will operate, there
can be no assurance that the Company will be able to generate sufficient revenue
to fund its current or future operations or that the Company's future operations
will be profitable in the near future or at all.
Liquidity and Capital Resources
From the date of formation to the date of the acquisition of DEI, the
Company had no revenues or operating income. For the year ended September 30,
1997, the Company had nominal revenues of $56,678, primarily from sales of
samples and trial products. As of the date of acquisition of DEI, the Company
had no tangible assets. As a result of the acquisition of DEI on October 21,
1996, the Company had total assets of $181,515 and total shareholders' equity of
$124,774 compared to $648,406 and $(400,228), respectively, as of September 30,
1997. As of September 30, 1996, the Company had current assets of $21,512 in the
form of cash and current liabilities of $56,799. At September 30, 1997, the
Company had current assets of $433,330, comprised of $185,938 cash, $12,936
accounts receivable, $141,000 inventory, and prepaid expenses of $93,456, with
current liabilities of $417,370.
Since inception, the Company's working capital needs have been
satisfied by financing activities primarily consisting of the private placements
of Common Stock and debt. In the quarter ended September 30, 1997, the Company
completed a private placement of discounted notes with a total face amount of
$924,000 resulting in net proceeds to the Company of $594,000. The Company
anticipates meeting its working capital needs during the current fiscal year
primarily with proceeds from the sale of securities and secondarily with
revenues from sales and distribution operations, if any. The Company believes
that it will require substantial additional funds to cover the costs of
manufacturing its products, general and administrative overhead and meeting its
reporting obligations under the Exchange Act. If such funds are necessary, the
Company will seek to borrow such funds and/or raise such funds through the
private or public sale of its Common Stock or other securities. No assurances
can be given that such financing, if required, will be available, or that it can
be obtained on terms satisfactory to the Company. In the opinion of management,
inflation has not had a material affect on the operations of the Company.
-10-
<PAGE>
During the year ending September 30, 1998, the Company anticipates that
it will establish a manufacturer's representative organization to represent the
Company's products throughout the United States and perhaps internationally. The
organization will be responsible for contacting and developing target markets as
determined by the Company's segments involving large hardware/home center retail
chains and the light industrial and automotive users. Management believes that
the proceeds from its financing activities as currently anticipated will be
sufficient to provide for the Company's planned expansion of its marketing,
distribution and sales activities.
-11-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX
Page
----
Report of Independent Public Accountant...................................... 13
Consolidated Balance Sheet - September 30, 1997.............................. 14
Consolidated Statements of Operations
Year ended September 30, 1997 and
period from date of inception,
September 15, 1996 through September 30, 1996........................... 15
Consolidated Statement of Changes in Stockholders' Equity (Deficit) -
Year ended September 30, 1997 and period ended September 30, 1996....... 16
Consolidated Statements of Cash Flow
Year ended September 30, 1997 and
period from date of inception,
September 15, 1996 through September 30, 1996........................... 17
Notes to Consolidated Financial Statement.................................... 19
-12-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Soy Environmental Products, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Soy Environmental
Products, Inc. and Subsidiary as of September 30, 1997, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended, and for the period from the
date of inception, September 15, 1996 through September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Soy Environmental
Products, Inc. and Subsidiary as of September 30, 1997, and the results of their
operations, changes in stockholders' equity (deficit), and their cash flows for
the year then ended, and for the period from the date of inception, September
15, 1996 through September 30, 1996, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company's significant operating
losses raise substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Semple & Cooper, L.L.P.
Certified Public Accountants
Phoenix, Arizona
January 20, 1997
-13-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1997
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 2) $ 185,938
Accounts receivable (Note 1) 12,936
Inventory (Notes 1 and 3) 141,000
Prepaid expenses 93,456
---------
Total Current Assets 433,330
Property, plant and equipment, net (Note 1) 13,183
Investment, at equity (Note 6) 190,000
Organization costs, net (Note 1) 7,093
License fees, net (Note 1) 4,800
---------
Total Assets $ 648,406
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable - current portion (Notes 4 and 7) $ 221,914
Accounts payable 140,600
Accrued expenses 54,856
---------
Total Current Liabilities 417,370
---------
Notes payable - long-term portion (Notes 4 and 7) 631,264
---------
Contingencies (Notes 5 and 8) --
Stockholders' Equity (Deficit): (Note 9)
Common stock, $.001 par value, 20,000,000 shares
authorized, 5,445,200 shares issued and outstanding 5,445
Additional paid-in capital 415,085
Accumulated deficit (820,758)
---------
Total Stockholders' Equity (Deficit) (400,228)
---------
Total Liabilities and Stockholders' Equity $ 648,406
=========
The Accompanying Notes are an Integral Part
of the Financial Statements
-14-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Period From
The Date of
Inception,
September 15,
Year Ended Through
September 30, September 30,
1997 1996
============= =============
Sales $ 56,678 $ --
Cost of Sales 43,090 --
------------- -------------
Gross Profit 13,588 --
General and Administrative Expenses 614,093 (40,726)
------------- -------------
Loss from Operations (600,505) (40,726)
Other Income (Expenses): 788 --
Interest income 1,586 --
Other income (181,901) --
------------- -------------
Net loss (780,032) $ (40,726)
============= =============
Loss per share (Note 1) $ (.15) $ (.03)
============= =============
Weighted average shares outstanding $ 5,076,634 $ 1,519,833
============= =============
The Accompanying Notes are an Integral Part
of the Financial Statements
-15-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND
THE PERIOD ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Stock Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January
10, 1996 -- $ -- $ -- $ -- $ --
Shares issued for
payment of expenses 8,816,922 8,817 -- -- 8,817
------------- ------------- ------------- ------------- -------------
Balance at September
30, 1996 8,816,922 8,817 -- -- 8,817
1 for 6 reverse
stock split (7,347,422) (7,347) 7,347 -- --
Reverse merger with
Delta Environmental,
Inc. (Note 1) 2,530,500 2,530 32,470 (40,726) (5,726)
------------- ------------- ------------- ------------- -------------
Adjusted balance after
reverse merger 4,000,000 4,000 39,817 (40,726) 3,091
Proceeds from
private offering,
net of costs of $104,849 1,393,800 1,394 358,357 -- 359,751
Compensation for
consulting services 51,400 51 16,911 -- 16,962
Net loss for the year
ended September
30, 1997 -- -- -- (780,032) (780,032)
------------- ------------- ------------- ------------- -------------
Balance at
September 30, 1997 5,445,200 $ 5,445 $ 415,085 $ (820,758) $ (400,228)
============= ============= ============= ============= =============
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
-16-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
The Date of
Inception,
September 15,
Year Ended Through
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Cash collected from customers $ 45,328 $ --
Cash paid to suppliers and employees (748,572) (10,485)
Interest received 788 --
Interest paid (128,723) --
------------- -------------
Net cash used by operating activities (831,179) (10,485)
------------- -------------
Cash flows from investing activities:
Purchase of fixed assets -- --
Increase in investment (13,646) (93,500)
Disbursements for intangibles (40,000) (5,003)
------------- -------------
Net cash used by investing activities (53,646) (98,503)
------------- -------------
Cash flows from financing activities:
Proceeds from debt 970,000 --
Repayment of debt (150,000) --
Proceeds from issuance of stock 229,251 130,500
------------- -------------
Net cash provided by financing activities 1,049,251 130,500
------------- -------------
Net increase in cash and cash equivalents 164,426 21,512
Cash and cash equivalents at beginning of period 21,512 --
------------- -------------
Cash and cash equivalents at
end of period $ 185,938 $ 21,512
============= =============
</TABLE>
The Accompanying Notes are an Integral Part
of the Financial Statements
-17-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Period From
The Date of
Inception,
September 15,
Year Ended Through
September 30, September 30,
1997 1996
------------- -------------
Reconciliation of Net Loss to Net Cash
Used by Operating Activities:
Net Loss $ (780,032) $ (409,726)
------------- -------------
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 2,437 --
Stock issued for consulting fees 16,962 30,000
Amortization of discount 33,178 --
Changes in Assets and Liabilities: --
Accounts receivable (12,936) --
Prepaid expenses (93,456) --
Inventory (141,000) --
Refundable deposits 5,003 --
Accounts payable 83,859 241
Accrued expenses 54,806 --
------------- -------------
(51,147) 30,241
------------- -------------
Net cash used by operating activities $ (831,179) $ (10,485)
============= =============
The Accompanying Notes are an Integral Part
of the Financial Statements
-18-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles, Nature of Operations, and
Pervasiveness of Estimates:
Nature of Corporation:
Soy Environmental Products, Inc. (formerly Denom Acquisition Corp.) and
Subsidiary is a Corporation which was duly formed and organized under the
laws of the State of Delaware on January 10, 1996. The Company was in the
development stage and had no activity from its inception through October
21, 1996, the date of the reverse merger. The principal business purpose of
the Corporation is to engage in the development of ownership interest in,
and the operation of, bio-degradable chemical facilities, and to establish
national sales and distribution networks for these products.
Reverse Merger:
Effective October 21, 1996, the Company purchased all of the outstanding
common stock of Delta Environmental, Inc. The acquisition was accounted for
as a reverse merger using the purchase method of accounting and the
stockholders of Delta Environmental, Inc. received approximately ninety
(90) percent of the outstanding common stock of Soy Environmental Products,
Inc. after the merger. Soy Environmental Products, Inc. had no activity
through the merger date. The activity for the period ended September 30,
1996 represents the operations of Delta Environmental, Inc.
Principles of Consolidation:
The consolidated financial statements include the accounts of Soy
Environmental Products, Inc. and its wholly-owned subsidiary, Delta
Environmental, Inc. All significant inter-company balances and transactions
have been eliminated in consolidation.
Revenue Recognition:
Revenues are recognized on the accrual basis of accounting with revenue
from product sales recognized at the time of shipment.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, notes payable and accrued expenses approximate fair value
because of the short maturity of these items. Based on the borrowing rates
currently available to the Company, the carrying amounts of long-term debt
approximate fair value.
Stock-Based Compensation:
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which
an entity acquires goods or services from non-employees in exchange for
equity instruments. The Company adopted this accounting standard on October
1, 1996. SFAS No. 123 encourages, but does not require companies to record
compensation cost for stock-based employee compensation. The Company has
chosen to continue to account for stock-
-19-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
based compensation utilizing the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the stock.
Cash and Cash Equivalents:
For financial accounting purposes, cash and cash equivalents are considered
to be all highly liquid investments purchased with an initial maturity of
three (3) months or less.
Accounts Receivable:
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance is provided based upon a review of the
individual accounts outstanding, and prior history of uncollectible
accounts receivable. At September 30, 1997, no allowance has been provided
for as management believes the accounts are fully collectible.
Inventory:
Inventory is stated at the lower of cost, first-in first-out method, or
market. Inventory quantities are reviewed periodically for obsolescence.
Organization Costs:
Organization costs consist of costs incurred prior to commencing
operations. These costs consist primarily of professional fees and
administrative costs, and are amortized ratably over a five (5) year
period. For the year ended September 30, 1997, amortization expense in the
amount of $1,773 was charged to operations.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided for
on the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized when incurred. For the year ended
September 30, 1997, depreciation expense and accumulated depreciation was
$464.
The useful lives of property and equipment, which is comprised of furniture
and fixtures, for purposes of computing depreciation is five to seven
years.
License Fees:
The license fees consist of costs incurred in relation to the purchase of a
license to market certain chemical compounds for bioremediation that are
based upon soy product derivatives. This license will be amortized ratably
over a twenty-five (25) year period. The Company evaluates the estimated
net realizable value of its license fee at each balance sheet date and
records an impairment if the carrying value exceeds the expected future net
operating cash flows from the related operation. For the year ended
September 30, 1997, amortization expense and accumulated amortization was
$200.
Income Taxes:
For financial statement and tax reporting purposes, the Company reports
income and expenses based on the accrual method of accounting. For the year
ended September 30, 1997 and the period ended September 30, 1996, no
provisions were made for federal or state income taxes due to operating
losses incurred in the respective periods.
-20-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At September 30, 1997, the Company has available federal and state net
operating loss carryforwards in the approximate amounts of $895,000 and
$60,000 respectively, which may provide future tax benefits expiring
primarily through 2012 and 2002.
Deferred income taxes arise from timing differences resulting from income
and expense items reported for financial and tax purposes in different
periods. Deferred income taxes represent the estimated tax benefit for
timing differences in the utilization of net operating loss carryforwards
and valuation allowances. As of September 30, 1997 and 1996, valuation
allowances in the approximate amounts of $304,000 and $9,000, respectively,
were established because, in management's opinion, it is more likely than
not that the Company's deferred tax assets will not be realized.
Loss Per Common Share:
The computation of loss per share is based on the weighted average number
of common shares outstanding for the period. Common share equivalents are
not included in the calculation of loss per share, as they are
anti-dilutive.
2. Concentrations:
Cash and Cash Equivalents:
The Company maintains cash and cash equivalents with various financial
institutions. Deposits not to exceed $100,000 at each institution are
insured by the Federal Deposit Insurance Corporation. At September 30,
1997, the Company has uninsured cash and cash equivalents of approximately
$79,000.
Major Supplier:
The Company purchases substantially all of its supply of soybeans and other
materials from Interwest Cooperative LLC, a related entity. As of September
30, 1997, the amount included in accounts payable was approximately $150.
3. Inventory:
At September 30, 1997, inventory consists of the following:
Raw materials $ 80,398
Finished goods 60,602
----------
$ 141,000
==========
4. Notes Payable:
As of September 30, 1997, notes payable are as follows:
Non-interest bearing note payable
to an individual, due on demand;
unsecured. $ 50,000
-21-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Non-interest bearing Senior Secured
Convertible notes, in the aggregate of
$924,000 (less unamortized discount of
$120,822, effective rate approximately
32%), principal due January 30, 1998 and
convertible after November 15, 1997 into
924,000 shares of common stock; secured
by stock and corporate assets. 803,178
----------
853,178
Less: current portion of notes payable (221,914)
----------
$ 631,264
==========
During January, 1998, $720,000 ($631,264, net of unamortized discount at
September 30, 1997) of the aforementioned notes were converted to 720,000
shares of common stock. Therefore, the debt related to same has been
reflected as long-term as of September 30, 1997.
5. Related Party Transactions:
Note Payable to Related Party:
During the year ended September 30, 1997, the Company entered into a debt
agreement with an officer for $100,000. The debt was paid in full as of
September 30, 1997 and interest in the amount of $20,000 has been accrued
as of September 30, 1997.
Leasing Arrangements:
The Company leases office space under a month-to-month operating lease
agreement with a related entity. For the year ended September 30, 1997,
rental expense for the office lease was $43,669.
Major Supplier:
As discussed in Note 2, a related entity is the supplier of substantially
all of the Company's soybeans.
License Agreement:
On September 15, 1996, Delta Environmental, Inc. entered into a licensing
agreement with Interchem Environmental, Inc. for the license to market
various Interchem Environmental, Inc. products. The contract provides for
royalties to be paid at a rate of one-half of one percent (.005%) of gross
sales. In exchange for the licensing agreement, Interchem Environmental,
Inc. received 500,000 shares of Delta Environmental, Inc. stock from an
existing stockholder.
Consultancy Agreement:
On December 31, 1996, the Company entered into a consulting agreement with
Interchem Industries, Inc., a related entity. The agreement is for a three
(3) year period, with a total commitment of approximately $225,000.
6. Investment, at Equity:
The investment consists of approximately a twenty-five (25) percent
ownership interest in Interwest, L.C., an Iowa limited liability company.
The investment is accounted for under the equity method of accounting. No
adjustment has been made for the current year loss due to the immaterial
nature of same.
-22-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is a summary of financial position and results of operations of
Interwest, L.C. at September 30, 1997:
Current Assets $ 127,094
Property, plant and equipment 1,141,165
Other assets, net 7,707
-----------
Total Assets $ 1,275,966
===========
Current liabilities $ 138,769
Long-term debt 1,168,000
-----------
$ 1,306,769
-----------
Stockholders' equity (deficit) $ (30,803)
-----------
Total liabilities and stockholders' equity $ 1,275,966
===========
Sales $ 135,199
===========
Net loss $ (24,182)
===========
7. Statement of Cash Flows:
Non-Cash Financing Activities:
For the year ended September 30, 1997, the Company recognized financing
activities that affected stockholders' equity, but did not result in cash
receipts.
As of September 30, 1997, these non-cash activities consisted of the
following:
The Company completed a debt offering for $924,000, which included a
discount on the debt in the amount of $154,000.
The Company issued 51,400 shares of common stock for payment of
consulting fees in the amount of $16,962.
8. Contingencies:
In relation to the Company's debt offering, the Company issued 924,000
warrants exercisable at $1 per share. Upon exercise of these warrants, the
placement agent is to receive five percent (5%) of the proceeds received by
the Company. Should all the warrants be exercised, the Company will incur
$46,200 of additional costs. As of September 30, 1997, no liability has
been accrued.
9. Stockholders' Equity:
Common Stock and Stock Split:
On November 8, 1996, the Company's Board of Directors authorized a 1 for 6
reverse split of its common stock.
Private Offerings:
-23-
<PAGE>
SOY ENVIRONMENTAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the year ended September 30, 1997, the Company completed a private
placement of common stock pursuant to Regulation D promulgated by the
Securities and Exchange Commission. The Company issued 1,393,800 shares of
common stock pursuant to the offering.
Options and Warrants:
The Company had issued stock options pursuant to an employment agreement.
The options were exercisable at $.33 per share for a period of five years
from grant date. As of September 30, 1997, the options had been cancelled.
The Company has issued warrants to accredited investors in connection with
a debt offering. In relation to the debt offering, 924,000 Class A Warrants
have been issued at an exercise price of $1.00 per share. The warrants
become exercisable after November 15, 1997, and expire in three years. As
of September 30, 1997, no warrants have been exercised.
In addition, the placement agent on the debt offering received 462,000
Class B Warrants, exercisable at $1.20 per share, expiring in ten (10)
years.
10. Going Concern:
As shown in the financial statements, the Company has incurred net losses
of $780,032 and $40,726, respectively, for the year ended September 30,
1997 and for the period from the date of inception, September 15, 1996
through September 30, 1996. In addition, as of September 30, 1997, the
Company had a stockholders' deficit in the amount of $400,228, and $204,000
of debt went into default subsequent to the balance sheet date.
The foregoing factors indicate that the Company may be unable to continue
in existence. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or
the amounts and classification of liabilities that might be necessary in
the event the Company cannot continue existence. Management believes that
the Company is positioned to continue as a going concern.
11. Subsequent Events:
Subsequent to the balance sheet date, the Company initiated a private
placement pursuant to Regulation D promulgated by the Securities and
Exchange Commission. The private placement offers for sale 105 units, each
consisting of 20,000 shares of cumulative convertible preferred stock, and
10,000 common stock purchase warrants at $20,000 per unit.
In addition, the Board of Directors authorized a private placement on a
best efforts basis of up to $241,500 convertible notes and 241,500
warrants.
During January, 1998, $720,000 of Senior Secured Convertible notes were
converted to 720,000 shares of common stock. The balance of the Senior
Secured Convertible notes, $204,000 went into default.
-24-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
From the inception of the Company until the acquisition of DEI, on October
21, 1996, its accountants were Rotenberg Company, L.L.P. of Rochester, New York.
Due to the change in control of the Company resulting from the acquisition of
DEI, the Company's Board of Directors decided to retain as its certifying
accountant the accountants for DEI, Semple & Cooper P.L.C. of Phoenix, Arizona.
The decision to change accountants was that solely of the Company's Board of
Directors. At no time have there been any disagreements with prior or current
accountants regarding any matter of accounting principals or practices,
financial statement disclosure, or auditing scope or procedure. None of the
accounting reports associated with the financial statements of either the
Company or DEI over the past two years or from the date of inception to the date
hereof contained an adverse opinion or disclaimer of opinion, or was modified as
to uncertainty, audit scope, or accounting principles.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
The Directors and Executive Officers of the Company and their ages are as
follows:
Name Age Position
---- --- --------
Sean F. Lee 56 Chairman/Chief Executive Officer/Director
George T. Bard 67 President/Director
Gary L. Haer 43 Chief Financial Officer/Secretary/Director
Lee E. Derr 48 Director
Lawrence G. Olson 60 Director
Directors and Executive Officers
Sean F. Lee, Chairman, Chief Executive Officer and Director has held these
positions since October 1997. Mr. Lee is generally responsible for all marketing
and distribution activities of the Company. Mr. Lee holds degrees from Kells
College in Ireland and Hood College in Maryland. Mr. Lee has served in
management positions in the retail industry since 1963. Recently, Mr. Lee was
co-founder and Chairman of Infopak, a company which manufactures a handheld
computer and creates custom software for the real estate industry and held the
position of Chairman from inception in January 1991 till its sale in October
1996. Mr. Lee's retail experience includes 18 years with Montgomery Ward
starting as a trainee and ending in 1981 as merchandise manager for the Western
Region. In 1982 Mr. Lee joined W. R. Grace as a divisional Vice President ending
in 1986 as Chief Executive Officer of Grace Homecenters West. Mr. Lee was Chief
Executive Officer of Homebase, a $1.7 billion home improvement chain in 1988 and
1989.
George T. Bard, President and Director, has served in these positions since
September 1996. Mr. Bard is responsible for general management of the Company.
Mr. Bard is an attorney admitted to the California Bar, graduated from the
University of Michigan and holds a law degree from Lincoln University of San
Francisco. Prior to his involvement with the Company, in addition to practicing
law, he was a Vice President of Continental Grain and served as chief negotiator
for the World Milling Group.
Gary L. Haer, Chief Financial Officer, Secretary and Director, has held
these positions since September 1996. Mr. Haer is responsible for management of
logistics and manufacturing for the Company. Mr. Haer holds a B.S. degree in
Accounting from Northwest Missouri State University and a MBA from Baker
University. Prior to joining the Company Mr. Haer has held various management
positions in operations, insurance and accounting. As a Manager for Hartford
Insurance Group, he was responsible for market development and control,
financial analysis, and agency management. Part of Mr. Haer's experience
includes, from 1981 to 1992, being a major partner in a diversified agriculture
operation, Haer Farms, where he was responsible for accounting, finance and
operations. During this period he served on several financial review
-25-
<PAGE>
committees for the FHA. Since 1993, Mr. Haer has been accounting manager for
Interchem (N.A.) Industries, Inc., which developed the Company's products.
Lee E. Derr, Director, has been a director of the Company since September
1996 and, through Interchem Environmental, Inc., is responsible for its
accounting and administrative functions. Mr. Derr holds a B.S. degree in Finance
from the University of Missouri. In addition Mr. Derr is a Certified Public
Accountant. Prior to founding Interchem (N.A.) Industries, Inc. Mr. Derr was
Vice President and Chief Financial Officer of C. Christopher and Company, a
Kansas City, Missouri based registered securities broker/dealer. In addition Mr.
Derr previously served as Vice President of Finance for Wulfsberg Electronics a
division of Sundstrand Corporation. Since 1985 Mr. Derr has been President of
Interchem (N.A.) Industries, Inc. and continues today to direct all aspects of
that company's operations.
Lawrence G. Olson, Director, has held his position with the Company since
September 1996. Mr. Olson holds a B.S. degree in Civil Engineering from the
University of Southern California. He currently is President and owner of Olson
Precast of Arizona, Inc., a precast production and construction company with
which he has been affiliated since 1973.
The business of the Company will be largely dependent upon the efforts of
Messrs. Lee and Derr. The Company does not currently have, but intends to obtain
and maintain, key-man life insurance in the amount of not less than $1,000,000
on the life of Mr. Lee.
Key Employees
William Fredericks, 55, Executive Vice President, joined the Company in
October 1997 and is responsible for all marketing activities with emphasis on
the consumer segment. From November 1996 until joining the Company, Mr.
Fredericks was the Director of Merchandising, Sales and Operations of Haynes
Furniture Company, Inc., a regional furniture outlet retailer. From 1993 until
October 1996, Mr. Fredericks was Director of Special Projects (Marketing) and
New Business Development for Home Quarters Warehouse, Inc., a division of the
Hechinger Company, and from October 1991 to November 1992 was the Vice
President, Sales and Operations for Nature's Elements International, Ltd. From
1973 to 1991, Mr. Fredericks served in various capacities within merchandising
and operations, including Senior Vice President and Chief Merchandising Officer,
at Channel Home Centers, Inc., a division of W.R. Grace. Additionally, from 1992
to present, Mr. Fredericks has owned and operated Fredericks & Associates/AMASAR
enterprises, an importer/exporter of consumer products.
Compliance with Section 16(a) of the Exchange Act
During the fiscal year ended September 30, 1996, each director, officer and
beneficial owner of more than 10% of the Company's outstanding Common Stock as
listed in Item 11 below failed to timely file reports on Form 3 upon the Company
becoming subject to the reporting requirements of the Exchange Act. All required
reports were subsequently filed on February 11, 1998 after these persons were
advised of their reporting requirements under the Exchange Act. Additionally,
Mr. Stanton and Vexterglen Limited failed to timely file a Form 4 in connection
with the disposition of 615,206 shares of the Company's Common Stock on
September 23, 1997, Mr. Kohler and Capital West Investments Holding Company,
Inc. failed to timely file a Form 4 in connection with the disposition of
500,362 shares of the Company's Common Stock on September 23, 1997, Mr. Haer
failed to timely file a Form 4 in connection with the acquisition of 50,000
shares of the Company's Common Stock on September 18, 1997 and Mr. Olson failed
to timely file a Form 4 in connection with the acquisition of 17,000 shares of
the Company's Common Stock on September 9, 1997. All delinquent Forms 4 were
also filed on February 11, 1998.
-26-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
Compensation Summary of Executive Officers
The following table sets forth certain compensation paid or accrued by the
Company during the fiscal year ended September 30, 1997 to the Chief Executive
Officer and the Chief Financial Officer. None of the officers of the Company
made in excess of $100,000 during fiscal 1997.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------
Other
Fiscal Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------------------------------------------------------------
Sean Lee, 1997 $73,077 __ __
Chief Executive Officer 1996 __ __ __
1995 __ __ __
Gary L. Haer 1997 $48,679 __ __
Chief Financial Officer 1996 $34,538 __ __
1995 __ __ __
Employment Agreements
Mr. Lee has entered into a three year employment contract whereby beginning
January 1, 1997 he will be paid an annual salary of $100,000. At such time as
the gross annual revenues of the Company exceed $5,000,000 the salary will
increase to $150,000 per year and in addition Mr. Lee will receive an override
equal to nine-tenths of one percent of the Company's gross revenue.
At present the Company does not maintain any form of bonus, stock option,
stock bonus, profit sharing, deferred compensation or other benefits or
incentive plan for the benefit of any employees, officers or directors. The
Board of Directors is currently considering a package of benefits and intends to
present a plan at the Company's next annual meeting. There are no employment
contracts with any individual working for or associated with the Company or its
subsidiary except for Mr. Sean F. Lee.
The Company and Interchem (N.A.) Industries have entered into a Consultancy
Agreement as described in Item 12 below pursuant to which Mr. Derr provides
services to the Company.
Director Compensation
All authorized out of pocket expenses incurred by a Director on behalf of
the Company are subject to reimbursement upon receipt by the Company of required
documentation substantiating such expense. The Company anticipates that it will
implement a stock option plan to provide incentive compensation to its Board
members and other employees and service providers. Except as set forth above,
there are no current plans nor at present does the Company have any current or
future obligation to compensate the individuals serving in the capacity of a
Director of the Company. Interchem (N.A.) Industries, Inc. is compensated as a
consultant to the Company. Mr. Derr is President of Interchem (N.A.) and
receives compensation from such entity.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of October 1, 1997, certain information
regarding beneficial ownership of the Company's Common Stock by all directors,
executive officers and key employees and all persons who own beneficially,
-27-
<PAGE>
directly or indirectly, more than five percent of the Company's Common Stock,
and all directors, executive officers and key employees of the Company as a
group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of Beneficial
Beneficial Ownership of Class(1)(7) Owner
-------------------- -------------- -----
<S> <C> <C>
Sean F. Lee(2) 815,968 14.96%
8855 Black Canyon Freeway
Suite 2000
Phoenix, Arizona 85021
D. J. Stanton(3) 815,968 14.96%
456 Queen Street, W.
Mount Forest, Ontario CANADA
Lawrence L. Kohler(4) 609,031 11.18%
2525 East Camelback Road
Suite 510
Phoenix, Arizona 85016
Interchem Environmental, Inc.(5)(6) 500,000 9.18%
9135 Barton Street
Overland Park, Kansas 66216
Lee E. Derr(5) 500,000 9.18%
9135 Barton Street
Overland Park, Kansas 66214
Capital West Investments Holding 460,400 8.46%
Company, Inc.
2525 East Camelback Road
Suite 510
Phoenix, Arizona 85016
George T. Bard 300,000 5.51%
8347 East Las Estancias
Scottsdale, Arizona 85250
Gary L. Haer 250,000 4.59%
9135 Barton Street
Overland Park, Kansas 66216
Lawrence G. Olson 55,000 1.01%
214 West Vista Avenue
Phoenix, Arizona 85021
All Directors and Executive 1,920,968 35.28%
Officers as a Group (5 Persons)
</TABLE>
Unless otherwise indicated, the Company has been advised that each person
above has sole voting power over the shares indicted.
(1) Based upon 5,445,200 shares of Common Stock being issued and outstanding on
October 1, 1997.
(2) Mr. Lee holds all shares through the Lee Family Trust.
(3) Mr. Stanton holds the shares beneficially through Vexterglen Limited and
such shares are held in trust by the Bank of Ireland. Mr. Stanton holds no
position as management or any other interest in the Company or the predecessor
companies.
(4) Mr. Kohler owns 149,031 shares directly and controls 460,000 shares through
Capital West Investments Holding Company, Inc. ("CWIHC"). Mr. Kohler holds a
majority of the equity stock in CWIHC.
(5) Mr. Lee E. Derr, a Director of and consultant to the Company, is an officer
and director of Interchem (N.A.) Industries, Inc. and its wholly owned
subsidiary Interchem Environmental, Inc. Mr. Derr does not own any shares of
Interchem (N.A.) Industries, Inc. and therefore disclaims any beneficial
interest in the shares of the Company's Common Stock owned by Interchem
Environmental, Inc. Mr. Derr disclaims ownership of any shares of the Company.
(6) Interchem Environmental, Inc. is a 100% wholly owned subsidiary of Interchem
(N.A.) Industries, Inc. Interchem Industries is a corporation with approximately
800 shareholders. No one controls more than 5% of the outstanding stock.
-28-
<PAGE>
(7) Certain of these shareholders have committed to transfer, for nominal
consideration, 100,000 shares of previously issued Common Stock to certain
representatives of Fox & Company Investments, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In September of 1996 DEI entered into a 25 year license agreement with
Interchem Environmental, Inc. ("IEI"), a wholly-owned subsidiary of Interchem
(N.A.) Industries, Inc., whereby IEI granted DEI an exclusive world wide license
for the promotion, use, sale and distribution of "SoyClean," "SoyRelease" and
"Naturen" products. The agreement provides for a royalty fee of one-half of one
percent of gross sales. Also, in January 1997, the Company purchased its 25%
interest in Interwest, L.C. from IEI for $190,000.
Effective October 21, 1996, the Company acquired all outstanding stock of
DEI in exchange for 2,530,500 shares of its Common Stock. Such shares were
issued as follows: Capital West Investments Holding Company, Inc. - 765,612
shares; Vexterglen Limited - 713,148; Interchem Environmental, Inc. - 500,000;
Gary L. Haer - 200,000; Milton R. Barnes - 105,016; Lawrence L. Kohler -
105,016; Frank X. Helstab - 84,678; Jeffery Loth - 43,030; and Pickwick Group,
L.L.C. - 14,000.
Capital West Investment Group, a subsidiary of Capital West Investments
Holding Company, of which Mr. Lawrence M. Kohler is President, received total
commissions in connection with the private placements of the Company's
securities equal to $85,460 and a total of 150,000 Class B Warrants, portions of
which were allocated to participating representatives, including Mr. Kohler, and
other registered agents and broker/dealers.
The Company has entered into a two year Consultancy Agreement with
Interchem (N.A.) Industries, Inc. whereby in exchange for consulting services
the Company, beginning January 1, 1997, will pay a monthly consulting fee in the
amount of $8,333.33. Mr. Lee E. Derr, a Director of the Company, is an officer
and director of Interchem (N.A.) Industries, Inc. The Company also sub-leases
its administrative office space from Interchem (N.A.) Industries, Inc. on a
month-to-month basis at $3,565.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Index
Number Description
2.1(1) Agreement and Plan of Reorganization dated September 3,
1996 by and between Soy Environmental Products, Inc.,
formerly Denom Acquisition Corp. and the shareholders of
Delta Environmental, Inc.
3.1(1) Certificate of Incorporation of Denom Acquisition Corp.
3.2(1) Certificate of Amendment to Certificate of Incorporation
of Denom Acquisition Corp.
3.3(1) Bylaws of Denom Acquisition Corp.
4.1 Note Agreement dated July 3, 1997 among Soy Environmental
Products, Inc. and Fox & Company Investments, Inc.
4.2(3) Security Agreement dated July 3, 1997 among Soy
Environmental Products, Inc. and Fox & Company
Investments, Inc.
4.3 Class A Warrant Agreement dated July 3, 1997 among Soy
Environmental Products, Inc. and Fox & Company
Investments, Inc.
4.4 Class B Warrant Agreement dated September 23, 1997 among
Soy Environmental Products, Inc. and Fox & Company
Investments, Inc.
4.5 Letter Agreement dated July 3, 1997 among Soy
Environmental Products, Inc. and Fox & Company
Investments, Inc.
10.1(1) License Agreement dated September 15, 1996 by and between
Interchem Environmental, Inc. and Delta Environmental,
Inc.
-29-
<PAGE>
10.2(2) Employment Agreement dated September 31, 1996 by and
between Delta Environmental, Inc. and Sean F. Lee
10.3 Consultancy Agreement dated December 31, 1996, between
Soy Environmental Products, Inc. and Interchem (N.A.)
Industries, Inc.
10.4 Agreement dated January 16, 1997 by and among Interchem
Environmental, Inc. and Soy Environmental Products, Inc.
regarding purchase of interest in Interwest, L.C.
21 Subsidiaries of Registrant
23 Consent of Independent Public Accountant
99.1(2) U.S. Army Testing Report
99.2(2) Testing Data by Arco Chemical
99.3 Scientific Certification Systems Letter of Certification
99.4 Consumer Testing Laboratories Testing Report
(1) Incorporated by reference from the Registrant's Form 10-QSB filed February
24, 1997.
(2) Incorporated by reference from the Registrant's Form 10-SB/A (Amendment No.
1) filed May 29, 1997.
(3) Incorporated by reference from the Registrant's Form 10-SB/A (Amendment No.
2) filed July 18, 1997.
(b) Reports on Form 8-K
None
-30-
<PAGE>
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOY ENVIRONMENTAL PRODUCTS, INC.
(Registrant)
Date: March 24, 1998 By: /s/ Gary L. Haer
---------------------- -------------------------------------------
Gary L. Haer, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: By:
---------------------- -------------------------------------------
Sean F. Lee, Chief Executive Officer
and Director
Date: March 25, 1998 By: /s/ George T. Bard
---------------------- -------------------------------------------
George T. Bard, President and Director
Date: March 24, 1998 By: /s/ Gary L. Haer
---------------------- -------------------------------------------
Gary L. Haer, Chief Financial Officer,
Secretary and Director
Date: March 24, 1998 By: /s/ Lee E. Derr
---------------------- -------------------------------------------
Lee E. Derr, Director
Date: March 25, 1998 By: /s/ Lawrence G. Olson
---------------------- -------------------------------------------
Lawrence G. Olson, Director
Exhibit 4.1
================================================================================
SOY ENVIRONMENTAL PRODUCTS, INC.
NOTE AGREEMENT
For the Issuance of Up to
$900,000 Senior Secured
Convertible Notes
================================================================================
<PAGE>
Exhibit 4.1
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
SECTION 1 - DEFINITIONS AND INTERPRETATION................................ 1
<S> <C> <C>
1.1 Definitions............................................................................ 1
1.2 Accounting Principles.................................................................. 4
1.3 Directly or Indirectly................................................................. 4
SECTION 2 - THE NOTES.......................................... 4
2.1 Issuance of Definitive Notes........................................................... 4
2.2 Prepayment............................................................................. 4
2.3 No Sinking Fund........................................................................ 4
2.4 Persons Entitled to Note Interest Payments............................................. 5
2.5 Security............................................................................... 5
2.6 Payment of Principal and Interest...................................................... 5
2.7 Extension of Maturity Date............................................................. 5
2.8 Application of Payment................................................................. 5
SECTION 3 - COMPANY COVENANTS...................................... 5
3.1 Corporate Existence.................................................................... 5
3.2 Payment of Taxes and Claims............................................................ 5
3.3 Maintenance of Properties; Business Insurance.......................................... 6
3.4 Limitations on Senior Debt............................................................. 6
3.5 Dividends.............................................................................. 6
3.6 Transactions with Affiliates........................................................... 6
3.7 Representation on the Board of Directors............................................... 7
SECTION 4 - EVENTS OF DEFAULT & REMEDIES THEREFOR............................ 7
4.1 Events of Default...................................................................... 7
4.2 Notice to Placement Agent.............................................................. 8
4.3 Acceleration; Rescission and Annulment................................................. 8
4.4 Collection of Indebtedness and Suits for Enforcement by Note Agent..................... 9
4.5 Note Agent May File Proofs of Claim.................................................... 10
4.6 Note Agent May Enforce Claims Without Possession of Note
Certificates........................................................................... 11
4.7 Application of Money Collected......................................................... 11
</TABLE>
-i-
<PAGE>
Exhibit 4.1
<TABLE>
<CAPTION>
<S> <C> <C>
4.8 Limitation on Suits.................................................................... 11
4.9 Unconditional Right of Holders to Receive Principal, Premium and
Interest............................................................................... 12
4.10 Restoration of Rights and Remedies..................................................... 12
4.11 Rights and Remedies Cumulative......................................................... 12
4.12 Delay or Omission Not Waiver........................................................... 12
4.13 Control by Holders..................................................................... 13
4.14 Waiver of Past Defaults................................................................ 13
4.15 Undertaking for Costs.................................................................. 13
4.16 Waiver of Stay or Extension Laws....................................................... 13
SECTION 5 - AMENDMENTS, WAIVERS & CONSENTS................................ 14
5.1 Consent Required....................................................................... 14
5.2 Effect of Amendment or Waiver.......................................................... 14
5.3 Solicitation of Holders................................................................ 14
SECTION 6 - CONVERSION OF NOTES..................................... 15
6.1 Conversion Rights and Manner of Exercise............................................... 15
6.2 Issuance of Common Stock Certificates.................................................. 15
6.3 Cash Adjustments on Conversion......................................................... 15
6.4 Antidilution Adjustments............................................................... 16
6.5 Mergers, Consolidations, Sales......................................................... 16
6.6 Dissolution or Liquidation............................................................. 17
6.7 Notice of Extraordinary Dividends...................................................... 17
6.8 Reservation of Common Stock............................................................ 17
6.9 Fully Paid Stock; Taxes................................................................ 18
SECTION 7 - RESTRICTIONS ON TRANSFERABILITY............................... 18
7.1 Restrictions on Transferability........................................................ 18
7.2 Restrictive Legends.................................................................... 18
7.3 Notice of Proposed Transfer; Registration Not Required................................. 19
7.4 Transfer of Notes...................................................................... 19
SECTION 8 - REGISTRATION OF CONVERSION SHARES.............................. 20
8.1 Shelf Registration......................................................................20
8.2 Conditions Relating to Shelf Registration.............................................. 20
8.3 Registration Procedures................................................................ 22
8.4 Registration Expenses.................................................................. 25
</TABLE>
-ii-
<PAGE>
Exhibit 4.1
<TABLE>
<CAPTION>
<S> <C> <C>
8.5 Indemnification; Contribution.......................................................... 25
8.6 Commission Filings..................................................................... 28
8.7 Lock-up Agreement...................................................................... 28
SECTION 9 - NOTE AGENT...........................................28
9.1 Duties and Liabilities of Note Agent................................................... 28
9.2 Reliance on Documents, Opinions, Etc................................................... 30
9.3 No Responsibility for Recitals, etc.................................................... 31
9.4 Moneys to be Held in Trust............................................................. 31
9.5 Expenses of Note Agent................................................................. 31
9.6 Resignation or Removal of Note Agent................................................... 31
SECTION 10 - MISCELLANEOUS........................................ 32
10.1 Registered Notes....................................................................... 32
10.2 Exchange of Notes...................................................................... 33
10.3 Loss, Theft, etc. of Notes............................................................. 33
10.4 Cancellation of Notes; Acquisition of Notes by Company................................. 34
10.5 Transfer of Note....................................................................... 34
10.6 Expenses; Stamp Tax Indemnity.......................................................... 34
10.7 Acts of Holders; Evidence of Ownership of Notes........................................ 35
10.8 Holders' List.......................................................................... 35
10.9 Powers and Rights Not Waived, Remedies Cumulative...................................... 36
10.10 Notices................................................................................ 36
10.11 Successors and Assigns................................................................. 36
10.12 Discharge and Termination.............................................................. 36
10.13 Survival of Covenants and Representations.............................................. 36
10.14 Severability........................................................................... 37
10.15 Governing Law.......................................................................... 37
10.16 Captions............................................................................... 37
10.17 Benefits of Provisions of This Agreement............................................... 37
10.18 Counterparts........................................................................... 37
</TABLE>
-iii-
<PAGE>
Exhibit 4.1
NOTE AGREEMENT
THIS NOTE AGREEMENT (the "Agreement") is made effective as of
the 3rd day of July, 1997, among SOY ENVIRONMENTAL PRODUCTS, INC., a Delaware
corporation (the "Company"), and FOX & COMPANY INVESTMENTS, INC. (the "Placement
Agent").
RECITALS:
A. The Company has entered into an agreement (the "Placement
Agreement") with the Placement Agent pursuant to which the Placement Agent has
agreed to assist the Company in the placement of up to 15 Units, each Unit
consisting of one $60,000 Senior Secured Convertible Note ("Note") and 60,000
Class A Warrants ("Warrants"), subject to the terms of the Placement Agreement
(the "Offering").
B. The Company desires to provide for the form and provisions of the
Notes, the terms upon which the Notes shall be issued and exercised, and the
respective rights, limitation of rights and immunities of the Company, the
Placement Agent, and the registered holders of the Notes.
C. All acts and things necessary to make the Notes, when executed on
behalf of the Company, the valid, binding and legal obligations of the Company,
and to authorize the execution and delivery of this Agreement, have been done
and performed.
AGREEMENT:
NOW, THEREFORE, it is hereby agreed as follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. In addition to the terms otherwise defined herein, the
following terms shall mean:
Affiliate: any Person (other than a Subsidiary) (i) that directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, the Company, (ii) which beneficially owns or holds
10% or more of any class of the Voting Stock of the Company or (iii) 10% or more
of the Voting Stock (or in the case of a Person which is not a corporation, five
percent or more of the equity interest) of which is beneficially owned or held
by the Company or a Subsidiary. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of Voting
Stock, by contract or otherwise.
<PAGE>
Exhibit 4.1
Business Day: any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in Arizona are authorized or obligated by law
or executive order to be closed.
Closing Date: any Business Day proceeds are distributed to the Company
under terms of the Escrow Agreement pursuant to the Offering.
Commission: the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act or the Trust
Indenture Act of 1939, as amended, as the case may be.
Common Stock: any class of capital stock of the Company now or
hereafter authorized, the right of which to share in distributions either of
earnings or assets of the Company is without limit as to any amount or
percentage; provided, however, that the shares of Common Stock deliverable upon
conversion of the Notes shall include only the Common Stock of the Company
authorized at the date hereof and any class of Common Stock issued in
substitution therefor.
Company: Soy Environmental Products, Inc., a Delaware corporation.
Conversion Notice: the notice set forth on the reverse side of the Note
Certificate given by Holders to convert the Notes to shares of Common Stock as
provided in Section 6.1 hereof.
Conversion Price: $1.00 or such other amount as adjusted pursuant to
Section 6.4 hereof.
Conversion Shares: the shares of Common Stock of the Company issued
upon the conversion of any of the Notes.
Default: any event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, constitute an Event of Default
as defined in Section 4.1.
Escrow Agreement: the Agreement between the Company and Biltmore
Investors Bank, N.A., as escrow agent, providing for the collection and
disbursement of funds under the Offering.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as they may be in effect at the time.
GAAP: generally accepted accounting principles at the time in the
United States.
2
<PAGE>
Exhibit 4.1
Holder: any Person that is, at the time of reference, the registered
Holder of any Note or any Conversion Shares.
Interest Payment Date: February 1, 1998 and the first of each month
thereafter during the term of the Notes; provided, however, if such date is not
a Business Day, the Interest Payment Date shall be the immediately preceding
Business Day.
Maturity Date: January 31, 1998 unless extended as provided in Section
2.7 to July 31, 1998.
Note: any Senior Secured Convertible Note issued pursuant to the terms
of this Agreement.
Note Agent: any Person appointed by the Placement Agent to act as Note
Agent upon the occurrence of an event of Default as defined in Section 4.1.
Note Certificate: any certificate in the form attached hereto as
Exhibit A issued pursuant to the terms of this Agreement evidencing the rights
of a Holder with respect to a Note.
Note Register: the register of the Holders of Notes issued pursuant to
this Agreement.
Offering: the offering for private placement by the Placement Agent on
behalf of the Company of up to 15 Units, each Unit consisting of one Note and
60,000 Warrants.
Person: an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political subdivision
thereof.
Placement Agent: Fox & Company Investments, Inc., the placement agent
on behalf of the Company in connection with the Offering.
Record Date: January 16, 1998 and the 16th of each month thereafter
during the term of the Notes preceding each Interest Payment Date.
Registration Expenses: All registration and filing fees, all fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of one firm of counsel for the holders and any
underwriters in connection with blue sky qualifications of the Conversion
Shares), printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the officers and
employees of the Company performing legal or accounting duties), and reasonable
fees and disbursement of counsel for the Company and its independent certified
public accountants (including the reasonable expenses of any special audit or
comfort letters required by or incident to such performance), securities acts
liability insurance (if the Company elects to obtain such insurance),
3
<PAGE>
Exhibit 4.1
the reasonable fees and expenses of any special experts retained by the Company
in connection with such registration, reasonable fees and expenses of any other
persons retained by the Company and the fees and expenses associated with any
required filing with the National Association of Securities Dealers, Inc.
Securities Act: the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Senior Debt: all indebtedness of the Company that is secured by liens
or encumbrances on assets of the Company, which liens or encumbrances have
priority over the security interests that secure the repayment of the Notes.
Subsidiary: any corporation of which more than fifty percent (by number
of votes) of the voting stock is owned, directly or indirectly, by the Company
at any time during the term of this Agreement.
Warrants: any Class A Purchase Warrants allowing the holder thereof to
purchase a share of Common Stock issued under the terms of the Offering.
1.2 Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.
1.3 Directly or Indirectly. Where any provision of this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person or any Subsidiary or agent of
such Person or otherwise at the request, direction or for the benefit of such
Person.
SECTION 2
THE NOTES
2.1 Issuance of Definitive Notes. On any Closing Date, the Company will
issue Note Certificates to all qualified Persons whose subscriptions are
accepted by the Company in the Offering. Notes shall be issued in minimum
principal amounts of $60,000 (per $50,000 Offering subscription) and integral
multiples of $6,000 (per $5,000 Offering subscription) in excess thereof. The
Company shall have the option in its sole discretion to issue Notes in principal
amounts less than $60,000. The Notes shall be numbered, lettered or otherwise
distinguished in such manner or in accordance with such plan as the Company may
determine.
4
<PAGE>
Exhibit 4.1
The Notes shall be dated as of the date of their issue, except that any Note
issued upon the transfer, exchange or substitution of another Note shall be
dated the date of its original authentication.
2.2 Prepayment. The Notes are subject to prepayment at the option of
the Company at any time on or prior to November 15, 1997. If less than all
outstanding Notes are prepaid by the Company, the selection of Notes for
prepayment may be made on a pro rata or random lot basis as determined by the
Company.
2.3 No Sinking Fund. The Company shall not be required to set aside or
earmark funds to make required payments with respect to the Notes.
2.4 Persons Entitled to Note Interest Payments. The person in whose
name a Note is registered at the close of business on any Record Date shall be
entitled to receive any interest payable with respect to such Note on the
Interest Payment Date next following such Record Date, notwithstanding the
cancellation of such Note upon any registration of transfer or exchange thereof
subsequent to such Record Date and prior to such Interest Payment Date. The
Holder of any Note issued upon the transfer, exchange or substitution of another
Note shall only be entitled to receive interest payable with respect to that
Note from and after the Interest Payment Date next following the first Record
Date occurring after the issuance of such Note.
2.5 Security. The Notes shall be secured by a security interest in all
of the assets, tangible and intangible, of the Company and its Subsidiaries,
which assets include assets currently owned on or acquired after any Closing
Date.
2.6 Payment of Principal and Interest. Interest shall be payable on the
Interest Payment Dates; and principal shall be payable on the Maturity Date. The
Company shall pay the interest on the unpaid principal balance of the Notes as
provided herein. The entire remaining principal amount of the Notes shall become
due and payable on the Maturity Date.
2.7 Extension of Maturity Date. The Maturity Date of the Notes may be
extended from January 31, 1998 to July 31, 1998 by the Company upon payment to
the holders of an extension fee equal to five percent of the face amount of the
Notes on or before January 15, 1998.
2.8 Application of Payment. All payments received shall be applied to
the payment of the Notes in the following order of priority: (a) first, to the
payment of accrued interest, (b) second, to the payment of principal then due,
and (c) third, to the payment of premium, if any.
5
<PAGE>
Exhibit 4.1
SECTION 3
COMPANY COVENANTS
3.1 Corporate Existence. Except as otherwise permitted herein, the
Company will, and will cause each Subsidiary to, at all times preserve and keep
in full force and effect its corporate existence, rights and franchises.
3.2 Payment of Taxes and Claims. The Company will, and will cause each
Subsidiary to, pay (a) all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
franchises, business, income or profits, (b) all trade accounts payable in
accordance with usual and customary business terms, and (c) all claims
(including, without limitation, claims for labor, services, inventory, materials
and supplies) for sums which have become due and payable and which by law have
or might become a lien or charge upon any of its properties or assets; provided,
that no such tax, assessment, charge, account payable or claim need be paid if
being contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and if such reserve or other appropriate provisions, if
any, as shall be required by GAAP shall have been made therefor.
3.3 Maintenance of Properties; Business Insurance. The Company will,
and will cause each Subsidiary to, maintain or cause to be maintained in good
repair, working order and condition all properties (whether owned in fee or a
leasehold interest) used or useful in the business of the Company and its
Subsidiaries and, from time to time, will make or cause to be made all
appropriate repairs, renewals and replacements thereof. The Company will
maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by corporations of established
reputation engaged in the same or similar business and similarly situated, of
such types and in such amounts as are customarily carried under similar
circumstances by such other corporations.
3.4 Limitations on Senior Debt. The Company will not, and will not
permit any Subsidiary to, create, assume or incur or in any manner be or become
liable in respect of any Senior Debt, except Senior Debt that (a) arises by
operation of law, (b) arises pursuant to the Uniform Commercial Code, as
applicable, in connection with purchase money security interests, or (c) was
outstanding prior to the effective date of this Agreement.
3.5 Dividends. The Company will not:
(a) Declare or pay any dividends, either in cash or property,
on any shares of its Common Stock (except dividends or other
distributions payable solely in shares of Common Stock of the Company);
6
<PAGE>
Exhibit 4.1
(b) Purchase, redeem or retire any shares of its capital stock
of any class or any warrants, rights or options to purchase or acquire
any shares of its capital stock (except in connection with a repurchase
or redemption of shares, rights or options held by any former employee
of the Company in connection with the termination or severance of such
employee); or
(c) Make any other payment or distribution in respect of its
Common Stock.
The foregoing notwithstanding, nothing in this Section 3.5 or other provision of
this Agreement shall limit the right of the Company to issue capital stock,
subject to Section 6.4 hereof, and to pay dividends as specified on any such
capital stock other than Common Stock.
3.6 Transactions with Affiliates. After the effective date of this
Agreement, the Company will not, and will not permit any Subsidiary to, enter
into or be a party to any transaction or arrangement with any Affiliate
(including, without limitation, the purchase from, sale to or exchange of
property with, or the rendering of any service by or for, any Affiliate),
except:
(a) in the ordinary course of and pursuant to the reasonable
requirements of the Company's or any such Subsidiary's business and
upon fair and reasonable terms no less favorable to the Company or its
Subsidiary than would obtain in a comparable arm's-length transaction
with a Person other than an Affiliate; and
(b) employment agreements with executive officers of the
Company or any Subsidiary.
3.7 Representation on the Board of Directors. Until the Notes are paid
in full or otherwise not outstanding, Placement Agent shall be entitled to
appoint two persons to the Board of Directors of the Company, and the Company
shall cause such persons to be elected to the Board of Directors of the Company.
On or before the Closing Date, the Company shall cause its number of Directors
to be five and shall maintain that number so long as this Agreement is in
effect. The foregoing notwithstanding, the Company may increase the number of
members of the Board of Directors by two upon the issuance of an additional
series of capital stock of the Company other than Common Stock provided solely
the holders of such series of capital stock are entitled to elect the members of
the Board of Directors, as a class, so added.
7
<PAGE>
Exhibit 4.1
SECTION 4
EVENTS OF DEFAULT & REMEDIES THEREFOR
4.1 Events of Default. Any one or more of the following shall
constitute an "Event of Default" as the term is used herein:
(a) Default in the payment of the principal of any Note or
premium thereon, if any, at the expressed or any accelerated maturity
date;
(b) Default in the payment of interest on any Note when due
and such default shall continue for more than 15 days;
(c) Default in the observance or performance of any other
covenant or provision of this Agreement or the Note that is not
remedied within 30 days after written notice to the Company from the
Placement Agent or the holders of at least 25% in aggregate principal
amount of the Notes then outstanding;
(d) A judgement or order is obtained for the payment of money
in an aggregate amount in excess of $1,000,000 (net of applicable
insurance coverage that is acknowledged in writing by the insurer)
having been rendered against the Company or any of its Subsidiaries and
such judgements or orders shall continue unsatisfied and unstayed for a
period of 60 days;
(e) The Company or any Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes
an assignment for the benefit of creditors, or the Company or any
Subsidiary causes or suffers an order for relief to be entered with
respect to it under applicable federal bankruptcy law or applies for or
consents to the appointment of a custodian, trustee or receiver for the
Company or any Subsidiary or for the major part of the property of the
Company or any Subsidiary;
(f) A custodian, liquidator, trustee or receiver is appointed
for the Company or any Subsidiary or for the major part of the property
of the Company or any Subsidiary and is not discharged within 30 days
after such appointment;
(g) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Subsidiary and, if instituted against the
Company or any Subsidiary, are consented to or are not dismissed within
60 days after such institution; or
(h) Any representation or warranty made by the Company herein,
or made by the Company in any written statement or certificate
furnished by the Company in
8
<PAGE>
Exhibit 4.1
connection with the consummation of the issuance and delivery of the
Notes on the Offering or furnished by the Company pursuant hereto, is
untrue in any material respect as of the date of the issuance or making
thereof.
4.2 Notice to Placement Agent. When any Event of Default described in
Section 4.1 has occurred, the Company shall give notice thereof within three
business days thereafter of such event to the Placement Agent. Upon receipt of
such notice of the occurrence of an Event of Default, Placement Agent shall
appoint a Note Agent which shall act on behalf of the Holders as provided herein
and shall, within 20 days after the receipt of such notice, mail to all Holders,
as the names and addresses of such Holders appear upon the registration books of
the Company, notice of all Defaults known to the Placement Agent, unless such
Defaults shall have been cured before the giving of such notice; provided,
however, that, except in the case of Default in the payment of the principal of
or interest on any of the Notes, the Placement Agent shall be protected in
withholding such notice if Placement Agent determines in good faith that the
withholding of such notice is in the interests of the Holders.
4.3 Acceleration; Rescission and Annulment.
(a) If an Event of Default occurs and is continuing, then and
in every such case the Note Agent or the Holders of Notes representing not less
than 25% of the aggregate principal amount of the outstanding Notes may declare
the unpaid principal, premium, if any, and accrued and unpaid interest of all
the Notes to be due and payable immediately, by a notice in writing to the
Company (and to the Note Agent if given by Holders), and upon any such
declaration such principal, premium, if any, and accrued and unpaid interest
shall become immediately due and payable, notwithstanding anything contained in
this Agreement or the Notes to the contrary. If an Event of Default specified in
Section 4.1(e), (f) or (g) above occurs, all unpaid principal of, and accrued
interest on, the Notes then outstanding will become due and payable, without any
declaration or other act on the part of the Note Agent or any Holder.
(b) At any time after such a declaration of acceleration has
been made and before a judgment or decree for payment of the money due has been
obtained by the Note Agent as hereinafter provided, the Holders of Notes
representing a majority of the aggregate in principal amount of the outstanding
Notes, by written notice to the Company and the Note Agent, may rescind and
annul such declaration and its consequences if
(i) the Company has paid or deposited with the Note
Agent a sum sufficient to pay;
(A) all overdue installments of interest on
all Notes,
9
<PAGE>
Exhibit 4.1
(B) the principal of (and premium, if any,
on) any Notes which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate borne by the Notes,
and
(C) all sums paid or advanced by the Note
Agent hereunder and the reasonable compensation, expenses,
disbursements and advances of the Note Agent, its agents and counsel;
and
(ii) all Events of Default, other than the nonpayment
of the principal of Notes which have become due solely by such acceleration,
have been cured or waived as provided herein.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
4.4 Collection of Indebtedness and Suits for Enforcement by Note Agent.
(a) The Company covenants that if:
(i) Default is made in the payment of any installment
of interest on any Notes when such interest becomes due and payable and such
Default continues for a period of 15 days, or
(ii) Default is made on the payment of the principal
of (or premium, if any, on) any Notes at the Maturity Date thereof,
the Company will, upon demand of the Note Agent, pay to it, for the benefit of
the Holders of such Notes, the whole amount then due and payable on such Notes
for principal (and premium, if any) and interest, with interest upon the overdue
principal (and premium, if any) and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Note Agent,
its agents and counsel.
(b) If the Company fails to pay such amounts forthwith upon
such demand, the Note Agent, in its own name and as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
(c) If an Event of Default occurs and is continuing, the Note
Agent may in its discretion proceed to protect and enforce its rights and the
rights of the Holders by such
10
<PAGE>
Exhibit 4.1
appropriate judicial proceedings as the Note Agent shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Agreement or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
4.5 Note Agent May File Proofs of Claim.
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Note or the property of the Company or of such other obligor or their creditors,
the Note Agent (irrespective of whether the principal of the Notes shall then be
due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Note Agent shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise;
(i) to file and prove a claim for the amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Notes and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Note Agent
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Note Agent, its agents and counsel)
and of the Holders allowed in such judicial proceeding; and
(ii) to collect and receive any moneys or other
property payable or deliverable on any such claims and to distribute
the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Note Agent, and in the event that the Note Agent shall
consent to the making of such payments directly to the Holders, to pay to the
Note Agent any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Note Agent, its agents and counsel, and any
other amounts due the Note Agent under this Agreement.
(b) The Note Agent shall not be required to join the Holders
as necessary parties to any such judicial proceeding, provided, however, that
nothing herein contained shall be deemed to authorize the Note Agent to
authorize and consent to or accept, or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Note Agent to vote in
respect of the claim of any Holder in any such proceeding.
4.6 Note Agent May Enforce Claims Without Possession of Note
Certificates. All rights of action and claims under this Agreement or the Notes
may be prosecuted and enforced
11
<PAGE>
Exhibit 4.1
by the Note Agent without the possession of any of the Note Certificates or the
production thereof in any proceeding relating thereto, and any such proceeding
instituted by the Note Agent shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Note Agent, its agents and counsel, be for the ratable benefit of the
Holders of the Notes in respect of which such judgment has been recovered.
4.7 Application of Money Collected. Any money collected by the Note
Agent pursuant to this Section 4 shall be applied in the following order, at the
date or dates filed by the Note Agent and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Note Certificates and the notation thereon of the payment if
partially paid and upon surrender thereof if fully paid;
FIRST: To the payment of all amounts due the Note Agent under
this Agreement;
SECOND: To the payment of the amounts then due and unpaid upon
the Notes for principal (and premium, if any) and interest, in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Notes, for principal (and premium, if any) and interest; and
THIRD: To the Company.
4.8 Limitation on Suits. Except as provided in Section 4.9, no Holder
of any Note shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(a) such Holder has previously given written notice to the
Note Agent of a continuing Event of Default;
(b) the Holders of not less than 25% of the aggregate
principal amount of the outstanding Note shall have made written request to the
Note Agent to institute proceedings in respect of such Event of Default in its
own name as Note Agent hereunder;
(c) such Holder or Holders have offered to the Note Agent
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(d) the Note Agent for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
12
<PAGE>
Exhibit 4.1
(e) no direction inconsistent with such written request has
been given to the Note Agent during such 60-day period by the Holders of a
majority of the aggregate principal amount of the outstanding Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Agreement to affect, disturb or prejudice the rights of any Holders of
Notes, or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Agreement, except in the manner
herein provided and for the equal and ratable benefit of all the Holders of
Notes.
4.9 Unconditional Right of Holders to Receive Principal, Premium and
Interest. Notwithstanding any other provision in this Agreement, the Holder of
any Note shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and interest on such Note on
the Maturity Date and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Holder.
4.10 Restoration of Rights and Remedies. If the Note Agent or any
Holder has instituted any proceeding to enforce any right or remedy under this
Agreement and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Note Agent or to such Holder, then and
in every such case the Company, the Note Agent and the Holders shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Note Agent and the Holders shall continue as though no such proceeding had been
instituted.
4.11 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Note Agent or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder or
otherwise shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
4.12 Delay or Omission Not Waiver. No delay or omission of the Note
Agent or of any Holder to exercise any right or remedy occurring upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Agreement or by law to the Note Agent or to Holders may be exercised
from time to time and as often as may be deemed expedient by the Note Agent or
by the Holders, as the case may be.
4.13 Control by Holders. The Holders of a majority of the aggregate
principal amount of the outstanding Notes shall have the right to direct the
time, method and place of
13
<PAGE>
Exhibit 4.1
conducting any proceeding for any remedy available to the Note Agent or
exercising any trust or power conferred on the Note Agent, provided that:
(a) such direction shall not be in conflict with any rule of
law or with this Agreement; and
(b) the Note Agent may take any other action deemed proper by
the Note Agent which is not inconsistent with such direction.
4.14 Waiver of Past Defaults. The Holders of a majority of the
aggregate principal amount of the outstanding Notes may on behalf of the Holders
of all the Notes waive any past Default hereunder and its consequences, except a
default:
(a) in the payment of the principal of (or premium, if any) or
interest on any Note, or
(b) in respect of a covenant or provision hereof which under
this Agreement cannot be modified or amended without the consent of the Holder
of each outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Agreement; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
4.15 Undertaking for Costs. All parties to this Agreement agree, and
each Holder of any Note by his acceptance thereof shall be deemed to have
agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Agreement, or in any suit against
the Note Agent for any action taken or omitted by it as Note Agent, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant.
4.16 Waiver of Stay or Extension Laws. The Company covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Agreement; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it or they will not
hinder, delay or impede the execution of any power herein granted to the Note
Agent, but will suffer and permit the execution of every such power as though no
such law had been enacted.
14
<PAGE>
Exhibit 4.1
SECTION 5
AMENDMENTS, WAIVERS & CONSENTS
5.1 Consent Required.
(a) Except as otherwise provided in this Section 5.1, any
term, covenant, agreement or condition of this Agreement may, with the consent
of the Company, be amended or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), if the Company shall have obtained the consent in writing of the
Placement Agent, which rights to amend include, but are not limited to, the
rights to: (i) cure any ambiguity, omission, defect or inconsistency of this
Agreement, (ii) provide for the assumption of the obligations of the Company
under this Agreement upon the merger, consolidation or sale or other disposition
of all or substantially all of the assets of the Company, (iii) provide for
uncertificated Notes in addition to or in place of certificated Notes, or (iv)
make any change that would provide additional rights or benefits to the holders
of Notes or that does not adversely affect the rights of any holder of Notes in
any material respect.
(b) Notwithstanding anything herein to the contrary, the
written consent of all of the Holders of Notes shall be required to (i) extend
the time of payment of the principal of or the interest, including default
interest, or premium, if any, on any Note or reduce the principal amount thereof
or change the rate of interest thereon, (ii) change any of the provisions of
Section 6 or Section 8 hereof, (iii) change the percentage of Holders required
to consent to any such waiver, amendment, alteration or modification of any of
the provisions of Section 3 or Section 4 hereof, (iv) make any Note payable in
money other than that stated herein, (v) impair the right to institute suit for
the enforcement of any payment of principal of, or premium, if any, or interest
on, any Note, (vi) make any change in the percentage of principal amount of
Notes necessary to waive compliance with any provision of this Agreement, or
(vii) waive a continuing Default or Event of Default in the payment of principal
of, premium, if any, or interest on the Notes.
5.2 Effect of Amendment or Waiver. Any such amendment or waiver shall
apply equally to all of the Holders and shall be binding upon them, upon each
future Holder and upon the Company, whether or not any Note shall have been
marked to indicate such amendment or waiver. No such amendment or waiver shall
extend to or affect any obligation not expressly amended or waived or impair any
right consequent thereon.
5.3 Solicitation of Holders. The Company will not solicit, request or
negotiate for or with respect to any proposed waiver or amendment of any of the
provisions of this Agreement or the Notes unless each Holder (irrespective of
the amount of Notes then owned by it) shall be concurrently informed thereof by
the Company and shall be afforded the opportunity of considering the same and
shall be supplied by the Company with sufficient information to enable it to
make an informed decision with respect thereto. Executed or true and correct
copies of any
15
<PAGE>
Exhibit 4.1
waiver or consent effected pursuant to the provisions of this Section 5 shall be
delivered by the Company to each Holder forthwith following the date on which
the same shall have been executed and delivered by the Holder or Holders of the
requisite percentage of outstanding Notes. The Company will not, directly or
indirectly, pay or cause to be paid any fee (whether denominated as servicing
fee or otherwise) or other remuneration, including supplemental or additional
interest, expenses or other amount, to any Holder as consideration for or as an
inducement to the consideration or review of or entering into by such Holder of
any waiver or amendment of any of the terms and provisions of this Agreement (or
any proposed waiver or amendment hereof) unless such remuneration is
concurrently paid, on the same terms, ratably to all Holders.
SECTION 6
CONVERSION OF NOTES
6.1 Conversion Rights and Manner of Exercise. Upon compliance with the
provisions hereof, any Holder shall have the right, at any time and from time to
time, to convert not less than $5,000 portions of the principal amount of such
Note into one share of Common Stock of the Company for each $1.00 (subject to
Section 6.4) of unpaid principal amount of the Note or, in case an adjustment of
such price has taken place pursuant to the following provisions hereof, then at
the price as last adjusted and in effect at the date such Note or portion
thereof is surrendered for conversion. The Company shall have the option to
allow Notes to be converted into Common Stock in minimum denominations less than
$5,000. To exercise such conversion privilege, the Holder thereof shall
surrender such Note to the Company at its principal office accompanied by a
completed Conversion Notice designating the unpaid principal amount of such Note
to be converted and stating the name and address of the Person in whose name
certificates for shares of Common Stock are to be registered.
6.2 Issuance of Common Stock Certificates. As promptly as practicable
(but in any event within 10 business days) after the receipt of a Conversion
Notice and surrender of the Note as provided in Section 6.1, the Company shall
issue and deliver to such Holder, issued in the name of such Holder or such
other Person or Persons as such Holder may reasonably request, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
conversion of such Note (or specified portion thereof). Such conversion shall be
deemed to have been effected and the Conversion Price shall be determined as of
the close of business on the date on which such Conversion Notice shall have
been received by the Company and at such time the rights of the Holder (or
specified portion thereof) as such Holder shall cease, and the Person or Persons
in whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented thereby.
6.3 Cash Adjustments on Conversion. No payment or adjustment shall be
made upon any conversion on account of any cash dividends declared for payment
as of a record date
16
<PAGE>
Exhibit 4.1
prior to the date of conversion on the shares of Common Stock issued upon
conversion of a Note. In the case of any Note that is converted in part only,
the Company shall, upon such conversion, execute and deliver to the Holder
thereof, at the expense of the Company, a new Note in principal amount equal to
the unconverted portion of the Note surrendered and otherwise of like tenor
therewith. No fractional share of Common Stock shall be issued upon conversion
of any Note, but if the conversion results in a fraction, an amount equal to
such fraction multiplied by the applicable Conversion Price shall be paid in
cash to the Holder of the Note being converted.
6.4 Antidilution Adjustments.
(a) In the event the Company at any time or from time to time
after the issuance of any Notes shall declare or pay any dividend on its capital
stock payable in Common Stock, or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such event, the
Conversion Price shall be adjusted by multiplying the Conversion Price prior to
the adjustment by the number of shares of Common Stock outstanding immediately
prior to the effective time of such event and dividing the result by the number
of shares of Common Stock outstanding immediately after the effective time of
such event, effective in the case of such dividend, immediately after the close
of business on the record date for the determination of holders of capital stock
entitled to receive such dividend, or in the case of a subdivision or
combination, at the close of business immediately prior to the date upon which
such corporate action becomes effective.
(b) In the event the Company at any time or from time to time
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in capital stock of
the Company other than shares of Common Stock, then and in each such event
provision shall be made so that the Holders receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities which such Holders would have received had the Notes been
converted prior to such effective record date.
(c) Whenever the Conversion Price shall be adjusted pursuant
to this Section 6.4, the Company shall promptly deliver a certificate signed by
the President or a Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Company, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Company made any
determination hereunder), by first class mail postage prepaid to each Holder.
6.5 Mergers, Consolidations, Sales. In the case of any consolidation or
merger of the Company with another entity, or the sale of all or substantially
all of its assets to another
17
<PAGE>
Exhibit 4.1
entity, or any reorganization or reclassification of the Common Stock or other
equity securities of the Company (except a subdivision or combination provision
for which is made in Section 6.4(a) hereof), then, as a condition of such
consolidation, merger, sale, reorganization or reclassification, lawful and
adequate provision shall be made whereby the Holders shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
receivable upon conversion of their Notes, such shares of stock, securities,
assets or cash as may (by virtue of such consolidation, merger, sale,
reorganization or reclassification) be issued or payable with respect to or in
exchange for a number of outstanding shares of Common Stock equal to the number
of shares of Common Stock immediately theretofore so receivable hereunder had
such consolidation, merger, sale, reorganization or reclassification not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holders to the end that the provisions of this
Section 6 (including, without limitation, provisions for adjustment of the per
share Conversion Price) shall thereafter be applicable as nearly as may be, in
relation to any shares of stock, securities, assets or cash thereafter
deliverable upon conversion of such Notes. The Company shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor entity (if other than the Company) resulting
from such consolidation or merger or the entity purchasing such assets shall
assume by written instrument executed and mailed or delivered to each Holder,
the obligation to deliver to such Holder such shares of stock, securities,
assets or cash as, in accordance with the foregoing provisions, such Holder may
be entitled to receive.
6.6 Dissolution or Liquidation. In the event of any proposed
distribution of the assets of the Company in dissolution or liquidation (except
under circumstances when Section 6.4 shall be applicable), the Company shall
mail notice thereof to the Holders and shall make no distribution to
shareholders until the expiration of 30 days from the date of mailing such
notice and, in any such case, the Holders may exercise the conversion rights
with respect to their Notes within 30 days from the date of mailing such notice
and all rights herein granted not so exercised within such 30 day period shall
thereafter become null and void.
6.7 Notice of Extraordinary Dividends. If the Board of Directors of the
Company shall declare any dividend or other distribution on its Common Stock
except out of retained earnings or by way of a stock dividend payable in shares
of its Common Stock on its Common Stock, the Company shall mail notice thereof
to the registered Holders not less than 15 days prior to the record date fixed
for determining shareholders entitled to participate in such dividend or other
distribution and the Holders shall not participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
(except adjustments as provided in Section 6.4(b)) unless and to the extent that
such conversion rights are exercised prior to such record date. The provisions
of this Section 6.7 shall not apply to distributions covered by Section 6.4(a)
or made in connection with transactions covered by Section 6.5 hereof.
18
<PAGE>
Exhibit 4.1
6.8 Reservation of Common Stock. The Company will at all times reserve
and keep available such number of authorized shares of its Common Stock, solely
for the purpose of issue upon the conversion of Notes as herein provided for, as
shall then be issuable upon the conversion of all outstanding Notes.
6.9 Fully Paid Stock; Taxes. The Company covenants and agrees that the
shares of stock represented by each and every certificate for its Common Stock
to be delivered on the exercise of the conversion rights herein provided for
shall, at the time of such delivery, be validly issued and outstanding and be
fully paid and nonassessable. The Company further covenants and agrees that it
will pay when due and payable any and all federal and state taxes (other than
income taxes) that may be payable in respect of the Notes or any Common Stock or
certificates therefor upon the exercise of the conversion rights herein provided
for pursuant to the provisions hereof. The Company shall not, however, be
required to pay any tax that may be payable in respect of any transfer involved
in the transfer and delivery of stock certificates in the name other than that
of the Holder of the Note converted, and any such tax shall be paid by such
Holder at the time of presentation.
SECTION 7
RESTRICTIONS ON TRANSFERABILITY
7.1 Restrictions on Transferability. The Notes and the Conversion
Shares shall not be transferable except upon the conditions hereinafter
specified, which conditions are intended to ensure compliance with the
provisions of the Securities Act and any applicable state securities laws, in
respect of the transfer of any Notes or any such Conversion Shares.
7.2 Restrictive Legends.
(a) Each Note initially issued under this Agreement and each
Note issued in exchange therefor shall bear on the face thereof a legend
substantially as follows:
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER
APPLICABLE SECURITIES LAWS OR IF AN EXEMPTION THEREFROM IS AVAILABLE.
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS SPECIFIED IN THE NOTE
AGREEMENT REFERRED TO HEREIN. A COPY OF THE NOTE AGREEMENT WILL BE
PROVIDED TO THE REGISTERED HOLDER THEREOF UPON REQUEST TO THE COMPANY.
19
<PAGE>
Exhibit 4.1
(b) Each certificate for shares of Common Stock initially
issued upon the conversion of any Note and each certificate for shares of Common
Stock issued to a subsequent transferee of such certificate shall, unless
otherwise permitted by the provisions of this Section 7 bear on the face thereof
a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED
OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAW OR PURSUANT
TO AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY STATING THAT SUCH
REGISTRATION IS NOT REQUIRED. THE TRANSFER OF SUCH SHARES IS SUBJECT TO
CERTAIN CONDITIONS, THE PROVISIONS OF WHICH WILL BE PROVIDED TO THE
REGISTERED HOLDER HEREOF UPON REQUEST BY THE COMPANY, AND NO TRANSFER
OF SUCH SHARES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS SHALL
HAVE BEEN FULFILLED.
In the event that a registration statement covering any Conversion Shares shall
become effective under the Securities Act and under any applicable state
securities laws or in the event that the Company shall receive an opinion of its
counsel that, in the opinion of such counsel, such legend is not, or is no
longer, necessary or required with respect to such shares (including, without
limitation, because of the availability of the exemption afforded by Rule 144 of
the general rules and regulations of the Commission), the Company shall or shall
instruct its transfer agents and registrars to, remove such legend from the
certificates evidencing such Conversion Shares or issue new certificates without
such legend in lieu thereof. Upon the written request of any Holder or the
holder of any Conversion Shares, the Company covenants and agrees forthwith to
request its counsel to render an opinion with respect to the matters covered by
this paragraph and to bear all expenses in connection with such opinion of its
counsel.
7.3 Notice of Proposed Transfer; Registration Not Required. The Holder
of each Note or any Conversion Shares, by acceptance thereof, agrees to give
prior written notice to the Company of such Holder's intention to transfer such
Note or such Conversion Shares (or any portion thereof), describing briefly the
manner and circumstances of the proposed transfer, together with an opinion of
counsel to the effect that the proposed transfer may be effected without
registration or qualification under any federal or state law. Unless the Company
shall have received an opinion from counsel to the Company (which opinion shall
be obtained by the Company not more than ten days after notice of a proposed
transfer) that the proposed transfer may not be effected without registration or
qualification under federal or state law, such Holder shall be entitled to
transfer such Note or such Conversion Shares, all in accordance with the terms
of the notice delivered by such holder to the Company. All fees and expenses of
counsel for the Company in connection with the rendition of the opinion provided
for in this Section 7.3 shall be paid by the Company.
20
<PAGE>
Exhibit 4.1
7.4 Transfer of Notes. If in the opinion of either counsel referred to
in Section 7.3 a proposed transfer of a Note or Conversion Shares requested by
the Holder thereof may not be effected without registration or qualification
under applicable federal or state law, the Company shall promptly give written
notice to the Holder who proposes to transfer the Note or such Conversion Shares
(or any portion thereof) that the Holder shall not consummate the proposed
transfer and the reasons therefor. No Note or Conversion Shares (or any portion
thereof) for which a transfer has been proposed pursuant to Section 7.3 may be
transferred in the manner proposed if registration thereof under the Securities
Act would be required in the opinion of either counsel mentioned above.
SECTION 8
REGISTRATION OF CONVERSION SHARES
8.1 Shelf Registration. The Company shall use its reasonable best
efforts to cause to be filed with the Commission no later than three months
after the final closing of the Offering a shelf registration statement on an
appropriate form under Rule 415 under the Securities Act or any similar rule
that may be adopted by the Commission, providing for the sale by the Holders of
the Conversion Shares. The Company shall use its reasonable best efforts to have
such shelf registration statement declared effective by the Commission as soon
as practicable after such filing. The Company agrees to use its best efforts to
keep the shelf registration statement continuously effective (and to take any
and all other actions reasonably necessary in order to permit public resale of
the Conversion Shares covered by such shelf registration statement in accordance
with this Agreement) for a period of two years after the registration statement
is declared effective. The Company further agrees, if necessary, to supplement
or amend the shelf registration statement, if required by the rules, regulations
or instructions applicable to the registration form used by the Company for such
shelf registration statement or by the Securities Act or by any other rules and
regulations thereunder for shelf registration, and the Company agrees to furnish
notice thereof to the Holders of the Conversion Shares.
8.2 Conditions Relating to Shelf Registration.
(a) Subject to paragraph (b) of this Section 8.2, the
registration rights of the Holders pursuant to this Agreement and the ability to
offer and sell Conversion Shares pursuant to the shelf registration statement
are subject to the following conditions and limitations, and each Holder agrees
with the Company that:
(i) If the Company determines in its good faith
judgment that the filing of the shelf registration statement under
Section 8.1 hereof or the use of any prospectus would require the
disclosure of important information which the Company has a bona fide
business purpose for preserving as confidential or the disclosure of
which would impede the Company's ability to consummate a significant
transaction, upon written notice of such determination by the Company,
the rights of the Holders to offer,
21
<PAGE>
Exhibit 4.1
sell or distribute any securities pursuant to the shelf registration
statement or to require the Company to take action with respect to the
registration or sale of any securities pursuant to the shelf
registration statement (including any action contemplated by Section
8.4 hereof) will for up to 60 days in any 12 month period be suspended
until the date upon which the Company notifies the Holders in writing
that suspension of such rights for the grounds set forth in this
Section 8.2(a)(i) is no longer necessary.
(ii) If all reports required to be filed by the
Company pursuant to the Exchange Act have not been filed by the
required date without regard to any extension, or if consummation of
any business combination by the Company has occurred or is probable for
purposes of Rule 3-05 or Article 11 of Regulation S-X under the
Securities Act, upon written notice thereof by the Company to the
Holders, the rights of the Holders to offer, sell or distribute any
securities pursuant to the shelf registration statement or to require
the Company to take action with respect to the registration or sale of
any securities pursuant to the shelf registration statement (including
any action contemplated by Section 8.4 hereof) will for up to 60 days
in any 12 month period be suspended until the date upon which the
Company has filed such reports or obtained the financial information
required by Rule 3-05 or Article 11 of Regulation S-X to be included in
the shelf registration statement.
(iii) In the case of the registration of any
underwritten primary equity offering initiated by the Company (other
than any registration by the Company on Form S-8, or a successor or
substantially similar form, of (A) an employee stock option, stock
purchase or compensation plan or of securities issued or issuable
pursuant to any such plan, or (B) a dividend reinvestment plan), each
Holder agrees, if requested in writing by the managing underwriter or
underwriters administering such offering, not to effect any offer, sale
or distribution of securities (or any option or right to acquire
securities) during the period commencing on the 10th day prior to the
effective date of the registration statement covering such underwritten
primary equity offering and ending on the date specified by such
managing underwriter in such written request to such Holder, which
period may be of a duration of 90 days or more.
(iv) In the event that the Company plans to
repurchase or bid for securities of the Company in the open market, on
a private solicited basis or otherwise, and the Company determines, in
its reasonable good faith judgment and based upon the advice of counsel
to the Company (which counsel shall be experienced in securities laws
matters), that any such repurchase or bid may not, under Rule 10b-6
under the Exchange Act, or any successor or similar rule, be commenced
or consummated due to the existence or the possible commencement of a
"distribution" (within the meaning of Rule 10b-6) as a result of any
offers or sales by Holders of any Conversion Shares, as the case may
be, under any registration statement filed pursuant to this Agreement,
the Company shall be entitled, for a period of 90 days or more, to
22
<PAGE>
Exhibit 4.1
request that Holders of Conversion Shares, to suspend or postpone such
distribution pursuant to such registration statement. The Company
shall, as promptly as practicable, give such Holder or Holders written
notice of such election, stating the basis for the Company's
determination. As promptly as practicable following the determination
by the Company that the Holders may commence or recommence their
distribution pursuant to the registration statement without causing the
Company to be in violation of Rule 10b-6, the Company shall give such
Holder or Holders written notice of such determination.
(b) Notwithstanding the provisions of Section 8.2(a) above,
the aggregate number of days (whether or not consecutive) during which the
Company may delay the effectiveness of the shelf registration statement or
prevent offerings, sales or distribution by the Holders thereunder pursuant to
Section 8.2(a) shall in no event exceed 180 days during any 12- month period.
(c) The Company may require each selling Holder of Conversion
Shares, as a condition to the inclusion of the Conversion Shares of such selling
Holder in the shelf registration statement or in any offering thereunder, as the
case may be, to furnish to the Company such information regarding the Holder and
the distribution of such securities as the Company may from time to time
reasonably request (which request shall be confirmed in writing if requested by
the Company) in order to comply with applicable law and such other information
as may be legally required in connection with such registration or offering, and
the Holder shall promptly provide such information and a written consent to the
inclusion of such information in the registration statement or any prospectus or
supplement thereto; provided that the failure of any Holder to provide such
information to the Company shall not in any way affect the obligations of the
Company hereunder with respect to any other Holder.
8.3 Registration Procedures. In connection with the obligations of the
Company with respect to a registration statement pursuant to Section 8.1 hereof
and subject to Section 8.2 hereof, the Company shall:
(a) (i) prepare and file with the Commission a registration
statement on the appropriate form under the Securities Act, (A) which form shall
be selected by the Company and shall be available for the sale of the Conversion
Shares in accordance with the intended method or methods of distribution by the
selling Holders thereof (provided that the Company shall not be required to use
any form other than Form S-1, S-2, S-3, SB-1 or SB-2 or any successor form and
shall not be required to file more than one registration statement with the
Commission) and (B) which registration statement shall comply as to form in all
material respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the Commission to
be so included or incorporated by reference, further provided that subject to
the registration statement and prospectus being in compliance with the
requirements of the Securities Act and the Exchange Act (including all rules and
regulations of the Commission thereunder), the Company has the sole discretion
to determine the form,
23
<PAGE>
Exhibit 4.1
substance and presentation of any financial or other information included in any
registration statement or prospectus, and whether such information should be
included in such registration statement or prospectus; and (ii) use its
reasonable best efforts to cause such registration statement to become effective
and remain effective in accordance with Section 8.1 hereof;
(b) prepare and file with the Commission such amendments and
post- effective amendments to the registration statement as may be necessary to
keep such registration statement effective for the applicable period; and cause
each prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Securities Act;
(c) in the event that any federal law or regulation binding on
the Company and adopted after the date hereof so requires (and would also so
require if the Conversion Shares were being offered in a primary offering by the
Company rather than by the Holders), use its reasonable best efforts to cause
such Conversion Shares to be registered with or approved by such other federal
governmental agencies or authorities in the United States, if any, as may be
required by virtue of the business and operations of the Company to enable the
selling Holders to consummate the disposition of such Conversion Shares;
(d) furnish to each Holder of Conversion Shares and to each
managing underwriter of an underwritten offering of Conversion Shares pursuant
to Section 4(1) of the Securities Act, if any, without charge, as many copies of
each prospectus, including each preliminary prospectus, and any amendment or
supplement thereto as such Holder or underwriter may reasonably request, in
order to facilitate the public sale or other disposition of the Conversion
Shares;
(e) use its reasonable best efforts to register or qualify the
Conversion Shares under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Conversion Shares of such class covered by
the registration statement shall, on 20 days prior written notice, reasonably
request in writing. Such notice to be sent at any time prior to the applicable
registration statement being declared effective by the Commission. The Company
shall maintain such registration or qualification in effect during the
applicable period provided in Section 8.1 hereof; provided, however, that the
Company shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 8.3; (ii) subject itself to taxation in any such jurisdiction; (iii)
make any change to its Articles or Incorporation or Bylaws; or (iv) become
subject to general service of process in any jurisdiction where it is not then
so subject;
(f) notify each Holder of Conversion Shares as promptly as
practicable after becoming aware thereof and (if requested by any such Holder)
confirm such notice in writing (i) when the registration statement has become
effective and when any post-effective amendments and supplements thereto become
effective; (ii) of any request by the Commission or any state
24
<PAGE>
Exhibit 4.1
securities authority for amendments and supplements to the registration
statement and any prospectus or for additional information relating to the
Conversion Shares or the registration or qualification thereof after the
registration statement has become effective; (iii) of the issuance by the
Commission or any state securities authority of any stop order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose; (iv) if the representations and warranties of the Company
contained in any underwriting agreement, securities sales agreement or other
similar agreement, if any, relating to the Conversion Shares cease to be true
and correct in any material respect prior to the closing date specified in such
agreement (provided such notice shall be given only to Holders which are parties
to the agreements pursuant to which such representations and warranties are
made), or if the Company receives any notification with respect to the
suspension of the qualification of the Conversion Shares for sale in any
jurisdiction or the initiation of any proceeding for such purpose; and (v) of
the happening of any event during the period (other than any suspension period
referred to in Section 8.2) during which the registration statement is required
hereunder to be effective as a result of which the registration statement or any
prospectus would contain an untrue statement of material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(g) use its reasonable best efforts to obtain the withdrawal
of any order suspending the effectiveness of the registration statement or the
qualification of the Conversion Shares for sale in any jurisdiction as promptly
as practicable;
(h) furnish to each Holder of Conversion Shares, without
charge, at least one conformed copy of the registration statement and any
post-effective amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested in writing);
(i) cooperate with the Holders of Conversion Shares to
facilitate the timely preparation and delivery of certificates representing
Conversion Shares to be sold pursuant to the registration statement and not
bearing any restrictive legends; and enable such Conversion Shares to be in such
denominations and registered in such names as the selling Holders may reasonably
request (in each case, provided such certificates are requested in writing at
least three business days prior to any delivery thereof);
(j) upon the occurrence of any event contemplated by Section
8.3(f)(v) hereof, use its reasonable best efforts as promptly as practicable to
prepare and file with the Commission a supplement or post-effective amendment to
the registration statement or the related prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Conversion Shares, such
prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
25
<PAGE>
Exhibit 4.1
(k) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security Holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 under
the Securities Act;
(l) use its reasonable best efforts to (i) cause all
Conversion Shares to be listed or quoted on any securities exchange or quotation
system on which the Company's outstanding Common Stock is then listed or quoted;
and
(m) obtain a CUSIP number for all Conversion Shares not later
than the effective date of the registration statement.
Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 8.3 hereof, such Holder
will forthwith discontinue disposition of Conversion Shares pursuant to the
registration statement covering such Conversion Shares until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 8.3(j) hereof, or until it is advised in writing by the Company that the
use of such prospectus may be resumed and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the prospectus
covering such Conversion Shares current at the time of receipt of such notice;
provided, however, that the Company shall use its reasonable best efforts to
promptly prepare and provide to the Holders a supplemented or amended prospectus
contemplated by such Section 8.4(j) hereof. In the event the Company shall give
any such notice, the period during which such registration statement shall be
maintained effective 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
8.4(f)(v) hereof to including the date when each Holder of Conversion Shares
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 8.4(j) hereof.
8.4 Registration Expenses.
(a) The Company will bear all reasonable Registration Expenses
incident to the performance of or compliance with its obligations under this
Agreement. Notwithstanding the foregoing, the Company is not required to pay any
fees or expenses of Holders, underwriters, the Holder's or any underwriter's
counsel (other than blue sky counsel) or accountant or any other advisers,
including any transfer taxes, underwriting, brokerage and other discounts and
commissions and finders' and similar fees payable in the respect of Conversion
Shares.
26
<PAGE>
Exhibit 4.1
(b) Each Holder shall pay all costs and expenses incurred by
such Holder, including all transfer taxes, underwriting, brokerage and other
discounts and commissions and finders' and similar fees payable in respect of
Conversion Shares. To the extent that any Registration Expenses are incurred,
assumed or paid by any Holder or any placement or sales agent therefor or
underwriter thereof with the Company's prior written consent, the Company shall
reimburse such person for the full amount of the Registration Expenses so
incurred, assumed or paid within a reasonable time after receipt of a written
request therefor. Any Registration Expenses submitted by any Holder, placement
or sales agent or underwriter or on behalf of any such person for payment by the
Company shall be itemized in detail and contain clear and accurate receipts of
all expenditures made by such parties.
8.5 Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless each
Holder and each "person," if any, that controls such Holder within the meaning
of Section 15 of the Securities Act for, from and against any and all loss,
liability, claim, damage and expense (including attorneys' fees) to the extent
resulting from any untrue statement or alleged untrue statement of a material
fact contained in any registration statement pursuant to which Conversion Shares
were registered under the Securities Act (or any amendment thereto), including
all documents incorporated therein by reference, or from the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statement therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as any such misstatement or omission or alleged misstatement or omission
is made therein in reliance upon and in conformity with information furnished to
the Company by such Holder in writing expressly for use in a registration
statement (or any amendment thereto) or any prospectus (or any amendment or
supplement thereto) relating to the Conversion Shares. As used in this Section
8.5(a), the term "Holder" shall include its officers, directors and agents.
(b) Each Holder agrees to indemnify and hold harmless the
Company, its directors and officers and each "person," if any, who controls the
Company within the meaning of Section 15 of the Securities Act to the same
extent as the foregoing indemnity from the Company to such Holder, but only with
respect to information furnished in writing by such Holder or on such Holder's
behalf expressly for use in any registration statement (or any amendment
thereto) or any prospectus (or any amendment or supplement thereto) relating to
the Conversion Shares, or any amendment or supplement thereto; provided that the
obligations or any Holder to indemnify the Company and the other persons
referred to above shall be limited to the proceeds received by such Holder from
the sale of such Conversion Shares pursuant to such registration statement.
27
<PAGE>
Exhibit 4.1
(c) If any action or proceeding (including any governmental
investigation) shall be brought or asserted against any person entitled to
indemnification hereunder, the indemnified party shall give prompt written
notice to the indemnifying party, and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party, and shall assume the payment of all expenses in
connection with such defense. The indemnified party or any controlling person of
such indemnified party 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 party or such
controlling person unless (i) the indemnifying party shall have agreed to pay
such fees and expenses; or (ii) the indemnifying party shall have failed to
assume the defense for such action or proceeding and to employ counsel
reasonably satisfactory to the indemnified party in any such action or
proceeding; or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the indemnified party or such
controlling person and the indemnifying party, and such indemnified party or
such controlling person shall have been advised by counsel that counsel employed
by the indemnifying party would, under applicable professional standards, have a
conflict in representing both the indemnifying party and the indemnified party
or such controlling person, in which case, if such indemnified person or such
controlling person notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
or proceeding of separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, and shall not be liable for the reasonable fees and expenses
of more than one separate firm of attorneys (together with appropriate local
counsel) at any time for such indemnified party and such controlling persons,
which firm shall be designated, if the Holders (or their controlling persons)
are the indemnified parties, in writing by the Holders of a majority of the
outstanding Conversion Shares owned by Holders who are then entitled to such
indemnity in connection with such action or proceeding and if the Company is the
indemnified party, by the Company. No party shall be liable for any settlement
of any such action or proceeding effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent, or if there is a final judgment for the plaintiff in any such action or
proceeding, the indemnifying party agrees to indemnify and hold harmless such
indemnified party and such controlling person from and against any loss or
liability (to the extent stated above) by reason of such settlement or judgment.
(d) (i) If the indemnification provided for in this Section
8.5 is unavailable to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses, then each such indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses in such proportion as is appropriate to
reflect the relative fault of the indemnified party and the indemnifying party
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the indemnified party
28
<PAGE>
Exhibit 4.1
and the indemnifying party 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 such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(ii) The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 8.5(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses, liabilities, or
judgements referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8.5(d), no Holder shall be required to contribute any amount in excess
of the amount by which the total price at which the Conversion Shares of such
selling Holder were offered to the public pursuant to such registration
statement exceeds the amount of any damages which such selling Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person found guilty by a court of
competent jurisdiction of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty by a court of competent jurisdiction of such
fraudulent misrepresentation.
(e) Neither the Company nor the Holders shall have any
obligation under this Agreement (other than as set forth in this Section 8.5) to
provide the other with indemnification or contribution in respect of any losses,
claims, damages, liabilities or expenses referred to in this Section 8.5;
provided, however, that the provisions of this Section 8.5 shall not relieve an
indemnifying party from liability which it may have to an indemnified party
other than with respect to the matters referred to in this Section 8.5.
8.6 Commission Filings. The Company covenants that it will file the
reports required to be filed by it under the Exchange Act and the rules and
regulations adopted by the Commission thereunder in a timely manner as
determined by applicable rules and interpretations under the Exchange Act. Upon
the written request of any Holder of Conversion Shares, the Company will deliver
to such Holder a written statement as to whether it has complied with such
requirements.
8.7 Lock-up Agreement. Prior to the registration statement related to
the Conversion Shares being declared effective, the Holders of Conversion Shares
shall not offer, sell, dispose of, transfer or otherwise reduce market risk with
respect to such Registerable Securities, directly or indirectly, without the
prior consent of the Company and except for
29
<PAGE>
Exhibit 4.1
transfers occurring by operation of law. The foregoing notwithstanding, the
percentage of Conversion Shares shall be released from the above restrictions at
the time periods as follows:
Time Cumulative Percentage Transferable
---- ----------------------------------
Effective Date of Registration 25%
Three Months After Effective Date 50%
Six Months After Effective Date 75%
Nine Months After Effective Date 100%
The above percentages apply to all securities of Holder acquired in the
Offering. The Company shall place appropriate legends on the certificates
representing the Conversion Shares and instructions with its transfer agent
specifying that the Conversion Shares are subject to the restriction on transfer
as set forth above.
SECTION 9
NOTE AGENT
9.1 Duties and Liabilities of Note Agent.
(a) The Note Agent upon appointment shall undertake to perform
such duties and only such duties as are specifically set forth in this
Agreement. In case an Event of Default has occurred (which has not been cured),
the Note Agent shall exercise such of the rights and powers vested in it by this
Agreement and use the same degree of care and skill in its exercise as a prudent
man would exercise or use under the circumstances in the conduct of his own
affairs.
(b) No provision of this Agreement shall be construed to
relieve the Note Agent from liability for its own gross negligence in acting or
omitting to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default
which may have occurred:
(A) the duties and obligations of the Note
Agent shall be determined solely by the express provisions of
this Agreement, and the Note Agent shall not be liable except
for the performance of such duties and obligations as are
specifically set forth in this Agreement, and no implied
30
<PAGE>
Exhibit 4.1
covenants or obligations shall be read into this Agreement
against the Note Agent; and
(B) in the absence of bad faith on the part
of the Note Agent, the Note Agent may conclusively rely, as to
the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Note Agent and conforming to the requirements
of this Agreement; but in the case of any such certificates or
opinions that by any provision hereof arc specifically
required to bc furnished to the Note Agent, the Note Agent
shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Agreement.
(ii) the Note Agent shall not be liable for any error
of judgment made in good faith, unless it shall be proved that the Note
Agent was grossly negligent in ascertaining the pertinent facts;
(iii) the Note Agent shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a majority in aggregate
principal amount of the Notes then outstanding relating to the time,
method and place of conducting any proceeding for any remedy available
to the Holders, or exercising any power conferred upon the Note Agent,
under this Agreement; and
(iv) none of the provisions of this Agreement shall
require the Note Agent to expend or risk its own funds or otherwise
incur any personal financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if
it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(c) Whether or not herein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the liability
of or affording protection to the Note Agent shall be subject to the provisions
of this Section 9.
9.2 Reliance on Documents, Opinions, Etc. Except as otherwise provided
in Section 9.1:
(a) the Note Agent may rely and shall be protected in acting
upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, note, bond. note, or other paper or document
reasonably believed by it to be genuine and to have been signed or presented by
the proper party or parties;
31
<PAGE>
Exhibit 4.1
(b) whenever in the administration of the provisions of this
Agreement the Note Agent shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of gross negligence or bad faith on the part of
the Note Agent, be deemed to be conclusively proved and established by a
certificate signed by the Company and delivered to the Note Agent, and such
certificate, in the absence of gross negligence or bad faith on the part of the
Note Agent, shall be full warrant to Note Agent for any action taken or omitted
by it under the provisions of this Agreement upon the faith thereof;
(c) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by a certificate of the Company
(unless other evidence in respect thereof be herein specifically prescribed);
(d) the Note Agent may consult with legal counsel and any
opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or omitted by it hereunder in good faith and in
accordance with such opinion of Counsel;
(e) the Note Agent shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement at the request, order
or direction of any of the Holders, pursuant to the provisions of this
Agreement, unless such Holders shall have offered to the Note Agent reasonable
security or indemnify against the costs, expenses and liabilities which may be
incurred therein or thereby; nothing herein contained shall, however, relieve
the Note Agent of the obligations, upon the occurrence of any Event of Default
(which has not been cured), to exercise such of the rights and powers vested in
it by this Agreement and to use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs;
(f) the Note Agent shall not be liable for any action taken or
omitted by it in good faith and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement;
(g) prior to the occurrence of an Event of Default hereunder
and after the curing of all Events of Default, the Note Agent shall not be bound
to make any investigation into the facts or matters stated in the resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, note, bond note, or other paper or document, unless requested in writing
so to do by the Holders of more than one half in aggregate principal amount of
the Notes then outstanding; provided that if the payment within a reasonable
time to the Note Agent of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is not, in the opinion of the
Note Agent, reasonably assured to the Note Agent by the security afforded to it
by the terms of this Agreement, the Note Agent may require reasonable indemnity
against such expense or liability as a condition to so proceeding, the
reasonable expense of every
32
<PAGE>
Exhibit 4.1
such examination shall be paid by the Company, or, if paid by the Note Agent,
shall be repaid by the Company upon demand; and
(h) the Note Agent may execute any of the rights or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys.
9.3 No Responsibility for Recitals, etc. The recitals contained herein
and in the Note shall be taken as the statements of the Company and the Note
Agent assumes no responsibility for the correctness of the same. The Note Agent
makes no representations as to the validity or sufficiency of this Agreement or
of the Notes. The Note Agent shall not be accountable for the use or application
by the Company of any Notes or the proceeds of any Notes authenticated and
delivered by the Note Agent in conformity with the provisions of this Agreement.
9.4 Moneys to be Held in Trust. All moneys received by the Note Agent
shall, until used or applied as herein provided, be held in trust for the
purposes for which they are received.
9.5 Expenses of Note Agent. The Company shall pay or reimburse the Note
Agent upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Note Agent in connection with the performance of Note
Agent's obligations with respect to a Default by Company or by reason of the
occurrence of an Event of Default (including the reasonable compensation and
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its gross negligence, willful misconduct or bad faith. The Company also shall
indemnify the Note Agent for, and hold it harmless against, any loss, liability
or expense incurred without gross negligence or bad faith on the part of the
Note Agent and arising out of or in connection with the acceptance or
administration of this agency, including the reasonable costs and expenses of
defending itself against any claim of liability in the premises.
9.6 Resignation or Removal of Note Agent.
(a) The Note Agent may at any time resign by giving written
notice of such resignation to the Company and by mailing notice thereof to the
Holders at their addresses as they shall appear on the registry books of the
Company. Upon receiving such notice of resignation, the Placement Agent may
appoint a successor agent by written instrument, in duplicate, executed by the
Placement Agent one copy of which instrument shall be delivered to the resigning
Note Agent and one copy to the successor Note Agent. If no successor Note Agent
shall have been so appointed and have accepted appointment within 60 days after
the publication of such notice of resignation, the resigning Note Agent may
petition any court of competent jurisdiction for the appointment of a successor
Note Agent, or any Holder who has been a bona fide holder of a Note or Notes for
at least six months may on behalf of himself and all others
33
<PAGE>
Exhibit 4.1
similarly situated, petition any such court for the appointment of a successor
Note Agent. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor Note Agent. In the event the Event of
Default causing the appointment of the Note Agent is cured, the Placement Agent
has no duty to appoint a substitute Note Agent until the subsequent occurrence
of an additional Event of Default.
(b) In case at any time the Note Agent shall become incapable
of acting; or in connection with the performance of its obligations hereunder
shall have acted in bad faith, shall have been grossly negligent or shall have
willfully breached this Agreement; or shall be adjudged a bankrupt or insolvent,
or a receiver of the Note Agent or of its property shall be appointed, or any
public officer shall take charge or control of the Note Agent or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation, then
in any such case the Placement Agent may remove the Note Agent and appoint a
successor Note Agent by written instrument, in duplicate, executed by order of
the Placement Agent, one copy of which instrument shall be delivered to the Note
Agent so removed and one copy to the successor Note Agent, or any Holder who has
been a bona fide holder of a Note or Notes for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Note Agent and the appointment of
a successor Note Agent. Such court may thereupon, after such notice, if any, as
it may deem proper and prescribe, remove the Note Agent and appoint a successor
Note Agent.
(c) Any resignation or removal of the Note Agent and
appointment of a successor Note Agent pursuant to any of the provisions of this
Section 9.6 shall become effective upon acceptance of appointment by the
successor Note Agent.
SECTION 10
MISCELLANEOUS
10.1 Registered Notes. The Company shall cause to be kept at its
principal office the Note Register and the Company will register or transfer or
cause to be registered or transferred as hereinafter provided any Note issued
pursuant to this Agreement. The Company will serve as its own registrar for the
Notes. Subject to the restrictions on transferability of the Notes pursuant to
Section 7, upon surrender for registration of transfer of any Note at its
principal place of business, the Company shall execute and deliver, in the name
of the transferee or transferees, a new Note or Notes for a like aggregate
principal amount of authorized denominations. Notes to be exchanged shall be
surrendered at the principal place of business of the Company, which shall
execute and shall deliver in exchange therefor the Note or Notes that the Holder
making the exchange shall be entitled to receive, bearing serial numbers not
then outstanding. All Notes presented for registration of transfer, exchange or
payment shall, if so required by the Company, be duly endorsed by or be
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered Holder or by the
Holder's duly authorized attorney. Any exchange or registration of transfer
34
<PAGE>
Exhibit 4.1
shall be without charge, except that the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto.
10.2 Exchange of Notes. At any time and from time to time, upon not
less than ten days' notice to that effect given by any Holder of any Note
initially delivered or of any Note substituted therefor pursuant to Section
10.1, this Section 10.2 or Section 10.3 and upon surrender of any Note to the
Company at its office, the Company will deliver in exchange therefor, without
expense to such Holder, except as set forth below, Notes for the same aggregate
principal amount as the then unpaid principal amount of the Note so surrendered,
in a denomination equal to the Note so surrendered or in such other denomination
equal to or in excess of $5,000 as such Holder shall specify, dated as of the
date to which interest has been paid on the Note so surrendered or, if such
surrender is prior to the payment of any interest thereon, then dated as of the
date of issue, registered in the name of such Person or Persons as may be
designated by such Holder, and otherwise of the same form and tenor as the Note
so surrendered for exchange. The Company may require the payment of a sum
sufficient to cover any stamp tax or governmental charge imposed upon such
exchange or transfer.
10.3 Loss, Theft, etc. of Notes.
(a) If any Note shall become mutilated or be destroyed, lost
or stolen, the Company shall, upon the written request of the Holder thereof,
execute and deliver a new Note, bearing a serial number not then outstanding, in
exchange and substitution for the mutilated Note or in lieu of and substitution
for the Note destroyed, lost or stolen; provided, however, that the Company
shall not be obligated to execute and deliver a new Note unless, (i) in every
case, the applicant requesting a substituted Note shall furnish to the Company
such security or indemnity as may be reasonably required by it to save it
harmless, and (ii) in every case of destruction, loss or theft, such applicant
shall also furnish to the Company evidence reasonably satisfactory to it of the
destruction, loss or theft of such Note and of the ownership thereof.
(b) Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith, including, without limitation, counsel fees of the Company and the
Note Agent. In case any Note that has matured or is about to mature shall have
become mutilated or be destroyed, lost or stolen, the Company may, with the
consent of the applicant, instead of issuing a substitute Note, pay or authorize
the payment of the same (without surrender thereof, except in the case of a
mutilated Note), if the applicant for such payment shall furnish the Company
with such security or indemnity as it may reasonably require to save it harmless
and, in case of destruction, loss or theft, evidence reasonably satisfactory to
the Company of the destruction, loss or theft of such Note and of the ownership
thereof. Every substituted Note issued pursuant to the provisions of this
Section by virtue of the fact that any Note is destroyed, lost or stolen, shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall
35
<PAGE>
Exhibit 4.1
be found at any time, and shall be entitled to all of the benefits of this
Agreement equally and proportionately with any and all other Notes duly issued
hereunder. All Notes shall be held and owned upon the express condition that the
foregoing provisions are exclusive with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes and shall preclude any and all other
rights and remedies, notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
10.4 Cancellation of Notes; Acquisition of Notes by Company. All Notes
surrendered for the purpose of payment, redemption, exchange or registration of
transfer shall be delivered to the Company for cancellation and the Company
shall cancel such Notes and all Notes that have been surrendered directly to the
Company for cancellation, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall indicate clearly on the face and on each and every page of such canceled
Notes the fact that such Notes are canceled. If the Company shall acquire any of
the Notes, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Notes, unless and until the same are
canceled, and the Company shall not be entitled to vote or participate in
directing the activities of the Note Agent pursuant to this Agreement with
respect to any such acquired Notes.
10.5 Transfer of Note. Any Holder to which this Section 10.5 applies
agrees that in the event it shall sell or transfer any Note it will, prior to
the delivery of such Note (unless it has already done so), make a notation
thereon of all principal, if any, prepaid on such Note and will also note
thereon the date to which interest has been paid on such Note, and it will
promptly notify the Company of the name and address of the transferee of any
Note so transferred. With respect to Notes to which this Section 10.5 applies,
the Company shall be entitled to presume conclusively that the original or such
subsequent Holder as shall have requested the provisions hereof to apply to its
Note remains the Holder of such Notes until the Company shall have received
notice in writing of the transfer of such Notes, and of the name and address of
the transferee, or such Notes shall have been presented to the Company as
evidence of the transfer.
10.6 Expenses; Stamp Tax Indemnity. The Company will pay the following
expenses in connection with this Agreement and the transactions contemplated
hereby: (a) duplicating and printing costs and charges for shipping the Notes,
adequately insured to each original Holder's home or office or at such other
place as such Holder may designate, and (b) all such expenses relating to any
amendment, waivers or consents (whether or not consummated) pursuant to the
provisions hereof, including, without limitation, any amendments, waivers, or
consents resulting from any work-out, renegotiation or restructuring relating to
the performance by the Company of its obligations under this Agreement and the
Notes. The Company will pay, and indemnify each Holder against any liability
for, brokerage fees and commissions payable or claimed to be payable to any
Person in connection with the transactions contemplated by this Agreement and
36
<PAGE>
Exhibit 4.1
resulting from an agreement or alleged agreement between the Company and such
Person. As a condition to transferring the ownership of a Note on the Note
Register, the Company may require that the Holder of the Note first pay to the
Company the amount of any tax or governmental charge applicable to the transfer
of the Note.
10.7 Acts of Holders; Evidence of Ownership of Notes.
(a) Any action to be taken by Holders may be evidenced by one
or more concurrent written instruments of similar tenor signed or executed by
such Holders in person or by an agent appointed in writing. The fact and date of
the execution by any person or any such instrument may be proved by
acknowledgement before a Notary Public or other officer empowered to take
acknowledgements, or by an affidavit of a witness to such execution.
(b) Prior to due presentment of any Note for registration of
transfer, the Company may deem the person in whose name the Note shall be
registered upon the books of the Company as the absolute owner of such Note
(whether or not such Notes shall be overdue and notwithstanding any notation of
ownership or writing thereon by anyone other than the Company), for the purpose
of receiving payment of or on account of the principal of, interest on, and
premium, if any, on such Note and for all other purposes, and the Company shall
not be affected by any notice to the contrary. Payment of or on account of the
principal of, interest on, and premium, if any, on such Note shall be made only
to or upon the order in writing of the registered owner thereof. All such
payments shall be valid and, to the extent of the sum or sums so paid, effectual
to satisfy and discharge the liability for moneys payable upon any such Note.
(c) Any action taken by the holders of more than one half in
aggregate principal amount of the Notes specified in this Agreement in
connection with such action shall be conclusively binding upon the Company and
the Holders. Any action by any Holder shall bind all future Holders of the same
Note in respect of anything done or suffered by the Company in pursuance
thereof.
10.8 Holders' List. The Company covenants and agrees that it and every
obligor upon the Notes will furnish or cause to be furnished to the Note Agent,
within three days of appointment, a list in such form as the Note Agent may
reasonably require containing all information in the possession or control of
the Company as to the name and addresses of the Holders obtained (in the case of
each list other than the first list) since the date as of which the next
previous list was furnished. Any such list may be dated as of the date not more
than 15 days before the time any information is furnished or caused to be
furnished and need not include information received after such date. The Note
Agent shall preserve, in as current a form as is reasonably practicable, all
information as to the names and addresses of the Holders contained in the most
recent list furnished to it as provided in this Section 10.8 and received by it
37
<PAGE>
Exhibit 4.1
hereunder. The Note Agent may destroy any list furnished to it as provided in
this Section upon receipt of a new list as provided herein.
10.9 Powers and Rights Not Waived, Remedies Cumulative. No delay or
failure on the part of any Holder in the exercise of any power or right shall
operate as a waiver thereof; nor shall any single or partial exercise of the
same preclude any other or further exercise thereof, or the exercise of any
other power or right, and the rights and remedies of each Holder are cumulative
to and are not exclusive of any rights or remedies any such Holder would
otherwise have, and no waiver or consent, given or extended pursuant to the
provisions of this Agreement, shall extend to or affect any obligation or right
not expressly waived or consented to.
10.10 Notices. All communications provided for hereunder shall be in
writing and, if to a Holder or the Note Agent, delivered or mailed prepaid by
registered or certified mail or overnight air courier, or by facsimile
communication, in each case addressed to such Holder at the address of the
Holder on the registration books of the Company, or to the Note Agent at the
address as the Note Agent may designate, and if to the Company, delivered or
mailed by registered or certified mail or overnight courier, or by facsimile
communication, to the Company at the address of its corporate offices; provided,
however, that a notice to a Holder by overnight air courier shall only be
effective if delivered to such Holder at a street address designated for such
purpose in accordance with this Section 10.10, and a notice to such Holder by
facsimile communication shall only be effective if made by confirmed
transmission to such Holder at a telephone number designated for such purpose in
accordance with this Section 10.10 and promptly followed by delivery of such
notice by registered or certified mail or overnight air courier, as set forth
above.
10.11 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of each
Holder and its successors and assigns, including each successive Holder.
10.12 Discharge and Termination. The Company may, at any time,
terminate its obligations hereunder and the Notes by irrevocably depositing in
trust cash or obligations of the United States government and its agencies for
payment of principal of, premium, if any, and interest on, the Notes to
maturity. In such event, this Note Agreement shall cease to have any effect
except as to (a) rights of registration of transfer, substitution and exchange
of Notes, (b) rights of holders to receive payments of principal or premium, of
any, and interest on the Notes, (c) the right to convert Notes into shares of
Company Common Stock, and (d) the rights, obligations and immunities of the Note
Agreement.
10.13 Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto,
38
<PAGE>
Exhibit 4.1
whether or not in connection with any Closing Date, will survive the closing and
the delivery of this Agreement and the Notes.
10.14 Severability. Should any part of this Agreement for any reason be
declared invalid or unenforceable, such decision will not affect the validity or
unenforceability of any remaining portion, which remaining portion will remain
in force and effect as if this Agreement had been executed with the invalid
portion thereof eliminated and it is hereby declared the intention of the
parties hereto that they would have executed the remaining portion of this
Agreement without including therein any such part or portion which may, for any
reason, be hereafter declared invalid or unenforceable.
10.15 Governing Law. This Agreement and the Notes issued and sold
hereunder shall be governed by and construed in accordance with the laws of the
State of Arizona.
10.16 Captions. The descriptive headings of the various Sections or
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
10.17 Benefits of Provisions of This Agreement. Nothing in this
Agreement or in the Notes, expressed or implied, shall give or be construed to
give any person, firm or corporation, other than the parties thereto and the
Holders, any legal or equitable right, remedy or claim under or in respect of
this Agreement, or under any covenant, condition or provision herein contained,
all the covenants, conditions and provisions contained in this Agreement or in
the Notes being for the sole benefit of the parties hereto and the Holders.
10.18 Counterparts. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together only one agreement.
SOY ENVIRONMENTAL PRODUCTS, INC.
By /s/ Sean F. Lee
---------------------------------------------
Sean F. Lee, Chief Executive Officer
FOX & COMPANY INVESTMENTS, INC.
By /s/ Thomas A. Cifelli
---------------------------------------------
Thomas A. Cifelli, Executive Vice President
39
<PAGE>
Exhibit 4.1
EXHIBIT A
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE OFFERED OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAWS OR IF AN
EXEMPTION THEREFROM IS AVAILABLE. THIS NOTES AND THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS
SPECIFIED IN THE NOTES AGREEMENT REFERRED TO HEREIN. A COPY OF THE NOTE
AGREEMENT WILL BE PROVIDED TO THE REGISTERED HOLDER HEREOF UPON REQUEST TO THE
COMPANY.
SOY ENVIRONMENTAL PRODUCTS, INC.
Senior Secured Convertible Note
No. R-*[insert Note number] *[insert issue date]
$*[insert principal amount]
Soy Environmental Products, Inc., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to [insert name(s) of
Note holder(s)] or registered assigns on the Maturity Date, the principal amount
of *[insert principal amount of Note written out] DOLLARS ($[insert principal
amount of Note in numbers]) and to pay interest (computed on the basis of a
360-day year of twelve 30-day months) on the principal amount from time to time
remaining unpaid heron in an amount equal to four percent (4%) per month in
advance commencing on February 1, 1998, and on the first day of each month
thereafter through the Maturity Date. The "Maturity Date" shall mean January 31,
1998 unless extended at the discretion of the Company to July 31, 1998 by
payment of an extension fee equal to five percent (5%) of the outstanding face
amount of the Note. Interest payments shall be paid to the person listed as the
registered holder of this Note on the books of the Company as of the close of
business on the 15th day of the month preceding the month in which the interest
payment date occurs. Both the principal hereof and interest hereon are payable
at the principal office of the Company, in coin or currency of the United States
of America, which at the time of payment shall be legal tender for the payment
of public and private debts. The Company shall have the option to pay interest
payments in the form of a check mailed to the registered address of the person
entitled thereto.
This Note is one of the Notes of the Company in the aggregate principal
amount of up to $900,000 issued or to be issued under and pursuant to the terms
and provisions of the Note
A-1
<PAGE>
Exhibit 4.1
Agreement, dated as of ____________, 1997, entered into by the Company and the
Placement Agent and this Note and the holder hereof are entitled equally and
ratably with the holders of all other Notes outstanding under the Note Agreement
to all the benefits provided for thereby or referred to therein, to which Note
Agreement reference is hereby made for the statement thereof.
This Note and the other Notes outstanding under the Note Agreement may
be declared due before their expressed maturity dates and certain prepayments
are required to be made thereon, all in the events, on the terms and in the
manner and amounts as provided in the Note Agreement.
Subject to and upon compliance with the provisions of the Note
Agreement, the holder hereof shall have the right and option at any time after
November 16, 1997 to convert the principal hereof or any portion hereof into
fully paid and nonassessable shares of Common Stock of the Company at a
conversion price per share of $1.00. Such conversion price is subject to
adjustment in certain events as more fully set forth in the Note Agreement.
The Notes are subject to prepayment at the option of the Company on or
before November 15, 1997.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
SOY ENVIRONMENTAL PRODUCTS, INC.
By_____________________________________
Its____________________________________
A-2
<PAGE>
Exhibit 4.1
FORM OF REVERSE SIDE OF CERTIFICATE
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to: (Insert Assignee's Social Security or
Tax Identification No.)
________________________________________________________________________________
________________________________________________________________________________
(Pen or type assignee's name, address and zip code)
and irrevocably appoint _______________________________as agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Date:__________________ Your Signature:________________________________________
(Sign exactly as your name appears on
the other side of this Note Certificate)
Signature Guarantee:____________________________________________________________
By____________________________________
The signature should be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
A-3
<PAGE>
Exhibit 4.1
CONVERSION NOTICE
(To be completed and signed only upon conversion
of the Notes in whole or in part)
TO: SOY ENVIRONMENTAL PRODUCTS, INC.
The undersigned, Holder of the attached Note, hereby irrevocably elects
to convert $_______ principal amount of the Note for shares of Common Stock (as
such terms are defined in the Note Agreement dated _________________, 1997),
from Soy Environmental Products, Inc. (or other securities or property). The
undersigned hereby requests that the Certificate(s) for such securities be
issued in the name(s) and delivered to the address(es) as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
Deliver to:_____________________________________________________________________
Address:________________________________________________________________________
If the foregoing Conversion Notice evidences a conversion of less than
the total principal amount of this Note, please issue a new Note, of like tenor,
for the remaining principal balance (or other securities or property) in the
name(s), and deliver the same to the address(es), as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
Dated:_________________________________, 19__.
_____________________________________________
(Name of Holder)
_____________________________________________
(Signature of Holder or Authorized Signatory)
_____________________________________________
(Social Security or Taxpayer Identification
Number of Holder)
A-4
Exhibit 4.3
================================================================================
SOY ENVIRONMENTAL PRODUCTS, INC.
CLASS A WARRANT AGREEMENT
For the Issuance of Up to
900,000 Class A Warrants
================================================================================
<PAGE>
Exhibit 4.3
CLASS A WARRANT AGREEMENT
THIS CLASS A WARRANT AGREEMENT (the "Agreement") is made effective as
of the 3rd day of July, 1997, among SOY ENVIRONMENTAL PRODUCTS, INC., a Delaware
corporation (the "Company"), and FOX & COMPANY INVESTMENTS, INC. (the "Placement
Agent").
RECITALS:
A. The Company has entered into an agreement (the "Placement
Agreement") with the Placement Agent pursuant to which the Placement Agent has
agreed to assist the Company in the placement of up to 15 Units, each Unit
consisting of one $60,000 par value secured note and 60,000 Class A Warrants
("Warrants"), subject to the terms of the Placement Agreement (the "Offering").
B. Each Warrant entitles the holder to purchase one share of the
Company's Common Stock through September 30, 2000, subject to cancellation or
expiration of unexercised Warrants prior to such date upon certain events, as
set forth below.
C. The Company desires to provide for the form and provisions of the
Warrants, the terms upon which the Warrants shall be issued and exercised, and
the respective rights, limitation of rights, privileges and immunities of the
Company, and the registered holders of the Warrants.
D. All acts and things necessary to make the Warrants, when executed
and delivered on behalf of the Company as provided in this Agreement, the valid,
binding and legal obligations of the Company, and to authorize the execution and
delivery of this Agreement, have been done and performed.
AGREEMENT:
NOW, THEREFORE, it is hereby agreed as follows:
SECTION 1
ISSUE OF WARRANTS
1.1 Issuance of Definitive Warrants. On any closing under the Placement
Agreement (the "Warrant Date"), the Company will issue certificates, in
substantially the form attached as Exhibit A hereto ("Warrant Certificates"),
which are exchangeable for shares of the Company's common stock ("Common Stock")
only as provided in Article 2 hereof. Each Warrant evidences the right of the
registered holder thereof, subject to the terms and conditions hereof, to
subscribe for one share of Common Stock of the Company.
<PAGE>
Exhibit 4.3
1.2 Execution and Delivery of Warrants. Each Warrant Certificate shall
be dated as of the Warrant Date and shall be signed on behalf of the Company by
the facsimile or manual signature of the President and Secretary. The Company
may adopt and use the facsimile or manual signature of any person who is such an
officer of the Company at the time of the execution of any Warrant Certificate,
irrespective of the date as of which the same is executed, or of any person now
or hereafter holding such office, notwithstanding the fact that at the time the
Warrant Certificate is issued such person has ceased to be an officer of the
Company. No Warrant shall be valid unless it shall have been signed and
delivered as provided in this Section 1.2.
SECTION 2
DURATION, EXERCISE AND REDEMPTION OF WARRANTS
2.1 Duration of Warrants and Terms of Exercise. Subject to earlier
exercise or cancellation as provided herein, each Warrant entitles the holder to
purchase one share of Common Stock or equivalent security of any successor to
the Company at a price of $1.00 per share (the "Purchase Price"), subject to
adjustment as provided herein, for a term, commencing on the Warrant Date and
ending September 30, 2000, (the "Exercise Period").
2.2 Exercise of Warrants. Warrants may be exercised by surrendering, at
the office of the Company, the Warrant Certificate evidencing such Warrants,
together with a subscription in the form set forth on the reverse side of the
Warrant Certificate, duly executed, and accompanied by the tender, in U.S.
dollars, of either federal funds or a certified check or bank cashier's check,
payable to the order of the Company for the applicable Purchase Price. The
Warrants may be exercised from time to time and at any time during the Exercise
Period, in minimum denominations of 100 shares. As soon as practicable after any
Warrants have been so exercised, the Company shall cause to be issued and
delivered to the holder, or upon the order of the registered holder of such
Warrants, in such name or names as may be directed by the holder, a certificate
or certificates for the number of full shares of Common Stock to which the
holder is entitled, and if such Warrant Certificate shall not have been
exercised in full, a new Warrant Certificate for the number of Warrants as to
which such Warrant Certificate shall not have been exercised. All Warrant
Certificates so surrendered shall be delivered to and cancelled by the Company.
2.3 Common Stock Issued Upon Exercise of Warrants. All shares of Common
Stock issued upon the exercise of Warrants shall be duly authorized, validly
issued and outstanding, fully-paid and nonassessable. Fractional shares of
Common Stock will not be issued upon exercise of a Warrant. With respect to any
fraction of a share called for upon any such exercise hereof, the Company shall
pay to the holder an amount in cash equal to such fraction multiplied by the
"Current Market Price Per Share," which on any date shall be determined as
follows:
2
<PAGE>
Exhibit 4.3
(a) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on any such exchange, the
Current Market Price Per Share shall be the average of the daily closing prices
for the 30 consecutive trading days commencing 35 trading days before such date.
If no sale is made on any trading day, the closing price shall be deemed to be
the average of the closing bid and asked prices for such day on such exchange;
or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges on any exchange, the Current Market Price Per Share shall be
the average of the 30 consecutive reported sale price (or prices, if applicable)
or the mean of the last reported bid and asked prices reported by the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") or, if
not so quoted on NASDAQ, as quoted by the National Quotations Bureau, Inc., for
the 30 consecutive trading days commencing 35 days before such date; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and prices are not reported on NASDAQ or the
National Quotations Bureau, Inc., the Current Market Price Per Share shall be
the fair market value of the Common Stock as determined by the Board of
Directors of the Company in good faith, whose determination shall be conclusive.
2.4 Record Date of Shares. Irrespective of the date of issue and
delivery of certificates for any Common Stock issuable upon the exercise of
Warrants, each person in whose name any such certificate is issued shall be
deemed to have become the holder of record of the shares represented thereby on
the date on which the Warrant Certificate surrendered in connection with the
subscription therefor was surrendered and payment of the Purchase Price was
tendered. No surrender of Warrant Certificates on any date when the stock
transfer books of the Company are closed, however, shall be effective to
constitute the person or persons entitled to receive shares upon such surrender
as the record holder of such shares on such date, but such person or persons
shall be constituted the record holder or holders of such shares at the close of
business on the next succeeding date on which the stock transfer books are
opened. Except as otherwise provided in Section 3.2, each person holding any
shares received upon exercise of Warrants shall be entitled to receive only
dividends or distributions payable to holders of record on or after the date on
which such person shall be deemed to have become the holder of record of such
shares.
2.5 Cancellation of Warrants. On 45 days' written notice the Company
may, at the option of the Company, cancel the Warrants if the closing bid price
as reported in the public markets for the Common Stock equals or exceeds $3.00
per share (the "Target Price") for 120 consecutive trading days in minimum daily
volumes of 2000 shares. Any cancellation shall also be subject to the following
conditions: (i) the Company must give, within 10 days after the end of the
particular 120 consecutive days upon which the cancellation is based ("Notice
Date"), a notice to each registered holder of Warrants stating the Company's
intention to cancel the Warrants and setting the date of such cancellation which
shall be a date not less than 45 days
3
<PAGE>
Exhibit 4.3
following the Notice Date (the "Cancellation Date"); and (ii) the Company must
permit each registered holder of any Warrants to exercise such Warrants through
the Cancellation Date as provided in Section 2.2 above. Notice of any
cancellation pursuant to this Section 2.5 shall be deemed given if mailed by
first class or certified mail on the date deposited in the United States Mail,
postage prepaid, addressed to the registered holder of Warrants to be cancelled
at the address as it appears on the books of the Company. Neither failure of
delivery of such notice nor defect therein or in the mailing thereof shall
affect the validity of the cancellation of any Warrants hereunder.
SECTION 3
ADJUSTMENT OF PURCHASE PRICE,
NUMBER OF SHARES OR NUMBER OF WARRANTS
3.1 General. The Purchase Price and the number of shares of Common
Stock covered by each Warrant and the number of Warrants outstanding are subject
to adjustment from time to time upon the occurrence of the events enumerated in
this Article 3.
3.2 Stock Dividends, Stock Splits, Combinations, Reclassification, etc.
In case the Company shall at any time after the date of this Agreement (a)
declare a dividend on the Common Stock payable in shares of Common Stock, (b)
subdivide the outstanding Common Stock into a larger number of shares, (c)
combine the outstanding Common Stock into a smaller number of shares, or (d)
issue any shares of its capital stock in connection with a reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation), the
Purchase Price in effect at the time of the record date for such dividend or the
effective date of such subdivision, combination or reclassification, and/or the
number and kind of shares of stock issuable on such date shall be
proportionately adjusted so that the holder of any Warrant exercised after such
time shall be entitled, at no additional expense, to receive the aggregate
number and kind of shares of stock and Warrants which, if such Warrant had been
exercised immediately prior to such date, such holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
3.3 Distribution of Assets. If at any time after the date hereof the
Company shall make any distribution of its assets upon or with respect to its
Common Stock, as a liquidating or partial liquidating dividend (other than upon
a liquidation, dissolution or winding up of the Company as provided for in
Section 4.1, or other than as a dividend payable out of earnings or any surplus
legally available for dividends under the laws of Arizona), each registered
holder of any Warrant then outstanding shall, upon the exercise of such Warrant
after the record date for such distribution or, in the absence of a record date,
after the date of such distribution, receive in addition to the shares of Common
Stock to which the holder would otherwise be entitled hereunder, such assets
(or, at the option of the Company, a sum equal to the value
4
<PAGE>
Exhibit 4.3
thereof at the time of the distribution as determined by its Board of Directors
in its sole discretion) which would have been distributed to such registered
holder if the holder had exercised its Warrants immediately prior to the record
date for such distribution or, in the absence of a record date, immediately
prior to the date of such distribution.
3.4 Consolidation, Merger and Sale of Assets. If, prior to the end of
the Exercise Period, the Company shall at any time consolidate with or merge
into another corporation, the holder of any Warrant will thereafter receive,
upon exercise thereof, in lieu of the shares of Common Stock of the Company
immediately theretofore issuable upon exercise of the rights then represented by
the Warrants, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of the
Common Stock of the Company equal to the number of shares of such Common Stock
immediately theretofore issuable upon exercise of the Warrants, had such
consolidation or merger not taken place. The Company shall take such steps in
connection with such consolidation or merger as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to any securities or property thereafter deliverable upon
the exercise of the Warrants. The Company or the successor corporation, as the
case may be, shall execute and deliver to the Placement Agent a supplemental
agreement so providing. The provisions of this Section 3.4 shall similarly apply
to successive mergers or consolidations. A sale of all or substantially all of
the assets of the Company for a consideration (apart from the assumption of
obligations) consisting primarily of securities, shall be deemed a consolidation
or merger for the foregoing purposes.
3.5 Dividends in Convertible Securities, Options, Rights or Warrants.
In case the Company shall issue stock, securities, rights, options, convertible
securities or warrants to all holders of the Common Stock entitling such holders
to subscribe for or purchase Common Stock or securities convertible into Common
Stock, each registered holder of any Warrant then outstanding shall, upon the
exercise of such Warrant after the record date for such distribution or, in the
absence of a record date, after the date of such distribution, receive in
addition to the shares of Common Stock to which the holder would otherwise be
entitled hereunder, such stock, securities, rights, options, convertible
securities or warrants which would have been distributed to such registered
holder if the holder had exercised its Warrants immediately prior to the record
date for such distribution or, in the absence of a record date, immediately
prior to the date of such distribution.
3.6 Form of Warrant. The form of Warrant need not be changed because of
any change in the Purchase Price or the number of shares of Common Stock or
Warrants issuable upon exercise of the Warrants pursuant to this Article 3 and
Warrants issued after such change may state the same terms with respect to the
Purchase Price and number of shares of Common Stock and Warrants issuable
thereunder as stated in the Warrants initially issued pursuant to this
Agreement. The Company may at any time, in its sole discretion, make any change
in the form of Warrant that the Company may deem appropriate and that does not
affect the substance
5
<PAGE>
Exhibit 4.3
thereof in a manner inconsistent with this Agreement. Any Warrant thereafter
issued or countersigned, whether in exchange or substitution for an outstanding
Warrant or otherwise, may be in the form so changed.
3.7 Dividends. No registered holder of any Warrant shall, upon the
exercise thereof, be entitled to any dividend that may have accrued or which may
previously have been paid with respect to shares of stock issuable upon exercise
of the Warrants except as specifically provided in this Section 3.
3.8 Certification of Adjusted Purchase Price and Number of Shares and
Warrants Issuable. Whenever the Purchase Price and the number of shares of
Common Stock and Warrants issuable upon the exercise of each Warrant are
adjusted as provided in this Section 3, the Company shall (a) promptly prepare
an Officer's Certificate setting forth the Purchase Price as so adjusted, the
number of shares of Common Stock and Warrants issuable upon the exercise of each
Warrant as so adjusted and/or the number of Warrants as so adjusted and a brief
statement of the facts accounting for such adjustment, (b) promptly file with
the Placement Agent and with each transfer agent for the Common Stock a copy of
such certificate and (c) mail a brief summary thereof to each registered holder
of Warrants in accordance with Section 8.1. The term "Officer's Certificate" in
this Agreement shall mean a certificate or instrument signed by one of the
following: the Chief Executive Officer, the President, a Vice President, the
Treasurer or the Secretary of the Company.
SECTION 4
OTHER PROVISIONS FOR PROTECTION OF WARRANT HOLDERS
4.1 Liquidation of the Company. In the event of the liquidation,
dissolution or winding up of the Company, a notice thereof shall be filed by the
Company with the Placement Agent and each transfer agent for the Common Stock
(if the transfer agent is a person other than the Company) at least 30 days
before the record date (which date shall be specified in such notice) for
determining holders of the Common Stock entitled to receive any distribution
upon such liquidation, dissolution or winding up. Such notice shall also specify
the date on which the right to exercise Warrants shall expire, as provided in
Section 2.1. A copy of such notice shall be published once in an Authorized
Newspaper in Phoenix, Arizona, not more than 30 nor less than 20 days from such
record date. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of the liquidation, dissolution or winding up,
or of any distribution in connection therewith. The term "Authorized Newspaper"
when used with reference to the publication of a notice provided for in this
Agreement shall mean a newspaper printed in the English language and customarily
published on each business day (whether or not published on Saturdays, Sundays
or legal holidays) and of general circulation.
4.2 Reservation of Shares. The Company shall reserve and keep available
out of its authorized but unissued Common Stock such number thereof as shall
from time to time be
6
<PAGE>
Exhibit 4.3
sufficient to permit the exercise of all outstanding Warrants. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient for such purposes, the Company will take such corporate action as
may, in the opinion of its counsel be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
4.3 No Rights as Stockholder Conferred by Warrants. The Warrants shall
not entitle the registered holders thereof to any of the rights, either at law
or in equity, of a stockholder of the Company.
4.4 Lost, Stolen, Mutilated or Destroyed Warrants. If any Warrant
becomes lost stolen, mutilated or destroyed, the Company may, on such terms as
to indemnify or otherwise as may be reasonably required to save it harmless,
issue a new Warrant of the denomination, tenor and date as the Warrant so lost
stolen mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by any person.
4.5 Enforcement of Warrant Rights. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Warrants.
Any registered holder of any Warrant may in its own behalf and for its own
benefit enforce, and may institute and maintain any suit action or proceeding
against the Company suitable to enforce, or otherwise in respect of, the
holder's right to exercise its Warrant for the purchase of stock in the manner
provided in the Warrant and in this Agreement.
SECTION 5
REGISTRATION OF WARRANTS
AND
LOCK-UP
5.1 Shelf Registration.
(a) The Company shall use its best efforts to cause to be
filed with the Securities and Exchange Commission (the "Commission") no later
than three months after the final closing under the Offering, a shelf
registration statement on an appropriate form under Rule 415 under the
Securities Act of 1933, as amended ("Securities Act"), or any similar rule that
may be adopted by the Commission, providing for the sale by the Warrant holders
of the Warrants and the Common Stock issuable upon exercise of the Warrants (the
"Registrable Securities"). The Company shall use its best efforts to have such
shelf registration statement declared effective by the Commission as soon as
practicable after such filing. The Company agrees to use its reasonable best
efforts to keep the shelf registration statement effective for at least two
years after its effective date (and to take any and all other actions reasonably
necessary in order to permit public resale of the Warrants covered by such shelf
registration statement in
7
<PAGE>
Exhibit 4.3
accordance with this Agreement) throughout the Exercise Period. The Company
further agrees, if necessary, to supplement or amend the shelf registration
statement, if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such shelf registration statement
or by the Securities Act or by any other rules and regulations thereunder for
shelf registration, and the Company agrees to furnish notice thereof to the
holders of the Warrants.
(b) The Company shall pay all Registration Expenses (as
defined in Section 5.4 hereof) in connection with the registration pursuant to
Section 5.1.
5.2 Conditions Relating to Registration and Offer of Registrable
Securities.
(a) Subject to paragraph (b) of this Section 5.2, the
registration rights of the holders pursuant to this Agreement and the ability to
offer and sell Registrable Securities pursuant to the shelf registration
statement are subject to the following conditions and limitations, and each
holder agrees with the Company that:
(i) If the Company determines in its good faith
judgment that the filing of the shelf registration statement under
Section 5.1 hereof or the use of any prospectus would require the
disclosure of important information which the Company has a bona fide
business purpose for preserving as confidential or the disclosure of
which would impede the Company's ability to consummate a significant
transaction, upon written notice of such determination by the Company,
the rights of the holders to offer, sell or distribute any securities
pursuant to the shelf registration statement or to require the Company
to take action with respect to the registration or sale of any
securities pursuant to the shelf registration statement (including any
action contemplated by Section 5.3 hereof) will for up to sixty days in
any twelve month period be suspended until the date upon which the
Company notifies the holders in writing that suspension of such rights
for the grounds set forth in this Section 5.2(a)(i) is no longer
necessary.
(ii) If all reports required to be filed by the
Company pursuant to the Securities Exchange Act of 1934, as amended
("Exchange Act") have not been filed by the required date without
regard to any extension, or if consummation of any business combination
by the Company has occurred or is probable for purposes of Rule 3-05 or
Article 11 of Regulation S-X under the Securities Act, upon written
notice thereof by the Company to the holders, the rights of the holders
to offer, sell or distribute any securities pursuant to the shelf
registration statement or to require the Company to take action with
respect to the registration or sale of any securities pursuant to the
shelf registration statement (including any action contemplated by
Section 5.3 hereof) will for up to sixty days in any twelve month
period be suspended until the date upon which the Company has filed
such reports or obtained the financial information required by Rule
3-05 or Article 11 of Regulation S-X to be included in the shelf
registration statement.
8
<PAGE>
Exhibit 4.3
(iii) In the case of the registration of any
underwritten primary equity offering initiated by the Company (other
than any registration by the Company on Form S-8, or a successor or
substantially similar form, of (A) an employee stock option, stock
purchase or compensation plan or of securities issued or issuable
pursuant to any such plan, or (B) a dividend reinvestment plan), each
holder agrees, if requested in writing by the managing underwriter or
underwriters administering such offering, not to effect any offer, sale
or distribution of securities (or any option or right to acquire
securities) during the period commencing on the 10th day prior to the
effective date of the registration statement covering such underwritten
primary equity offering and ending on the date specified by such
managing underwriter in such written request to such holder, which
period may be of a duration of ninety days or more.
(iv) In the event that the Company plans to
repurchase or bid for securities of the Company in the open market, on
a private solicited basis or otherwise, and the Company determines, in
its reasonable good faith judgment and based upon the advice of counsel
to the Company (which counsel shall be experienced in securities laws
matters), that any such repurchase or bid may not, under Rule 10b-6
under the Exchange Act, or any successor or similar rule ("Rule
10b-6"), be commenced or consummated due to the existence or the
possible commencement of a "distribution" (within the meaning of Rule
10b-6) as a result of any offers or sales by holders of any Registrable
Securities, as the case may be, under any registration statement filed
pursuant to this Agreement, the Company shall be entitled, for a period
of ninety days or more, to request that holders of Registrable
Securities, to suspend or postpone such distribution pursuant to such
registration statement (a "10b-6 Election"). The Company shall, as
promptly as practicable, give such holder or holders written notice of
such 10b-6 Election, stating the basis for the Company's determination.
As promptly as practicable following the determination by the Company
that the holders or holders may commence or recommence their
distribution pursuant to the registration statement without causing the
Company to be in violation of Rule 10b-6, the Company shall give such
holder or holders written notice of such determination.
(b) Notwithstanding the provisions of Section 5.2(a) above,
the aggregate number of days (whether or not consecutive) during which the
Company may delay the effectiveness of the shelf registration statement or
prevent offerings, sales or distribution by the holders thereunder pursuant to
Section 5.2(a) shall in no event exceed one hundred eighty days during any
12-month period.
(c) The Company may require each selling holder of Registrable
Securities, as a condition to the inclusion of the Registrable Securities of
such selling holder in the shelf registration statement or in any offering
thereunder, as the case may be, to furnish to the Company such information
regarding the holder and the distribution of such securities as the Company may
from time to time reasonably request (which request shall be confirmed in
writing
9
<PAGE>
Exhibit 4.3
if requested by the Company) in order to comply with applicable law and such
other information as may be legally required in connection with such
registration or offering, and the holder shall promptly provide such information
and a written consent to the inclusion of such information in the registration
statement or any prospectus or supplement thereto; provided that the failure of
any holder to provide such information to the Company shall not in any way
affect the obligations of the Company hereunder with respect to any other
holder.
5.3 Shelf Registration Procedures. In connection with the obligations
of the Company with respect to the shelf registration statement pursuant to
Section 5.1(a) hereof and, to the extent applicable, Section 5.1(b) hereof, and
subject to Section 5.2 hereof, the Company shall:
(a) (i) prepare and file with the Commission a shelf
registration statement on the appropriate form under the Securities Act, (A)
which form shall be selected by the Company and shall be available for the sale
of the Registrable Securities in accordance with the intended method or methods
of distribution by the selling holders thereof (provided that the Company shall
not be required to use any form other than Form S-1, S-2, S-3, SB-1 or SB-2 as
applicable or any successor form and shall not be required to file more than one
shelf registration statement with the Commission) and (B) which shelf
registration statement shall comply as to form in all material respects with the
requirements of the applicable form and include or incorporate by reference all
financial statements required by the Commission to be so included or
incorporated by reference, further provided that subject to the registration
statement and prospectus being in compliance with the requirements of the
Securities Act and the Exchange Act (including all rules and regulations of the
Commission thereunder), the Company has the sole discretion to determine the
form, substance and presentation of any financial or other information included
in any registration statement or prospectus, and whether such information should
be included in such registration statement or prospectus; and (ii) use its best
efforts to cause such shelf registration statement to become effective and
remain effective in accordance with Section 5.1 hereof;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the shelf registration statement as may be
necessary to keep such shelf registration statement effective for the applicable
period; and cause each prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act;
(c) in the event that any federal law or regulation binding on
the Company and adopted after the date hereof so requires (and would also so
require if the Registrable Securities were being offered in a primary offering
by the Company rather than by the holders), use its best efforts to cause such
Registrable Securities to be registered with or approved by such other federal
governmental agencies or authorities in the United States, if any, as may be
required by virtue of the business and operations of the Company to enable the
selling holders to consummate the disposition of such Registrable Securities;
10
<PAGE>
Exhibit 4.3
(d) furnish to each holder of Registrable Securities and to
each managing underwriter of an underwritten offering of Registrable Securities
pursuant to Section 4(1) of the Securities Act, if any, without charge, as many
copies of each prospectus, including each preliminary prospectus, and any
amendment or supplement thereto as such holder or underwriter may reasonably
request, in order to facilitate the public sale or other disposition of the
Registrable Securities;
(e) use its best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions as any holder of Registrable Securities of such class
covered by the shelf registration statement shall, on 20 days prior written
notice, reasonably request in writing. Such notice to be sent at any time prior
to the applicable registration statement being declared effective by the
Commission. The Company shall maintain such registration or qualification in
effect during the applicable period provided in Section 5.1(a) hereof; provided,
however, that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 5(e); (ii) subject itself to taxation in any such
jurisdiction; (iii) make any change to its Articles or Incorporation or Bylaws;
or (iv) become subject to general service of process in any jurisdiction where
it is not then so subject;
(f) notify each holder of Registrable Securities as promptly
as practicable after becoming aware thereof and (if requested by any such
holder) confirm such notice in writing (i) when the shelf registration statement
has become effective and when any post-effective amendments and supplements
thereto become effective; (ii) of any request by the Commission or any state
securities authority for amendments and supplements to the shelf registration
statement and any prospectus or for additional information relating to the
Registrable Securities or the shelf registration or qualification thereof after
the registration statement has become effective; (iii) of the issuance by the
Commission or any state securities authority of any stop order suspending the
effectiveness of the shelf registration statement or the initiation of any
proceedings for that purpose; (iv) if the representations and warranties of the
Company contained in any underwriting agreement, securities sales agreement or
other similar agreement, if any, relating to the Registrable Securities cease to
be true and correct in any material respect prior to the closing date specified
in such agreement (provided such notice shall be given only to holders which are
parties to the agreements pursuant to which such representations and warranties
are made), or if the Company receives any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose; and (v) of
the happening of any event during the period (other than any suspension period
referred to in Section 5.2(a)) during which the shelf registration statement is
required hereunder to be effective as a result of which the shelf registration
statement or any prospectus would contain an untrue statement of material fact
or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading;
11
<PAGE>
Exhibit 4.3
(g) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the shelf registration statement or the
qualification of the Registrable Securities for sale in any jurisdiction as
promptly as practicable;
(h) furnish to each holder of Registrable Securities, without
charge, at least one conformed copy of the shelf registration statement and any
post-effective amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested in writing);
(i) cooperate with the holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to the shelf registration statement
and not bearing any restrictive legends; and enable such Registrable Securities
to be in such denominations and registered in such names as the selling holders
may reasonably request (in each case, provided such certificates are requested
in writing at least three business days prior to any delivery thereof);
(j) upon the occurrence of any event contemplated by Section
5.3(f)(v) hereof, use its best efforts as promptly as practicable to prepare and
file with the Commission a supplement or post-effective amendment to the shelf
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such prospectus will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(k) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the shelf registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
under the Securities Act;
(l) use its best efforts to (i) cause all Registrable
Securities to be listed or quoted on any securities exchange or quotation system
on which the Company's outstanding Common Stock is then listed or quoted; and
(m) obtain a CUSIP number for all Registrable Securities not
later than the effective date of the shelf registration statement.
Each holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5.3(f)(v) hereof, such
holder will forthwith discontinue disposition of Registrable Securities pursuant
to the Registration Statement covering such
12
<PAGE>
Exhibit 4.3
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5.3(j) hereof, or
until it is advised in writing by the Company that the use of such prospectus
may be resumed and, if so directed by the Company, such holder will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies then in such holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; provided,
however, that the Company shall use its best efforts to promptly prepare and
provide to the holders a supplemented or amended prospectus contemplated by such
Section 5.3(j) hereof. In the event the Company shall give any such notice, the
period during which such Registration Statement shall be maintained effective
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 5.3(f)(v) hereof to
including the date when each holder of Registrable Securities covered by such
Registration Statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 5.3(j) hereof.
5.4 Registration Expenses.
(a) The Company will bear all reasonable expenses incident to
the performance of or compliance with its obligations under this Agreement,
including, without limitations, all registration and filing fees, all fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of one firm of counsel for the holders and any
underwriters in connection with blue sky qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of the
officers and employees of the Company performing legal or accounting duties),
and reasonable fees and disbursement of counsel for the Company and its
independent certified public accountants (including the reasonable expenses of
any special audit or comfort letters required by or incident to such
performance), securities acts liability insurance (if the company elects to
obtain such insurance), the reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, reasonable fees
and expenses of any other persons retained by the Company and the fees and
expenses associated with any required filing with the National Association of
Securities Dealers, Inc. ("NASD") (all such expenses being herein called
"Registration Expenses"). Notwithstanding the foregoing, the Company is not
required to pay any fees or expenses of holders, underwriters, the holder's or
any underwriter's counsel (other than the blue sky counsel referred to above) or
accountant or any other advisers, including any transfer taxes, underwriting,
brokerage and other discounts and commissions and finders' and similar fees
payable in the respect of Registrable Securities.
(b) Each holder shall pay all costs and expenses incurred by
such holder (including all transfer taxes, underwriting, brokerage and other
discounts and commissions and
13
<PAGE>
Exhibit 4.3
finders' and similar fees payable in respect of Registrable Securities). To the
extent that any Registration Expenses are incurred, assumed or paid by any
holder or any placement or sales agent therefor or underwriter thereof with the
Company's prior written consent, the Company shall reimburse such person for the
full amount of the Registration Expenses so incurred, assumed or paid within a
reasonable time after receipt of a written request therefor. Any Registration
Expenses submitted by any holder, placement or sales agent or underwriter or on
behalf of any such person for payment by the Company shall be itemized in detail
and contain clear and accurate receipts of all expenditures made by such
parties.
5.5 Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless each
holder and each "person," if any, that controls such holder within the meaning
of Section 15 of the Securities Act for, from and against any and all loss,
liability, claim, damage and expense (including attorneys' fees) to the extent
resulting from any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement pursuant to which Registrable
Securities were registered under the Securities Act (or any amendment thereto),
including all documents incorporated therein by reference, or from the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statement therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as any such misstatement or omission or alleged misstatement or omission
is made therein in reliance upon and in conformity with information furnished to
the Company by such holder in writing expressly for use in a Registration
Statement (or any amendment thereto) or any prospectus (or any amendment or
supplement thereto) relating to the Registrable Securities. As used in this
Section 5.5(a), the term "holder" shall include its officers, directors and
agents.
(b) Each holder agrees to indemnify and hold harmless the
Company, its directors and officers and each "person," if any, who controls the
Company within the meaning of Section 15 of the Securities Act to the same
extent as the foregoing indemnity from the Company to such holder, but only with
respect to information furnished in writing by such holder or on such holder's
behalf expressly for use in any Registration Statement (or any amendment
thereto) or any prospectus (or any amendment or supplement thereto) relating to
the Registrable Securities, or any amendment or supplement thereto; provided
that the obligations or any holder to indemnify the Company and the other
persons referred to above shall be limited to the proceeds received by such
holder from the sale of such Registrable Securities pursuant to such
Registration Statement.
14
<PAGE>
Exhibit 4.3
(c) If any action or proceeding (including any governmental
investigation) shall be brought or asserted against any person entitled to
indemnification hereunder, the indemnified party shall give prompt written
notice to the indemnifying party, and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party, and shall assume the payment of all expenses in
connection with such defense. The indemnified party or any controlling person of
such indemnified party 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 party or such
controlling person unless (i) the indemnifying party shall have agreed to pay
such fees and expenses; or (ii) the indemnifying party shall have failed to
assume the defense for such action or proceeding and to employ counsel
reasonably satisfactory to the indemnified party in any such action or
proceeding; or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the indemnified party or such
controlling person and the indemnifying party, and such indemnified party or
such controlling person shall have been advised by counsel that counsel employed
by the indemnifying party would, under applicable professional standards, have a
conflict in representing both the indemnifying party and the indemnified party
or such controlling person, in which case, if such indemnified person or such
controlling person notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
or proceeding of separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, and shall not be liable for the reasonable fees and expenses
of more than one separate firm of attorneys (together with appropriate local
counsel) at any time for such indemnified party and such controlling persons,
which firm shall be designated, if the holders (or their controlling persons)
are the indemnified parties, in writing by the holders of a majority of the
outstanding Registrable Securities owned by holders who are then entitled to
such indemnity in connection with such action or proceeding and if the Company
is the indemnified party, by the Company. No party shall be liable for any
settlement of any such action or proceeding effected without its written consent
(which consent shall not be unreasonably withheld), but if settled with its
written consent, or if there is a final judgment for the plaintiff in any such
action or proceeding, the indemnifying party agrees to indemnify and hold
harmless such indemnified party and such controlling person from and against any
loss or liability (to the extent stated above) by reason of such settlement or
judgment.
(d) (i) If the indemnification provided for in this Section
5.5 is unavailable to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses, then each such indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses in such proportion as is appropriate to
reflect the relative fault of the indemnified party and the indemnifying party
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the indemnified party
15
<PAGE>
Exhibit 4.3
and the indemnifying party 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 such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(ii) The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 5.5(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses, liabilities, or
judgements referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5.5(d), no holder shall be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities of
such selling holder were offered to the public pursuant to such Registration
Statement exceeds the amount of any damages which such selling holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person found guilty by a court of
competent jurisdiction of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty by a court of competent jurisdiction of such
fraudulent misrepresentation.
(e) Neither the Company nor the holders shall have any
obligation under this Agreement (other than as set forth in this Section 5.5) to
provide the other with indemnification or contribution in respect of any losses,
claims, damages, liabilities or expenses referred to in this Section 5.5;
provided, however, that the provisions of this Section 5.5 shall not relieve an
indemnifying party from liability which it may have to an indemnified party
other than with respect to the matters referred to in this Section 5.5.
5.6 Commission Filings.
The Company covenants that it will file the reports required
to be filed by it under the Exchange Act and the rules and regulations adopted
by the Commission thereunder in a timely manner as determined by applicable
rules and interpretations under the Exchange Act. Upon the written request of
any holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
5.7 Lock-up Agreement. Prior to the registration statement related to
the Registerable Securities being declared effective, the holders of
Registerable Securities shall not offer, sell dispose of, transfer or otherwise
reduce market risk with respect to such Registerable Securities, without the
prior consent of the Company and except for any transfer by operation of law.
The
16
<PAGE>
Exhibit 4.3
foregoing notwithstanding, the percentage of Registerable Securities shall be
released from the above restrictions at the time periods as follows:
Time Cumulative Percentage Transferable
---- ----------------------------------
Effective Date of Registration 25%
Three Months After Effective Date 50%
Six Months After Effective Date 75%
Nine Months After Effective Date 100%
The above percentages apply to all securities of holder acquired in the
Offering. The Company shall place appropriate legends on the certificates
representing the Registerable Securities and instructions with its transfer
agent specifying that the Registerable Securities are subject to the restriction
on transfer as set forth above.
SECTION 6
TRANSFER AND OWNERSHIP OF WARRANTS
6.1 Negotiability and Ownership. Warrants issued hereunder shall be
registered and transferable only by transfer on the books of the Company.
Presentations may be made and notices and demands may be served at the office of
the Company.
6.2 Warrant Register. The Company shall cause to be kept a register or
registers in which, subject to such reasonable regulations as the Company may
prescribe, the Company shall register transfer of Warrants as herein provided.
Upon surrender for transfer of any Warrant, the Company shall sign, authenticate
and deliver in the name of the transferee or transferees a new Warrant
Certificate for a like amount of Warrants.
6.3 Exchange of Warrants. On and after the Warrant Date and prior to
the end of the Exercise Period, Warrant Certificates may be surrendered at the
office of the Company for exchange, and, upon cancellation thereof, there shall
be issued and delivered in exchange therefor, one or more new Warrant
Certificates, as requested by the registered holder of the cancelled Warrant
Certificate, for the same aggregate number of shares of Warrants evidenced by
the Warrant Certificate so cancelled. In case of any exchange pursuant to this
Section 6 or a transfer of a Warrant Certificate, the Company may make a charge
for reimbursement of any stamp or other tax or governmental charge required to
be paid in connection therewith, but no other charge shall be made to the
Warrant holder for any transfer or issue of new Warrant Certificate in case of
any such exchange.
17
<PAGE>
Exhibit 4.3
6.4 Restrictions on Transferability.
(a) The Warrants and the Common Stock issuable upon exercise
of a Warrant (the "Exercise Shares") shall not be transferable except upon the
conditions hereinafter specified, which conditions are intended to ensure
compliance with the provisions of the Securities Act and any applicable state
securities laws, in respect of the transfer of any Warrant or of any Exercise
Shares.
(b) Each Warrant Certificate initially issued under this
Agreement and each Warrant Certificate issued in exchange therefor shall bear on
the face thereof a legend substantially as follows:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER
APPLICABLE SECURITIES LAWS OR IF AN EXEMPTION THEREFROM IS AVAILABLE.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS SPECIFIED IN THE
WARRANT AGREEMENT REFERRED TO HEREIN. A COPY OF THE WARRANT AGREEMENT
WILL BE PROVIDED TO THE REGISTERED HOLDER THEREOF UPON REQUEST TO THE
COMPANY.
(c) Each certificate for Exercise Shares initially issued upon
the exercise of any Warrant and each certificate for shares of Exercise Shares
issued to a subsequent transferee of such certificate shall, unless otherwise
permitted by the provisions of Section 6.4(d), bear on the fact thereof a legend
substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED
OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAW OR PURSUANT
TO AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY STATING THAT SUCH
REGISTRATION IS NOT REQUIRED. THE TRANSFER OF SUCH SHARES IS SUBJECT TO
CERTAIN CONDITIONS. THE PROVISIONS OF WHICH WILL BE PROVIDED TO THE
REGISTERED HOLDER HEREOF UPON REQUEST BY THE COMPANY, AND NO TRANSFER
OF SUCH SHARES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE
BEEN FULFILLED.
(d) In the event that a registration statement covering any
Warrant or Exercise Shares shall become effective under the Securities Act and
under any applicable state securities laws or in the event that the Company
shall receive an opinion of its counsel that, in the opinion
18
<PAGE>
Exhibit 4.3
or such counsel, such legend is not, or is no longer, necessary or required with
respect to such shares (including, without limitation, because of the
availability of the exemption afforded by Rule 144 of the general rules and
regulations of the Commission), the Company shall or shall instruct its transfer
agents and registrars to, remove such legend from the certificates evidencing
such Warrant or Exercise Shares or issue new certificates without such legend in
lieu thereof. Upon the written request of the holder of any Warrants or Exercise
Shares, the Company covenants and agrees forthwith to request its counsel to
render an opinion with respect to the matters covered by this paragraph and to
bear all expenses in connection with such opinion of its counsel.
(e) The holder of each Warrant or any Exercise Shares, by
acceptance thereof, agrees to give prior written notice to the Company of such
holders intention to transfer such Warrant or such Exercise Shares (or any
portion thereof), describing briefly the manner and circumstances of the
proposed transfer, together with an opinion of counsel to the effect that the
proposed transfer may be effected without registration or qualification under
any federal or state law. Unless the Company shall have received an opinion from
counsel to the Company (which opinion shall be obtained by the Company not more
than ten days after notice of a proposed transfer) that the proposed transfer
may not be effected without registration or qualification under federal or state
law, such holder shall be entitled to transfer such Warrant or such Exercise
Shares, all in accordance with the terms of the notice delivered by such holder
to the Company. All fees and expenses of counsel for the Company in connection
with the rendition or the opinion provided for in this Section 6.4(e) shall be
paid by the Company.
(f) If in the opinion of either counsel referred to in Section
6.4(e) a proposed transfer of a Warrant or Exercise Shares requested by the
holder thereof may not be effected without registration or qualification under
applicable federal or state law, the Company shall promptly give written notice
to the holder who proposed to transfer the Warrant or Exercise Shares (or any
portion thereof) that the holder shall not consummate the proposed transfer and
the reasons therefor. No Warrant or Exercise Shares (or any portion thereof) for
which a transfer has been proposed pursuant to Section 6.4(e) may be transferred
in the manner proposed if registration thereof under the Securities Act would be
required in the opinion of either counsel mentioned above.
6.5 Agreement of Warrant Holders. Every holder of a Warrant
Certificate, by accepting the same, consents and agrees with the Company and
with all other Warrant holders that: (a) the Warrants are transferrable only as
permitted by Section 6.01 above; (b) the Warrants are transferable only on the
registry books of the Company as herein provided; and (c) the Company may deem
and treat the person in whose name the Warrant Certificate is registered as the
absolute owner thereof and of the Warrants evidenced thereby for all purposes
whatsoever, and the Company shall not be affected by any notice to the contrary,
whether such notice be in the form of notations on the Warrant Certificates or
otherwise.
19
<PAGE>
Exhibit 4.3
SECTION 7
MODIFICATION
7.1 Modification of Agreement. The Placement Agent may, without the
consent or concurrence of the registered holders of the Warrants by supplemental
agreement or otherwise, concur with the Company in making any changes or
corrections in these presents as to which it shall have been advised by counsel
(who may but need not also be counsel for the Company) that the same are not
prejudicial to the rights of the Warrant holders as indicated by the general
sense or intent of the original language and are required for the purpose of
curing or correcting the inconsistent provision or clerical omission or mistake
or manifest error herein contained or as otherwise provided in Section 7.2
below.
7.2 Consolidation of Warrant Classes.
(a) At any time and from time to time after the final Warrant
Date, the Company may consolidate the Warrants with any other class of warrants
of the Company outstanding provided at the time of such consolidation the
rights, limitation of rights, privileges and immunities of the holders of
Warrants as set forth in this Agreement are not altered and the rights,
limitations of rights, privileges and immunities of the class or classes of
Warrants which the Warrants may be consolidated with are substantially similar
to the rights, limitations or rights, privileges and immunities of the Warrants.
(b) Upon determination by the Company to consolidate any other
class of Warrants and as provided in Section 7.2(a), the Company shall give
notice thereof to the Placement Agent and provide the modification to this
Agreement as necessary to effectuate the consolidation and the Placement Agent
may enter into and execute such agreements to so modify this Agreement as
provided in Section 7.1 above.
SECTION 8
CERTAIN DEFINITIONS AND OTHER MATTERS
8.1 Notice of Proposed Actions. In case the Company shall propose (a)
to pay any dividend payable in stock of any class or to make any other
distribution to the holders of its Common Stock (other than a cash dividend), or
(b) to offer to the holders of its Common Stock rights or warrants to subscribe
for or to purchase any additional shares of Common Stock, or (c) to effect any
stock dividend, stock split, combination or reclassification of its Common
Stock, or (d) to effect any distribution of assets or capital reorganization,
merger, consolidation or sale, transfer or other disposition of all or
substantially all of its assets or business, or (e) to effect the liquidation,
dissolution or winding-up of the Company, or (f) to effect any other transaction
which would, upon consummation, result in a change in the Purchase Price of the
Warrants or the number of shares of Common Stock issuable upon exercise of the
Warrants
20
<PAGE>
Exhibit 4.3
pursuant to Sections 2 and 3 hereof, the Company shall give notice to each
holder of a Warrant in accordance with Section 8.02 of such proposed action,
which shall specify the date on which a record is to be taken for purposes of
such proposed transaction. Such notice shall be given not later than 15 days
prior to the record date for determining the holders of Common Stock for
purposes of such action or, if no record date is required, not later than 15
days prior to the date of the taking of such proposed action.
8.2 Notices. Any notice or demand authorized by this Agreement to be
given or made by the Placement Agent or by the holder of any Warrant Certificate
to or upon the Company shall be sent by first class mail, postage prepaid,
addressed (until another address or notice of address change is filed in writing
by the Company with the Placement Agent) and received by the noticed party as
follows:
Soy Environmental Products, Inc.
8855 Black Canyon Freeway
Suite 2000
Phoenix, Arizona 85021
Facsimile: (602) 997-5658
Any notice or demand authorized by this Agreement to be given or made by the
Company or by the holder of any Warrant Certificate to or on the Placement Agent
shall be deemed given or made if sent by first class mail, postage prepaid,
addressed (until another address is filed in writing by the Placement Agent with
the Company) and received by the noticed party as follows:
Fox & Company Investment, Inc.
6232 North 32nd Street
Phoenix, Arizona 85018
Facsimile: (602) 224-2499
Notices or demands authorized by this Agreement to be given or made by the
Company or the Placement Agent to the holder of any Warrant Certificate shall be
deemed given or made if sent first class mail, postage prepaid, addressed to
such holder at the address of such holder as shown on the registry books of the
Company.
8.3 Payment of Taxes. The Company will from time to time promptly pay
or make provision for the payment of any and all taxes and charges which may
hereafter be imposed by the laws of the United States or of any state or any
local governmental unit thereof and which shall be payable with respect to the
issuance or delivery to or upon the order of the registered holders of the
Warrants (upon the exercise of the right to subscribe) of Common Stock of the
Company pursuant to the terms of such Warrants and of this Agreement, but the
Company shall not be obligated to pay any transfer taxes in respect of the
Warrants or such shares.
8.4 Applicable Law. The validity, interpretation and performance of
this Agreement and the validity and interpretation of the Warrants shall be
governed by the laws of the State of Arizona.
21
<PAGE>
Exhibit 4.3
8.5 Copies of Agreement. A copy of this Agreement shall be provided to
any registered holder of a Warrant or Exercise Shares upon written request
thereof to the Company. A copy of this Agreement shall also be available at all
reasonable times at the office of the Company for examination by the registered
holder of any Warrant. Any such registered holder may be required to submit his
Warrant for inspection before being entitled to receive a copy of this Agreement
or to make such examination.
IN WITNESS WHEREOF, this Agreement shall been duly executed by the
parties hereto under their respective corporate seals, as of the date first
above written.
SOY ENVIRONMENTAL PRODUCTS, INC.
a Delaware corporation
By /s/ Sean F. Lee
--------------------------------------------
Sean F. Lee, Chief Executive Officer
FOX & COMPANY INVESTMENTS, INC.,
an Arizona corporation
By /s/ Thomas A. Cifelli
--------------------------------------------
Thomas A. Cifelli, Executive Vice President
22
<PAGE>
Exhibit 4.3
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE OFFERED OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAWS OR IF AN
EXEMPTION THEREFROM IS AVAILABLE. THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS
SPECIFIED IN THE WARRANT AGREEMENT REFERRED TO HEREIN. A COPY OF THE WARRANT
AGREEMENT WILL BE PROVIDED TO THE REGISTERED HOLDER THEREOF UPON REQUEST TO THE
COMPANY.
SOY ENVIRONMENTAL PRODUCTS, INC.
CLASS A WARRANT CERTIFICATE
No. AW-__ Warrants to Purchase
__________ Shares
THIS IS TO CERTIFY that, _______________________________ or registered
assigns, is the registered holder ("Holder") of the number of Class A Warrants
("Warrants") set forth above, each of which entitles the holder to purchase,
subject to the terms and conditions set forth in the Warrant Agreement, dated
__________________, 1997 (the "Warrant Agreement"), and as hereinafter set
forth, fully paid and non-assessable shares of the common stock ("Common
Stock"), of Soy Environmental Products, Inc., a Delaware corporation (the
"Company"), or equivalent security of any successor thereto at a purchase price
of $1.00, as adjusted, for a term commencing on the date hereof and ending
September 30, 2000, and to receive one or more certificates for the Common Stock
or equivalent securities so purchased, upon satisfaction of one or more
conditions precedent set forth herein and presentation and surrender to the
Company at 8855 Black Canyon Freeway, Suite 2000, Phoenix, Arizona 85021, or
such other place as specified by the Company with the form of subscription duly
executed, and accompanied by payment of the purchase price of each share
purchased, in U.S. dollars, either in cash or by certified check or bank
cashier's check, payable to the order of the Company. Notwithstanding the
foregoing, the Warrants may, upon certain events, expire or be cancelled on a
date prior to September 30, 2000, as set forth in the Warrant Agreement.
Warrants are exercisable in minimum denominations of 100 shares. Fractional
shares of the Company's Common Stock will not be issued upon the exercise of the
Warrants.
The Company covenants and agrees that all shares of Common Stock
delivered upon the exercise of these Warrants will, upon delivery, be fully paid
and non-assessable. The Warrants
A-1
<PAGE>
Exhibit 4.3
shall not be exercisable in any jurisdiction where exercise would be unlawful.
The Company will use its best efforts to qualify the shares that may be
purchased upon exercise of these Warrants for sale in all jurisdictions where
holders of the Warrants reside. However, the Company shall not be required to
honor the exercise of the Warrants if, in the opinion of the Board of Directors,
upon advice of counsel, the sale of securities upon exercise of the Warrants
would be unlawful.
The number of shares of Common Stock, or other equivalent equity
security, issuable upon the exercise of these Warrants and the purchase price
shall be subject to adjustment from time to time, in certain events, as set
forth in the Warrant Agreement, including certain sales of additional stock,
stock options, convertible securities, distribution of stock dividends, stock
splits, reclassifications or mergers.
The Company agrees at all times to reserve or hold available, or cause
to reserve or hold available, a sufficient number or shares of its Common Stock,
or other equivalent equity security, to cover the number of shares, or other
equivalent equity security, issuable upon the exercise of these and all other
Warrants of like tenor then outstanding.
This Warrant Certificate does not entitle the holder hereof, either at
law or in equity, to and voting rights or other rights as a shareholder of the
Company, or to any other rights whatsoever except the rights expressly herein
set forth, and no dividend shall be payable or accrue in respect of these
Warrants or the interest represented hereby, or the shares that may be purchased
upon exercise hereof until or unless, and except to the extent that, these
Warrants shall be duly exercised.
This Warrant Certificate is exchangeable at any time prior to
expiration upon the surrender hereof by the registered holder to the Company for
one or more new Warrant Certificates of like tenor and date representing in the
aggregate the right to purchase the number of shares that may be purchased upon
exercise hereof, each of such new Warrant Certificates to represent the right to
purchase such number of shares as may be designated by the registered holder at
the time of such surrender. The Warrants and the shares of Common Stock issuable
upon exercise of the Warrants are subject to restriction on transferability as
described in the Warrant Agreement.
The Company may deem and treat the registered holder of this Warrant
Certificate at any time as the absolute owner hereof and of the Warrants covered
hereby for all purposes and shall not be affected by any notice to the contrary.
The Warrants evidenced by this Warrant Certificate are subject to the
terms of the Warrant Agreement which is available upon request by the registered
holder of this Certificate or Company or at the office of the Company. The
Warrant Agreement is incorporated herein by reference and made a part hereof and
reference is hereby made to the Warrant Agreement
A-2
<PAGE>
Exhibit 4.3
for a full description of the rights, limitations of rights, obligations, duties
and immunities hereunder of the Company and the holders of the Warrants.
This Warrant Certificate shall not be valid or obligatory for any
purpose unless signed by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by its duly authorized officers, and the corporate seal hereunto
affixed.
SOY ENVIRONMENTAL PRODUCTS, INC.
By_____________________________________
Its____________________________________
A-3
<PAGE>
Exhibit 4.3
[FORM OF REVERSE SIDE OF CERTIFICATE]
ASSIGNMENT FORM
To assign this Warrant, fill in the form below:
I or we assign and transfer this Warrant to: (Insert Assignee's Social Security
or Tax Identification No.)
________________________________________________________________________________
________________________________________________________________________________
(Pen or type assignee's name, address and zip code)
and irrevocably appoint __________________________________ as agent to transfer
this Warrant on the books of the Company. The agent may substitute another to
act for him.
Date:_________________ Your Signature:_________________________________________
(Sign exactly as your name appears on the
other side of this Warrant Certificate)
Signature Guarantee:____________________________________________________________
By__________________________________________
The signature should be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
A-4
<PAGE>
Exhibit 4.3
SUBSCRIPTION
(To be completed and signed only upon an exercise
of the Warrants in whole or in part)
TO: SOY ENVIRONMENTAL PRODUCTS, INC.
The undersigned, the holder of the attached Warrants, hereby
irrevocably elects to exercise the purchase right represented by the Warrants
for, and to purchase thereunder, shares of Common Stock (as such terms are
defined in the Warrant Agreement dated ___________, 1997, from Soy Environmental
Products, Inc. (or other securities or property), and herewith makes payment of
$_________ therefor in cash or by certified or official bank check. The
undersigned hereby requests that the Certificate(s) for such securities be
issued in the name(s) and delivered to the address(es) as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
Deliver to:_____________________________________________________________________
Address:________________________________________________________________________
If the foregoing Subscription evidences an exercise of the Warrants to
purchase fewer than all of the shares of Common Stock (or other securities or
property) to which the undersigned is entitled under such Warrants, please issue
new Warrants, of like tenor, for the remaining Warrants (or other securities or
property) in the name(s), and deliver the same to the address(es), as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
DATED:_______________, 19__.
_____________________________________________
(Name of Holder)
_____________________________________________
(Signature of Holder or Authorized Signatory)
_____________________________________________
(Social Security or Taxpayer Identification
Number of Holder)
A-5
Exhibit 4.4
================================================================================
SOY ENVIRONMENTAL PRODUCTS, INC.
CLASS B WARRANT AGREEMENT
For the Issuance of Up to
450,000 Common Stock Purchase Warrants
================================================================================
<PAGE>
Exhibit 4.4
CLASS B WARRANT AGREEMENT
THIS CLASS B WARRANT AGREEMENT (the "Agreement") is made effective as
of the 3rd day of July, 1997, among SOY ENVIRONMENTAL PRODUCTS, INC., a Delaware
corporation (the "Company"), and FOX & COMPANY INVESTMENTS, INC. (the "Placement
Agent").
RECITALS:
A. The Company has entered into an agreement (the "Placement
Agreement") with the Placement Agent pursuant to which the Placement Agent has
agreed to assist the Company in the placement of up to 15 Units, each Unit
consisting of one $60,000 Senior Secured Convertible Notes and 60,000 Class A
Warrants subject to the terms of the Placement Agreement (the "Offering").
B. Under the terms of the Placement Agreement, the Company has agreed
to issue the Placement Agent or its assignee 30,000 Class B Warrants (the
"Placement Agent Warrants") per Unit sold in the Offering.
C. Each Placement Agent Warrant entitles the holder to purchase one
share of the Company's Common Stock at any time commencing one year after the
issuance thereof and through September 30, 2007.
D. The Company desires to provide for the form and provisions of the
Placement Agent Warrants, the terms upon which the Placement Agent Warrants
shall be issued and exercised, and the respective rights, limitation of rights,
privileges and immunities of the Company, and the registered holders of the
Placement Agent Warrants.
E. All acts and things necessary to make the Placement Agent Warrants,
when executed and delivered on behalf of the Company as provided in this
Agreement, the valid, binding and legal obligations of the Company, and to
authorize the execution and delivery of this Agreement, have been done and
performed.
AGREEMENT:
NOW, THEREFORE, it is hereby agreed as follows:
<PAGE>
Exhibit 4.4
SECTION 1
ISSUE OF PLACEMENT AGENT WARRANTS
1.1 Issuance of Definitive Placement Agent Warrants. On any closing
under the Placement Agreement (the "Warrant Date"), the Company will issue
certificates, in substantially the form attached as Exhibit A hereto ("Warrant
Certificates"), which are exchangeable for shares of the Company's common stock
("Common Stock") only as provided in Article 2 hereof and not after September
30, 2007. Each Placement Agent Warrant evidences the right of the registered
holder thereof, subject to the terms and conditions hereof, to subscribe for one
share of Common Stock of the Company.
1.2 Execution and Delivery of Placement Agent Warrants. Each Warrant
Certificate shall be dated as of the Warrant Date and shall be signed on behalf
of the Company by the facsimile or manual signature of the Chief Executive
Officer, President or Secretary of the Company. The Company may adopt and use
the facsimile or manual signature of any person who is such an officer of the
Company at the time of the execution of any Warrant Certificate, irrespective of
the date as of which the same is executed, or of any person now or hereafter
holding such office, notwithstanding the fact that at the time the Warrant
Certificate is issued such person has ceased to be an officer of the Company. No
Placement Agent Warrant shall be valid unless it shall have been signed and
delivered as provided in this Section 1.2.
SECTION 2
DURATION, EXERCISE AND REDEMPTION OF PLACEMENT AGENT WARRANTS
2.1 Duration of Placement Agent Warrants and Terms of Exercise. Each
Placement Agent Warrant entitles the holder to purchase one share of Common
Stock or equivalent security of any successor to the Company at a price of $1.20
per share (the "Purchase Price"), subject to adjustment as provided herein, for
a term, commencing on the day following the one year anniversary of the Warrant
Date and ending September 30, 2007 (the "Exercise Period"). The foregoing
notwithstanding, if notice has been given as provided in Section 4.1 in
connection with the liquidation, dissolution or winding up of the Company, the
right to exercise Placement Agent Warrants shall expire at the close of business
on the third full business day before the date specified in such notice as the
record date for determining registered holders entitled to receive any
distribution upon such liquidation, dissolution or winding up.
2.2 Exercise of Placement Agent Warrants. Placement Agent Warrants may
be exercised by surrendering, at the office of the Company, the Warrant
Certificate evidencing such Placement Agent Warrants, together with a
subscription in the form set forth on the reverse side of the Warrant
Certificate, duly executed, and accompanied by the tender, in U.S. dollars, of
either federal funds or a certified check or bank cashier's check, payable to
the order of the Company for the applicable Purchase Price. The Placement Agent
Warrants may be exercised from time to time and at any time during the Exercise
Period, in minimum denominations of
2
<PAGE>
Exhibit 4.4
100. As soon as practicable after any Placement Agent Warrants have been so
exercised, the Company shall cause to be issued and delivered to the holder, or
upon the order of the registered holder of such Placement Agent Warrants, in
such name or names as may be directed by the holder, a certificate or
certificates for the number of full shares of Common Stock to which the holder
is entitled, and if such Warrant Certificate shall not have been exercised in
full, a new Warrant Certificate for the number of Placement Agent Warrants as to
which such Warrant Certificate shall not have been exercised. All Warrant
Certificates so surrendered shall be delivered to and cancelled by the Company.
2.3 Common Stock Issued Upon Exercise of Placement Agent Warrants. All
shares of Common Stock issued upon the exercise of Placement Agent Warrants
shall be duly authorized, validly issued and outstanding, fully-paid and
nonassessable. Fractional shares of Common Stock will not be issued upon
exercise of a Placement Agent Warrant. With respect to any fraction of a share
called for upon any such exercise hereof, the Company shall pay to the holder an
amount in cash equal to such fraction multiplied by the "Current Market Price
Per Share," which on any date shall be determined as follows:
(a) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on any such exchange, the
Current Market Price Per Share shall be the average of the daily closing prices
for the 30 consecutive trading days commencing 35 trading days before such date.
If no sale is made on any trading day, the closing price shall be deemed to be
the average of the closing bid and asked prices for such day on such exchange;
or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges on any exchange, the Current Market Price Per Share shall be
the average of the 30 consecutive reported sale price (or prices, if applicable)
or the mean of the last reported bid and asked prices reported by the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") or, if
not so quoted on NASDAQ, as quoted by the National Quotations Bureau, Inc., for
the 30 consecutive trading days commencing 35 days before such date; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and prices are not reported on NASDAQ or the
National Quotations Bureau, Inc., the Current Market Price Per Share shall be
the fair market value of the Common Stock as determined by the Board of
Directors of the Company in good faith, whose determination shall be conclusive.
2.4 Record Date of Shares. Irrespective of the date of issue and
delivery of certificates for any Common Stock issuable upon the exercise of
Placement Agent Warrants, each person in whose name any such certificate is
issued shall be deemed to have become the holder of record of the shares
represented thereby on the date on which the Warrant Certificate surrendered in
connection with the subscription therefor was surrendered and payment of the
Purchase Price was tendered. No surrender of Warrant Certificates on any date
when the stock
3
<PAGE>
Exhibit 4.4
transfer books of the Company are closed, however, shall be effective to
constitute the person or persons entitled to receive shares upon such surrender
as the record holder of such shares on such date, but such person or persons
shall be constituted the record holder or holders of such shares at the close of
business on the next succeeding date on which the stock transfer books are
opened. Except as otherwise provided in Section 3.2, each person holding any
shares received upon exercise of Placement Agent Warrants shall be entitled to
receive only dividends or distributions payable to holders of record on or after
the date on which such person shall be deemed to have become the holder of
record of such shares.
2.5 Redemption of Placement Agent Warrants. The Company may not redeem
the Warrants.
SECTION 3
ADJUSTMENT OF PURCHASE PRICE,
NUMBER OF SHARES OR NUMBER OF PLACEMENT AGENT WARRANTS
3.1 General. The Purchase Price and the number of shares of Common
Stock covered by each Placement Agent Warrant and the number of Placement Agent
Warrants outstanding are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Article 3.
3.2 Stock Dividends, Stock Splits, Combinations, Reclassification, etc.
In case the Company shall at any time after the date of this Agreement (a)
declare a dividend on the Common Stock payable in shares of Common Stock, (b)
subdivide the outstanding Common Stock into a larger number of shares, (c)
combine the outstanding Common Stock into a smaller number of shares, or (d)
issue any shares of its capital stock in connection with a reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation), the
Purchase Price in effect at the time of the record date for such dividend or the
effective date of such subdivision, combination or reclassification, and/or the
number and kind of shares of stock issuable on such date shall be
proportionately adjusted so that the holder of any Placement Agent Warrant
exercised after such time shall be entitled, at no additional expense, to
receive the aggregate number and kind of shares of stock and Placement Agent
Warrants which, if such Placement Agent Warrant had been exercised immediately
prior to such date, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
3.3 Distribution of Assets. If at any time after the date hereof the
Company shall make any distribution of its assets upon or with respect to its
Common Stock, as a liquidating or partial liquidating dividend (other than upon
a liquidation, dissolution or winding up of the Company as provided for in
Section 4.1, or other than as a dividend payable out of earnings or
4
<PAGE>
Exhibit 4.4
any surplus legally available for dividends under the laws of Arizona), each
registered holder of any Placement Agent Warrant then outstanding shall, upon
the exercise of such Placement Agent Warrant after the record date for such
distribution or, in the absence of a record date, after the date of such
distribution, receive in addition to the shares of Common Stock to which the
holder would otherwise be entitled hereunder, such assets (or, at the option of
the Company, a sum equal to the value thereof at the time of the distribution as
determined by its Board of Directors in its sole discretion) which would have
been distributed to such registered holder if the holder had exercised its
Placement Agent Warrants immediately prior to the record date for such
distribution or, in the absence of a record date, immediately prior to the date
of such distribution.
3.4 Consolidation, Merger and Sale of Assets. If, prior to the end of
the Exercise Period, the Company shall at any time consolidate with or merge
into another corporation, the holder of any Placement Agent Warrant will
thereafter receive, upon exercise thereof, in lieu of the shares of Common Stock
of the Company immediately theretofore issuable upon exercise of the rights then
represented by the Placement Agent Warrants, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of the Common Stock of the Company equal to the number of
shares of such Common Stock immediately theretofore issuable upon exercise of
the Placement Agent Warrants, had such consolidation or merger not taken place.
The Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure that the provisions hereof shall thereafter
be applicable, as nearly as reasonably may be, in relation to any securities or
property thereafter deliverable upon the exercise of the Placement Agent
Warrants. The Company or the successor corporation, as the case may be, shall
execute and deliver to the Placement Agent a supplemental agreement so
providing. The provisions of this Section 3.4 shall similarly apply to
successive mergers or consolidations. A sale of all or substantially all of the
assets of the Company for a consideration (apart from the assumption of
obligations) consisting primarily of securities, shall be deemed a consolidation
or merger for the foregoing purposes.
3.5 Dividends in Convertible Securities, Options, Rights or Placement
Agent Warrants. In case the Company shall issue stock, securities, rights,
options, convertible securities or warrants to all holders of the Common Stock
entitling such holders to subscribe for or purchase Common Stock or securities
convertible into Common Stock, each registered holder of any Placement Agent
Warrant then outstanding shall, upon the exercise of such Placement Agent
Warrant after the record date for such distribution or, in the absence of a
record date, after the date of such distribution, receive in addition to the
shares of Common Stock to which the holder would otherwise be entitled
hereunder, such stock, securities, rights, options, convertible securities or
warrants which would have been distributed to such registered holder if the
holder had exercised its Placement Agent Warrants immediately prior to the
record date for such distribution or, in the absence of a record date,
immediately prior to the date of such distribution.
5
<PAGE>
Exhibit 4.4
3.6 Form of Placement Agent Warrant. The form of Placement Agent
Warrant need not be changed because of any change in the Purchase Price or the
number of shares of Common Stock or Placement Agent Warrants issuable upon
exercise of the Placement Agent Warrants pursuant to this Article 3 and
Placement Agent Warrants issued after such change may state the same terms with
respect to the Purchase Price and number of shares of Common Stock and Placement
Agent Warrants issuable thereunder as stated in the Placement Agent Warrants
initially issued pursuant to this Agreement. The Company may at any time, in its
sole discretion, make any change in the form of Placement Agent Warrant that the
Company may deem appropriate and that does not affect the substance thereof in a
manner inconsistent with this Agreement. Any Placement Agent Warrant thereafter
issued or countersigned, whether in exchange or substitution for an outstanding
Placement Agent Warrant or otherwise, may be in the form so changed.
3.7 Dividends. No registered holder of any Placement Agent Warrant
shall, upon the exercise thereof, be entitled to any dividend that may have
accrued or which may previously have been paid with respect to shares of stock
issuable upon exercise of the Placement Agent Warrants except as specifically
provided in this Section 3.
3.8 Certification of Adjusted Purchase Price and Number of Shares and
Placement Agent Warrants Issuable. Whenever the Purchase Price and the number of
shares of Common Stock and Placement Agent Warrants issuable upon the exercise
of each Placement Agent Warrant are adjusted as provided in this Section 3, the
Company shall (a) promptly prepare an Officer's Certificate setting forth the
Purchase Price as so adjusted, the number of shares of Common Stock and
Placement Agent Warrants issuable upon the exercise of each Placement Agent
Warrant as so adjusted and/or the number of Placement Agent Warrants as so
adjusted and a brief statement of the facts accounting for such adjustment, (b)
promptly file with the Placement Agent and with each transfer agent for the
Common Stock a copy of such certificate and (c) mail a brief summary thereof to
each registered holder of Placement Agent Warrants in accordance with Section
8.1. The term "Officer's Certificate" in this Agreement shall mean a certificate
or instrument signed by one of the following: the Chief Executive Officer, the
President, a Vice President, the Treasurer or the Secretary of the Company.
SECTION 4
OTHER PROVISIONS FOR PROTECTION OF PLACEMENT AGENT WARRANT HOLDERS
4.1 Liquidation of the Company. In the event of the liquidation,
dissolution or winding up of the Company, a notice thereof shall be filed by the
Company with the Placement Agent and each transfer agent for the Common Stock
(if the transfer agent is a person other than the Company) at least 30 days
before the record date (which date shall be specified in such notice) for
determining holders of the Common Stock entitled to receive any distribution
upon such liquidation, dissolution or winding up. Such notice shall also specify
the date on which the right to exercise Placement Agent Warrants shall expire,
as provided in Section 2.1. A copy
6
<PAGE>
Exhibit 4.4
of such notice shall be published once in an Authorized Newspaper in Phoenix,
Arizona, not more than 30 nor less than 20 days from such record date. Failure
to give such notice, or any defect therein, shall not affect the legality or
validity of the liquidation, dissolution or winding up, or of any distribution
in connection therewith. The term "Authorized Newspaper" when used with
reference to the publication of a notice provided for in this Agreement shall
mean a newspaper printed in the English language and customarily published on
each business day (whether or not published on Saturdays, Sundays or legal
holidays) and of general circulation.
4.2 Reservation of Shares. The Company shall reserve and keep available
out of its authorized but unissued Common Stock such number thereof as shall
from time to time be sufficient to permit the exercise of all outstanding
Placement Agent Warrants. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient for such purposes, the Company
will take such corporate action as may, in the opinion of its counsel be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
4.3 No Rights as Stockholder Conferred by Placement Agent Warrants. The
Placement Agent Warrants shall not entitle the registered holders thereof to any
of the rights, either at law or in equity, of a stockholder of the Company.
4.4 Lost, Stolen, Mutilated or Destroyed Placement Agent Warrants. If
any Placement Agent Warrant becomes lost stolen, mutilated or destroyed, the
Company may, on such terms as to indemnify or otherwise as may be reasonably
required to save it harmless, issue a new Placement Agent Warrant of the
denomination, tenor and date as the Placement Agent Warrant so lost stolen
mutilated or destroyed. Any such new Placement Agent Warrant shall constitute an
original contractual obligation of the Company whether or not the allegedly
lost, stolen, mutilated or destroyed Placement Agent Warrant shall be at any
time enforceable by any person.
4.5 Enforcement of Placement Agent Warrant Rights. All rights of action
in respect of this Agreement are vested in the respective registered holders of
the Placement Agent Warrants. Any registered holder of any Placement Agent
Warrant may in its own behalf and for its own benefit enforce, and may institute
and maintain any suit action or proceeding against the Company suitable to
enforce, or otherwise in respect of, the holder's right to exercise its
Placement Agent Warrant for the purchase of stock in the manner provided in the
Placement Agent Warrant and in this Agreement.
SECTION 5
REGISTRATION OF PLACEMENT AGENT WARRANTS
5.1 Piggyback Registration of Common Stock.
7
<PAGE>
Exhibit 4.4
(a) If the Company proposes to register any of its Common
Stock under the Securities Act of 1933, as amended ("Securities Act"), on any
registration statement, whether or not for its own account (other than by a
registration statement on Form S-8 or other form which does not include
substantially the same information as would be required in a form for the
general registration of securities, would not be available for the Common Stock
or relates to any employee benefit plan or reorganization of the Company), it
shall as expeditiously as possible give written notice to all registered holders
of Placement Agent Warrants of such holders' "Piggyback Registration Rights" as
set forth in this Section 5.1. Upon the written request (which request shall, if
applicable, specify that a holder shall be required to exercise the Placement
Agent Warrants and the number of shares of Common Stock intended to be sold by
such holder after exercise) of any holder made within 20 days after receipt of
any such notice, the Company shall (subject to the additional terms of this
Agreement) include in the registration statement the Placement Agent Warrants
and/or the shares of Common Stock issuable upon exercise of such warrants
("Registrable Securities") which the Company has been so requested to register
by the holder thereof and the Company shall keep such registration statement in
effect and maintain compliance with each federal and state law or regulation for
the period necessary for such holder to effect the proposed sale or other
disposition (but in no event for a period greater than 120 days).
(b) If, at any time after giving written notice of its
intention to register Registrable Securities in a Piggyback Registration but
prior to the effective date of the related registration statement, the Company
shall determine for any reason not to register any Common Stock, the Company
shall give notice of such determination to each holder and, thereupon, shall be
relieved of its obligation to register any Registrable Securities in connection
with such Piggyback Registration (and shall not convert any of the shares into
shares of Common Stock pursuant to Section 2, if applicable). All best efforts
obligations of the Company shall cease if the Company determines to terminate
prior to such effective date any registration pursuant to this Section 5.1.
(c) If a Piggyback Registration involves an offering by or
through underwriters, all holders requesting to have their Registrable
Securities included in the Company's registration statement must sell their
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to other selling shareholders, and any holder
requesting to have its Registrable Securities included in such registration
statement may elect in writing, not later than three business days prior to the
effectiveness of the registration statement filed in connection with such
registration, not to have its Registrable Securities so included in connection
with such registration.
(d) If a Piggyback Registration involves an offering by or
through underwriters, the Company, except as otherwise provided herein, shall
not be required to include Registrable Securities therein if and to the extent
the underwriter managing the offering reasonably believes in good faith and
advises each holder requesting to have Registrable
8
<PAGE>
Exhibit 4.4
Securities included in the Company's registration statement that such inclusion
would materially adversely affect such offering, provided that if other selling
shareholders who are employees, officers, directors or other affiliates of the
Company have requested registration of securities in the proposed offering, the
Company will reduce or eliminate such other selling shareholders' securities
before any reduction or elimination of Registrable Securities held by holders of
Placement Agent Warrants, and any such reduction or elimination (after taking
into account the effect of preceding clause) shall be pro rata to all other
holders of the securities of the Company exercising "piggyback registration
rights" similar to those set forth herein in proportion to the respective number
of shares of Registrable Securities they have requested to be registered.
5.2 Demand Registration.
(a) At any time after the 12 month anniversary of the final
Warrant Date and provided the Registrable Securities, upon exercise, are not
otherwise qualified for sale under an exemption available under the Securities
Act, holders of an aggregate of 50% of all outstanding Placement Agent Warrants
may exercise their "Demand Registration Rights" as described herein for
registration covering the public sale of Registrable Securities hereunder. As
soon as practicable thereafter, the Company shall use its best efforts to file a
registration statement with respect to the Registrable Securities which holders
have requested to be registered and obtain the effectiveness thereof, and to
take all other action necessary under any federal or state law or regulation to
permit such Registrable Securities to be sold or otherwise disposed of, and the
Company shall maintain such compliance with each such federal and state law and
regulation for the period necessary for such holders to effect the proposed sale
or other disposition; provided that the Company shall have the right to delay
such registration under certain circumstances for up to 90 days during any 12
month period. The Company shall be required to effect one registration or
qualification pursuant to this Section 5.2, and shall not be obligated to effect
a registration during the six month period commencing with the date of any other
registration under the Securities Act in which Registrable Securities were
registered.
(b) The managing underwriter and the co-manager (if any), and
the independent price required under the rules of the NASD (if any), of the
offering pursuant to any registration under this Section 5.2 shall be selected
and obtained by the Company.
(c) The Company may delay any registration under this Section
5.2 for not more than 90 days if management determines in good faith that such
delay is necessary to consummate a pending transaction. If the registration is
delayed, management will notify the holders of Placement Agent Warrants within
three weeks after receipt of notice specified in Section 5.2(a) of the delay but
shall not be required to provide any information to any holder regarding the
existence or the nature of any pending transactions.
9
<PAGE>
Exhibit 4.4
5.3 Conditions Relating to Registration and Offer of Registrable
Securities.
(a) Subject to paragraph (b) of this Section 5.3, the
registration rights of the holders pursuant to this Agreement and the ability to
offer and sell Registrable Securities pursuant to a registration statement are
subject to the following conditions and limitations, and each holder agrees with
the Company that:
(i) If the Company determines in its good faith
judgment that the filing of a registration statement under Section 5.1
or Section 5.2 hereof or the use of any prospectus would require the
disclosure of important information which the Company has a bona fide
business purpose for preserving as confidential or the disclosure of
which would impede the Company's ability to consummate a significant
transaction, upon written notice of such determination by the Company,
the rights of the holders to offer, sell or distribute any securities
pursuant to the registration statement or to require the Company to
take action with respect to the registration or sale of any securities
pursuant to the registration statement (including any action
contemplated by Section 5.4 hereof) will for up to 60 days in any 12
month period be suspended until the date upon which the Company
notifies the holders in writing that suspension of such rights for the
grounds set forth in this Section 5.3(a)(i) is no longer necessary.
(ii) If all reports required to be filed by the
Company pursuant to the Securities Exchange Act of 1934, as amended
("Exchange Act"), have not been filed by the required date without
regard to any extension, or if consummation of any business combination
by the Company has occurred or is probable for purposes of Rule 3-05 or
Article 11 of Regulation S-X under the Securities Act, upon written
notice thereof by the Company to the holders, the rights of the holders
to offer, sell or distribute any securities pursuant to the
registration statement or to require the Company to take action with
respect to the registration or sale of any securities pursuant to the
registration statement (including any action contemplated by Section
5.4 hereof) will for up to 60 days in any 12 month period be suspended
until the date upon which the Company has filed such reports or
obtained the financial information required by Rule 3-05 or Article 11
of Regulation S-X to be included in the registration statement.
(iii) In the case of the registration of any
underwritten primary equity offering initiated by the Company (other
than any registration by the Company on Form S-8, or a successor or
substantially similar form, of (A) an employee stock option, stock
purchase or compensation plan or of securities issued or issuable
pursuant to any such plan, or (B) a dividend reinvestment plan), each
holder agrees, if requested in writing by the managing underwriter or
underwriters administering such offering, not to effect any offer, sale
or distribution of securities (or any option or right to acquire
securities) during the period commencing on the 10th day prior to the
effective date of the registration statement covering such underwritten
primary equity offering and ending on
10
<PAGE>
Exhibit 4.4
the date specified by such managing underwriter in such written request
to such holder, which period may be of a duration of 90 days or more.
(iv) In the event that the Company plans to
repurchase or bid for securities of the Company in the open market, on
a private solicited basis or otherwise, and the Company determines, in
its reasonable good faith judgment and based upon the advice of counsel
to the Company (which counsel shall be experienced in securities laws
matters), that any such repurchase or bid may not, under Rule 10b-6
under the Exchange Act, or any successor or similar rule ("Rule
10b-6"), be commenced or consummated due to the existence or the
possible commencement of a "distribution" (within the meaning of Rule
10b-6) as a result of any offers or sales by holders of any Registrable
Securities, as the case may be, under any registration statement filed
pursuant to this Agreement, the Company shall be entitled, for a period
of 90 days or more, to request that holders of Registrable Securities,
to suspend or postpone such distribution pursuant to such registration
statement (a "10b-6 Election"). The Company shall, as promptly as
practicable, give such holder or holders written notice of such 10b-6
Election, stating the basis for the Company's determination. As
promptly as practicable following the determination by the Company that
the holders or holders may commence or recommence their distribution
pursuant to the registration statement without causing the Company to
be in violation of Rule 10b-6, the Company shall give such holder or
holders written notice of such determination.
(b) Notwithstanding the provisions of Section 5.3(a) above,
the aggregate number of days (whether or not consecutive) during which the
Company may delay the effectiveness of a registration statement or prevent
offerings, sales or distribution by the holders thereunder pursuant to Section
5.3(a) shall in no event exceed 180 days during any 12-month period.
(c) The Company may require each selling holder of Registrable
Securities, as a condition to the inclusion of the Registrable Securities of
such selling holder in the registration statement or in any offering thereunder,
as the case may be, to furnish to the Company such information regarding the
holder and the distribution of such securities as the Company may from time to
time reasonably request (which request shall be confirmed in writing if
requested by the Company) in order to comply with applicable law and such other
information as may be legally required in connection with such registration or
offering, and the holder shall promptly provide such information and a written
consent to the inclusion of such information in the registration statement or
any prospectus or supplement thereto; provided that the failure of any holder to
provide such information to the Company shall not in any way affect the
obligations of the Company hereunder with respect to any other holder.
11
<PAGE>
Exhibit 4.4
5.4 Registration Procedures. In connection with the obligations of the
Company with respect to the registration statement pursuant to Section 5.1 or
Section 5.2, hereof and subject to Section 5.3 hereof, the Company shall:
(a) (i) prepare and file with the Commission a registration
statement on the appropriate form under the Securities Act, (A) which form shall
be selected by the Company and shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution by the selling holders thereof (provided that the Company shall not
be required to use any form other than Form S-1, S-2 or S-3 or any successor
form and shall not be required to file more than one registration statement with
the Commission) and (B) which registration statement shall comply as to form in
all material respects with the requirements of the applicable form and include
or incorporate by reference all financial statements required by the Commission
to be so included or incorporated by reference, further provided that subject to
the registration statement and prospectus being in compliance with the
requirements of the Securities Act and the Exchange Act (including all rules and
regulations of the Commission thereunder), the Company has the sole discretion
to determine the form, substance and presentation of any financial or other
information included in any registration statement or prospectus, and whether
such information should be included in such registration statement or
prospectus; and (ii) use its reasonable best efforts to cause such registration
statement to become effective and remain effective in accordance with Section
5.1 and Section 5.2 hereof;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the registration statement as may be necessary to
keep such registration statement effective for the applicable period; and cause
each prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Securities Act;
(c) in the event that any federal law or regulation binding on
the Company and adopted after the date hereof so requires (and would also so
require if the Registrable Securities were being offered in a primary offering
by the Company rather than by the holders), use its reasonable best efforts to
cause such Registrable Securities to be registered with or approved by such
other federal governmental agencies or authorities in the United States, if any,
as may be required by virtue of the business and operations of the Company to
enable the selling holders to consummate the disposition of such Registrable
Securities;
(d) furnish to each holder of Registrable Securities and to
each managing underwriter of an underwritten offering of Registrable Securities
pursuant to Section 4(1) of the Securities Act, if any, without charge, as many
copies of each prospectus, including each preliminary prospectus, and any
amendment or supplement thereto as such holder or underwriter may reasonably
request, in order to facilitate the public sale or other disposition of the
Registrable Securities;
12
<PAGE>
Exhibit 4.4
(e) use its reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions as any holder of Registrable Securities of such class
covered by the registration statement shall, on 20 days prior written notice,
reasonably request in writing. Such notice to be sent at any time prior to the
applicable registration statement being declared effective by the Commission.
The Company shall maintain such registration or qualification in effect during
the applicable period provided in Section 5.1 or Section 5.2 hereof; provided,
however, that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 4(e); (ii) subject itself to taxation in any such
jurisdiction; (iii) make any change to its Articles or Incorporation or Bylaws;
or (iv) become subject to general service of process in any jurisdiction where
it is not then so subject;
(f) notify each holder of Registrable Securities as promptly
as practicable after becoming aware thereof and (if requested by any such
holder) confirm such notice in writing (i) when the registration statement has
become effective and when any post-effective amendments and supplements thereto
become effective; (ii) of any request by the Commission or any state securities
authority for amendments and supplements to the registration statement and any
prospectus or for additional information relating to the Registrable Securities
or the registration or qualification thereof after the registration statement
has become effective; (iii) of the issuance by the Commission or any state
securities authority of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that purpose;
(iv) if the representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar agreement,
if any, relating to the Registrable Securities cease to be true and correct in
any material respect prior to the closing date specified in such agreement
(provided such notice shall be given only to holders which are parties to the
agreements pursuant to which such representations and warranties are made), or
if the Company receives any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (v) of the happening of any
event during the period (other than any suspension period referred to in Section
5.3(a)) during which the registration statement is required hereunder to be
effective as a result of which the registration statement or any prospectus
would contain an untrue statement of material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(g) use its reasonable best efforts to obtain the withdrawal
of any order suspending the effectiveness of the registration statement or the
qualification of the Registrable Securities for sale in any jurisdiction as
promptly as practicable;
(h) furnish to each holder of Registrable Securities, without
charge, at least one conformed copy of the registration statement and any
post-effective amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested in writing);
13
<PAGE>
Exhibit 4.4
(i) cooperate with the holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to the registration statement and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the selling holders may
reasonably request (in each case, provided such certificates are requested in
writing at least three business days prior to any delivery thereof);
(j) upon the occurrence of any event contemplated by Section
5.4(f)(v) hereof, use its reasonable best efforts as promptly as practicable to
prepare and file with the Commission a supplement or post-effective amendment to
the registration statement or the related prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities, such
prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(k) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 under
the Securities Act;
(l) use its reasonable best efforts to (i) cause all
Registrable Securities to be listed or quoted on any securities exchange or
quotation system on which the Company's outstanding Common Stock is then listed
or quoted; and
(m) obtain a CUSIP number for all Registrable Securities not
later than the effective date of the registration statement.
Each holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5.4(f)(v) hereof, such
holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement covering such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5.4(j) hereof, or until it is advised in writing by the
Company that the use of such prospectus may be resumed and, if so directed by
the Company, such holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such holder's possession,
of the prospectus covering such Registrable Securities current at the time of
receipt of such notice; provided, however, that the Company shall use its
reasonable best efforts to promptly prepare and provide to the holders a
supplemented or amended prospectus contemplated by such Section 5.4(j) hereof.
In the event the Company shall give any such notice, the period during which
such registration statement
14
<PAGE>
Exhibit 4.4
shall be maintained effective 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 5.4(f)(v) hereof to including the date when each holder of Registrable
Securities covered by such registration statement shall have received the copies
of the supplemented or amended prospectus contemplated by Section 5.4(j) hereof.
5.5 Registration Expenses.
(a) The Company will bear all reasonable expenses incident to
the performance of or compliance with its obligations under this Agreement,
including, without limitations, all registration and filing fees, all fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of one firm of counsel for the holders and any
underwriters in connection with blue sky qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of the
officers and employees of the Company performing legal or accounting duties),
and reasonable fees and disbursement of counsel for the Company and its
independent certified public accountants (including the reasonable expenses of
any special audit or comfort letters required by or incident to such
performance), securities acts liability insurance (if the company elects to
obtain such insurance), the reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, reasonable fees
and expenses of any other persons retained by the Company and the fees and
expenses associated with any required filing with the National Association of
Securities Dealers, Inc. ("NASD") (all such expenses being herein called
"Registration Expenses"). Notwithstanding the foregoing, the Company is not
required to pay any fees or expenses of holders, underwriters, the holder's or
any underwriter's counsel (other than the blue sky counsel referred to above) or
accountant or any other advisers, including any transfer taxes, underwriting,
brokerage and other discounts and commissions and finders' and similar fees
payable in the respect of Registrable Securities.
(b) Each holder shall pay all costs and expenses incurred by
such holder (including all transfer taxes, underwriting, brokerage and other
discounts and commissions and finders' and similar fees payable in respect of
Registrable Securities). To the extent that any Registration Expenses are
incurred, assumed or paid by any holder or any placement or sales agent therefor
or underwriter thereof with the Company's prior written consent, the Company
shall reimburse such person for the full amount of the Registration Expenses so
incurred, assumed or paid within a reasonable time after receipt of a written
request therefor. Any Registration Expenses submitted by any holder, placement
or sales agent or underwriter or on behalf of any such person for payment by the
Company shall be itemized in detail and contain clear and accurate receipts of
all expenditures made by such parties.
15
<PAGE>
Exhibit 4.4
5.6 Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless each
holder and each "person," if any, that controls such holder within the meaning
of Section 15 of the Securities Act for, from and against any and all loss,
liability, claim, damage and expense (including attorneys' fees) to the extent
resulting from any untrue statement or alleged untrue statement of a material
fact contained in any registration statement pursuant to which Registrable
Securities were registered under the Securities Act (or any amendment thereto),
including all documents incorporated therein by reference, or from the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statement therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
insofar as any such misstatement or omission or alleged misstatement or omission
is made therein in reliance upon and in conformity with information furnished to
the Company by such holder in writing expressly for use in a registration
statement (or any amendment thereto) or any prospectus (or any amendment or
supplement thereto) relating to the Registrable Securities. As used in this
Section 5.6(a), the term "holder" shall include its officers, directors and
agents.
(b) Each holder agrees to indemnify and hold harmless the
Company, its directors and officers and each "person," if any, who controls the
Company within the meaning of Section 15 of the Securities Act to the same
extent as the foregoing indemnity from the Company to such holder, but only with
respect to information furnished in writing by such holder or on such holder's
behalf expressly for use in any registration statement (or any amendment
thereto) or any prospectus (or any amendment or supplement thereto) relating to
the Registrable Securities, or any amendment or supplement thereto; provided
that the obligations or any holder to indemnify the Company and the other
persons referred to above shall be limited to the proceeds received by such
holder from the sale of such Registrable Securities pursuant to such
registration statement.
(c) If any action or proceeding (including any governmental
investigation) shall be brought or asserted against any person entitled to
indemnification hereunder, the indemnified party shall give prompt written
notice to the indemnifying party, and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party, and shall assume the payment of all expenses in
connection with such defense. The indemnified party or any controlling person of
such indemnified party 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 party or such
controlling person unless (i) the indemnifying party shall have agreed to pay
such fees and expenses; or (ii) the indemnifying party shall have failed to
assume the defense for such action
16
<PAGE>
Exhibit 4.4
or proceeding and to employ counsel reasonably satisfactory to the indemnified
party in any such action or proceeding; or (iii) the named parties to any such
action or proceeding (including any impleaded parties) include both the
indemnified party or such controlling person and the indemnifying party, and
such indemnified party or such controlling person shall have been advised by
counsel that counsel employed by the indemnifying party would, under applicable
professional standards, have a conflict in representing both the indemnifying
party and the indemnified party or such controlling person, in which case, if
such indemnified person or such controlling person notifies the indemnifying
party in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action or proceeding of separate but substantially similar
or related actions or proceedings in the same jurisdiction arising out of the
same general allegations or circumstances, and shall not be liable for the
reasonable fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such indemnified party
and such controlling persons, which firm shall be designated, if the holders (or
their controlling persons) are the indemnified parties, in writing by the
holders of a majority of the outstanding Registrable Securities owned by holders
who are then entitled to such indemnity in connection with such action or
proceeding and if the Company is the indemnified party, by the Company. No party
shall be liable for any settlement of any such action or proceeding effected
without its written consent (which consent shall not be unreasonably withheld),
but if settled with its written consent, or if there is a final judgment for the
plaintiff in any such action or proceeding, the indemnifying party agrees to
indemnify and hold harmless such indemnified party and such controlling person
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment.
(d) (i) If the indemnification provided for in this Section
5.6 is unavailable to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses, then each such indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses in such proportion as is appropriate to
reflect the relative fault of the indemnified party and the indemnifying party
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the indemnified party and the
indemnifying party 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 such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(ii) The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 5.6(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party
17
<PAGE>
Exhibit 4.4
as a result of the losses, claims, damages, expenses, liabilities, or judgements
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5.6(d), no holder shall be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities of
such selling holder were offered to the public pursuant to such registration
statement exceeds the amount of any damages which such selling holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person found guilty by a court of
competent jurisdiction of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty by a court of competent jurisdiction of such
fraudulent misrepresentation.
(e) Neither the Company nor the holders shall have any
obligation under this Agreement (other than as set forth in this Section 5.6) to
provide the other with indemnification or contribution in respect of any losses,
claims, damages, liabilities or expenses referred to in this Section 5.6;
provided, however, that the provisions of this Section 5.6 shall not relieve an
indemnifying party from liability which it may have to an indemnified party
other than with respect to the matters referred to in this Section 5.6.
5.7 Commission Filings.
The Company covenants that it will file the reports required
to be filed by it under the Exchange Act and the rules and regulations adopted
by the Commission thereunder in a timely manner as determined by applicable
rules and interpretations under the Exchange Act. Upon the written request of
any holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
SECTION 6
TRANSFER AND OWNERSHIP OF PLACEMENT AGENT WARRANTS
6.1 Negotiability and Ownership. Placement Agent Warrants issued
hereunder shall be registered and transferable only by transfer on the books of
the Company. Presentations may be made and notices and demands may be served at
the office of the Company.
6.2 Placement Agent Warrant Register. The Company shall cause to be
kept a register or registers in which, subject to such reasonable regulations as
the Company may prescribe, the Company shall register transfer of Placement
Agent Warrants as herein provided. Upon surrender for transfer of any Placement
Agent Warrant, the Company shall sign, authenticate and deliver in the name of
the transferee or transferees a new Warrant Certificate for a like amount of
Placement Agent Warrants.
18
<PAGE>
Exhibit 4.4
6.3 Exchange of Placement Agent Warrants. On and after the Placement
Agent Warrant Date and prior to the end of the Exercise Period, Warrant
Certificates may be surrendered at the office of the Company for exchange, and,
upon cancellation thereof, there shall be issued and delivered in exchange
therefor, one or more new Warrant Certificates, as requested by the registered
holder of the cancelled Warrant Certificate, for the same aggregate number of
shares of Placement Agent Warrants evidenced by the Warrant Certificate so
cancelled. In case of any exchange pursuant to this Section 6 or a transfer of a
Warrant Certificate, the Company may make a charge for reimbursement of any
stamp or other tax or governmental charge required to be paid in connection
therewith, but no other charge shall be made to the Placement Agent Warrant
holder for any transfer or issue of new Warrant Certificate in case of any such
exchange.
6.4 Restrictions on Transferability.
(a) The Placement Agent Warrants and the Common Stock issuable
upon exercise of a Placement Agent Warrant (the "Exercise Shares") shall not be
transferable except upon the conditions hereinafter specified, which conditions
are intended to ensure compliance with the provisions of the Securities Act and
any applicable state securities laws, in respect of the transfer of any
Placement Agent Warrants or any Exercise Shares.
(b) Each Warrant Certificate initially issued under this
Agreement and each Warrant Certificate issued in exchange therefor shall bear on
the face thereof a legend substantially as follows:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER
APPLICABLE SECURITIES LAWS OR IF AN EXEMPTION THEREFROM IS AVAILABLE.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS SPECIFIED IN THE
WARRANT AGREEMENT REFERRED TO HEREIN. A COPY OF THE WARRANT AGREEMENT
WILL BE PROVIDED TO THE REGISTERED HOLDER THEREOF UPON REQUEST TO THE
COMPANY.
(c) Each certificate for Exercise Shares initially issued upon
the exercise of any Placement Agent Warrant and each certificate for shares of
Exercise Shares issued to a subsequent transferee of such certificate shall,
unless otherwise permitted by the provisions of Section 6.4(d), bear on the fact
thereof a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED,
19
<PAGE>
Exhibit 4.4
AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER APPLICABLE
SECURITIES LAW OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY STATING THAT SUCH REGISTRATION IS NOT REQUIRED. THE TRANSFER OF
SUCH SHARES IS SUBJECT TO CERTAIN CONDITIONS. THE PROVISIONS OF WHICH
WILL BE PROVIDED TO THE REGISTERED HOLDER HEREOF UPON REQUEST BY THE
COMPANY, AND NO TRANSFER OF SUCH SHARES SHALL BE VALID OR EFFECTIVE
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
(d) In the event that a registration statement covering any
Placement Agent Warrant or Exercise Shares shall become effective under the
Securities Act and under any applicable state securities laws or in the event
that the Company shall receive an opinion of its counsel that, in the opinion or
such counsel, such legend is not, or is no longer, necessary or required with
respect to such shares (including, without limitation, because of the
availability of the exemption afforded by Rule 144 of the general rules and
regulations of the Commission), the Company shall or shall instruct its transfer
agents and registrars to, remove such legend from the certificates evidencing
such Placement Agent Warrant or Exercise Shares or issue new certificates
without such legend in lieu thereof. Upon the written request of the holder of
any Placement Agent Warrants or Exercise Shares, the Company covenants and
agrees forthwith to request its counsel to render an opinion with respect to the
matters covered by this paragraph and to bear all expenses in connection with
such opinion of its counsel.
(e) The holder of each Placement Agent Warrant or any Exercise
Shares, by acceptance thereof, agrees to give prior written notice to the
Company of such holders intention to transfer such Placement Agent Warrant or
such Exercise Shares (or any portion thereof), describing briefly the manner and
circumstances of the proposed transfer, together with an opinion of counsel to
the effect that the proposed transfer may be effected without registration or
qualification under any federal or state law. Unless the Company shall have
received an opinion from counsel to the Company (which opinion shall be obtained
by the Company not more than ten days after notice of a proposed transfer) that
the proposed transfer may not be effected without registration or qualification
under federal or state law, such holder shall be entitled to transfer such
Placement Agent Warrant or such Exercise Shares, all in accordance with the
terms of the notice delivered by such holder to the Company. All fees and
expenses of counsel for the Company in connection with the rendition or the
opinion provided for in this Section 6.4(e) shall be paid by the Company.
(f) If in the opinion of either counsel referred to in Section
6.4(e) a proposed transfer of a Placement Agent Warrant or Exercise Shares
requested by the holder thereof may not be effected without registration or
qualification under applicable federal or state law, the Company shall promptly
give written notice to the holder who proposed to transfer the Placement Agent
Warrant or Exercise Shares (or any portion thereof) that the holder shall not
consummate the proposed transfer and the reasons therefor. No Placement Agent
Warrant or
20
<PAGE>
Exhibit 4.4
Exercise Shares (or any portion thereof) for which a transfer has been proposed
pursuant to Section 6.4(e) may be transferred in the manner proposed if
registration thereof under the Securities Act would be required in the opinion
of either counsel mentioned above.
6.5 Agreement of Placement Agent Warrant Holders. Every holder of a
Warrant Certificate, by accepting the same, consents and agrees with the Company
and with all other Placement Agent Warrant holders that: (a) the Placement Agent
Warrants are transferrable only as permitted by Section 6.1 above; (b) the
Placement Agent Warrants are transferable only on the registry books of the
Company as herein provided; and (c) the Company may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner thereof
and of the Placement Agent Warrants evidenced thereby for all purposes
whatsoever, and the Company shall not be affected by any notice to the contrary,
whether such notice be in the form of notations on the Warrant Certificates or
otherwise.
SECTION 7
MODIFICATION
The Placement Agent may, without the consent or concurrence of the
registered holders of the Placement Agent Warrants by supplemental agreement or
otherwise, concur with the Company in making any changes or corrections in these
presents as to which it shall have been advised by counsel (who may but need not
also be counsel for the Company) that the same are not prejudicial to the rights
of the Placement Agent Warrant holders as indicated by the general sense or
intent of the original language and are required for the purpose of curing or
correcting the inconsistent provision or clerical omission or mistake or
manifest error herein.
SECTION 8
CERTAIN DEFINITIONS AND OTHER MATTERS
8.1 Notice of Proposed Actions. In case the Company shall propose (a)
to pay any dividend payable in stock of any class or to make any other
distribution to the holders of its Common Stock (other than a cash dividend), or
(b) to offer to the holders of its Common Stock rights or warrants to subscribe
for or to purchase any additional shares of Common Stock, or (c) to effect any
stock dividend, stock split, combination or reclassification of its Common
Stock, or (d) to effect any distribution of assets or capital reorganization,
merger, consolidation or sale, transfer or other disposition of all or
substantially all of its assets or business, or (e) to effect the liquidation,
dissolution or winding-up of the Company, or (f) to effect any other transaction
which would, upon consummation, result in a change in the Purchase Price of the
Placement Agent Warrants or the number of shares of Common Stock and Placement
Agent Warrants issuable upon exercise of the Placement Agent Warrants pursuant
to Section 2 and 3 hereof, the Company shall give notice to each holder of a
Placement Agent Warrant in accordance with Section 8.02 of such proposed action,
which shall specify the date on which a
21
<PAGE>
Exhibit 4.4
record is to be taken for purposes of such proposed transaction. Such notice
shall be given not later than 15 days prior to the record date for determining
the holders of Common Stock for purposes of such action or, if no record date is
required, not later than 15 days prior to the date of the taking of such
proposed action.
8.2 Notices. Any notice or demand authorized by this Agreement to be
given or made by the Placement Agent or by the holder of any Warrant Certificate
to or upon the Company shall be sent by first class mail, postage prepaid,
addressed (until another address or notice of address change is filed in writing
by the Company with the Placement Agent) and received by the noticed party as
follows:
Soy Environmental Products, Inc.
8855 Black Canyon Freeway
Suite 2000
Phoenix, Arizona 85021
Facsimile: (602) 997-5658
Any notice or demand authorized by this Agreement to be given or made by the
Company or by the holder of any Warrant Certificate to or on the Placement Agent
shall be deemed given or made if sent by first class mail, postage prepaid,
addressed (until another address is filed in writing by the Placement Agent with
the Company) and received by the noticed party as follows:
Fox & Company Investment, Inc.
6232 North 32nd Street
Phoenix, Arizona 85018
Facsimile: (602) 224-2499
Notices or demands authorized by this Agreement to be given or made by the
Company or the Placement Agent to the holder of any Warrant Certificate shall be
deemed given or made if sent first class mail, postage prepaid, addressed to
such holder at the address of such holder as shown on the registry books of the
Company.
8.3 Payment of Taxes. The Company will from time to time promptly pay
or make provision for the payment of any and all taxes and charges which may
hereafter be imposed by the laws of the United States or of any state or any
local governmental unit thereof and which shall be payable with respect to the
issuance or delivery to or upon the order of the registered holders of the
Placement Agent Warrants (upon the exercise of the right to subscribe) of Common
Stock of the Company pursuant to the terms of such Placement Agent Warrants and
of this Agreement, but the Company shall not be obligated to pay any transfer
taxes in respect of the Placement Agent Warrants or such shares.
22
<PAGE>
Exhibit 4.4
8.4 Applicable Law. The validity, interpretation and performance of
this Agreement and the validity and interpretation of the Placement Agent
Warrants shall be governed by the laws of the State of Arizona.
8.5 Copies of Agreement. A copy of this Agreement shall be provided to
any registered holder of a Placement Agent Warrant or Exercise Shares upon
written request thereof to the Company. A copy of this Agreement shall also be
available at all reasonable times at the office of the Company for examination
by the registered holder of any Placement Agent Warrant. Any such registered
holder may be required to submit his Placement Agent Warrant for inspection
before being entitled to receive a copy of this Agreement or to make such
examination.
IN WITNESS WHEREOF, this Agreement shall been duly executed by the
parties hereto under their respective corporate seals, as of the date first
above written.
SOY ENVIRONMENTAL PRODUCTS, INC.,
an Delaware corporation
By /s/ Sean F. Lee
---------------------------------------------
Sean F. Lee, Chief Executive Officer
FOX & COMPANY INVESTMENTS, INC.,
an Arizona corporation
By /s/ Thomas A. Cifelli
---------------------------------------------
Thomas A. Cifelli, Executive Vice President
23
<PAGE>
Exhibit 4.4
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE OFFERED OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAWS OR IF AN
EXEMPTION THEREFROM IS AVAILABLE. THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE HEREOF ARE TRANSFERABLE ONLY UPON THE CONDITIONS
SPECIFIED IN THE WARRANT AGREEMENT REFERRED TO HEREIN. A COPY OF THE WARRANT
AGREEMENT WILL BE PROVIDED TO THE REGISTERED HOLDER THEREOF UPON REQUEST TO THE
COMPANY.
SOY ENVIRONMENTAL PRODUCTS, INC.
CLASS B WARRANT CERTIFICATE
No. __________ Warrants to Purchase
__________ Shares
THIS IS TO CERTIFY that, or registered assigns, is the registered
holder ("Holder") of the number of Class B Warrants ("Placement Agent Warrants")
set forth above, each of which entitles the holder to purchase, subject to the
terms and conditions set forth in the Class B Warrant Agreement, dated July 3,
1997, which is hereby incorporated herein and made a part hereof, and as
hereinafter set forth, fully paid and non-assessable shares of the common stock
("Common Stock"), of Soy Environmental Products, Inc., a Delaware corporation
(the "Company"), or equivalent security of any successor thereto at a purchase
price of $1.20, as adjusted, for a term commencing on the one year anniversary
hereof and ending September 30, 2007, and to receive one or more certificates
for the Common Stock or equivalent securities so purchased, upon satisfaction of
one or more conditions precedent set forth herein and presentation and surrender
to the Company at 8855 Black Canyon Freeway, Suite 2000, Phoenix, Arizona 85021
with the form of subscription duly executed, and accompanied by payment of the
purchase price of each share purchased, in U.S. dollars, either in cash or by
certified check or bank cashier's check, payable to the order of the Company.
Placement Agent Warrants are exercisable in minimum denominations of 100.
Fractional shares of the Company's Common Stock will not be issued upon the
exercise of the Placement Agent Warrants.
The Company covenants and agrees that all shares of Common Stock
delivered upon the exercise of these Placement Agent Warrants will, upon
delivery, be fully paid and non-assessable. The Placement Agent Warrants shall
not be exercisable in any jurisdiction where
A-1
<PAGE>
Exhibit 4.4
exercise would be unlawful. The Company will use its best efforts to qualify the
shares that may be purchased upon exercise of these Placement Agent Warrants for
sale in all jurisdictions where holders of the Placement Agent Warrants reside.
However, the Company shall not be required to honor the exercise of the
Placement Agent Warrants if, in the opinion of the Board of Directors, upon
advice of counsel, the sale of securities upon exercise of the Placement Agent
Warrants would be unlawful.
The number of shares of Common Stock, or other equivalent equity
security, issuable upon the exercise of these Placement Agent Warrants and the
purchase price shall be subject to adjustment from time to time, in certain
events, as set forth in the Placement Agent Warrant Agreement, including certain
sales of additional stock, stock options, convertible securities, distribution
of stock dividends, stock splits, reclassifications or mergers.
The Company agrees at all times to reserve or hold available, or cause
to reserve or hold available, a sufficient number or shares of its Common Stock,
or other equivalent equity security, to cover the number of shares, or other
equivalent equity security, issuable upon the exercise of these and all other
Placement Agent Warrants of like tenor then outstanding.
This Warrant Certificate does not entitle the holder hereof, either at
law or in equity, to and voting rights or other rights as a shareholder of the
Company, or to any other rights whatsoever except the rights expressly herein
set forth, and no dividend shall be payable or accrue in respect of these
Placement Agent Warrants or the interest represented hereby, or the shares that
may be purchased upon exercise hereof until or unless, and except to the extent
that, these Placement Agent Warrants shall be duly exercised.
This Warrant Certificate is exchangeable at any time prior to
expiration upon the surrender hereof by the registered holder to the Company for
one or more new Warrant Certificates of like tenor and date representing in the
aggregate the right to purchase the number of shares that may be purchased upon
exercise hereof, each of such new Warrant Certificates to represent the right to
purchase such number of shares as may be designated by the registered holder at
the time of such surrender. The Placement Agent Warrants and the shares of
Common Stock issuable upon exercise of the Placement Agent Warrants are subject
to restriction on transferability as described in the Warrant Agreement.
The Company may deem and treat the registered holder of this Warrant
Certificate at any time as the absolute owner hereof and of the Placement Agent
Warrants covered hereby for all purposes and shall not be affected by any notice
to the contrary.
The Placement Agent Warrants evidenced by this Warrant Certificate are
subject to the terms of the Warrant Agreement which is available upon request by
the registered holder of this Certificate or Company or at the office of the
Company. The Warrant Agreement is incorporated herein by reference and made a
part hereof and reference is hereby made to the
A-2
<PAGE>
Exhibit 4.4
Warrant Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Company and the holders of
the Placement Agent Warrants.
This Warrant Certificate shall not be valid or obligatory for any
purpose unless signed by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by its duly authorized officers.
SOY ENVIRONMENTAL PRODUCTS, INC.
By_________________________________________
Its________________________________________
A-3
<PAGE>
Exhibit 4.4
[FORM OF REVERSE SIDE OF CERTIFICATE]
ASSIGNMENT FORM
To assign this Class B Warrant, fill in the form below:
I or we assign and transfer this Class B Warrant to: (Insert Assignee's Social
Security or Tax Identification No.)
________________________________________________________________________________
________________________________________________________________________________
(Pen or type assignee's name, address and zip code)
and irrevocably appoint ____________________________ as agent to transfer this
Class B Warrant on the books of the Company. The agent may substitute another to
act for him.
Date:__________________ Your Signature:________________________________________
(Sign exactly as your name appears on the
other side of this Warrant Certificate)
Signature Guarantee:____________________________________________________________
By________________________________________
The signature should be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
A-4
<PAGE>
Exhibit 4.4
SUBSCRIPTION
(To be completed and signed only upon an exercise
of the Class B Warrants in whole or in part)
TO: Soy Environmental Products, Inc.
The undersigned, the holder of the attached Class B Warrants, hereby
irrevocably elects to exercise the purchase right represented by the Class B
Warrants for, and to purchase thereunder, shares of Common Stock (as such terms
are defined in the Class B Warrant Agreement dated July 3, 1997, from Soy
Environmental Products, Inc. (or other securities or property), and herewith
makes payment of $______ therefor in cash or by certified or official bank
check. The undersigned hereby requests that the Certificate(s) for such
securities be issued in the name(s) and delivered to the address(es) as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
Deliver to:_____________________________________________________________________
Address:________________________________________________________________________
If the foregoing Subscription evidences an exercise of the Class B
Warrants to purchase fewer than all of the shares of Common Stock (or other
securities or property) to which the undersigned is entitled, please issue a new
Class B Warrant Certificate, of like tenor, for the remaining Class B Warrants
(or other securities or property) in the name(s), and deliver the same to the
address(es), as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
DATED:___________________, 19__.
_______________________________________________
(Name of Holder)
_______________________________________________
(Signature of Holder or Authorized Signatory)
_______________________________________________
(Social Security or Taxpayer Identification
Number of Holder)
A-5
Exhibit 4.5
FOX & COMPANY INVESTMENTS, INC.
6232 NORTH 32ND STREET
PHOENIX, ARIZONA 85018
September 23, 1997
Soy Environmental Products, Inc.
9135 Barton Street
Overland Park, Kansas 66214
Re: Engagement Agreement Effective June 27, 1997/Note Agreement
Effective July 3, 1997/Class A Warrant Agreement Effective
July 3, 1997/Class B Warrant Agreement Effective July 3, 1997
Gentlemen:
This letter will serve as a supplement and addendum to the
above-referenced agreement (the "Agreement"). Fox & Company Investments, Inc.,
as placement agent (the "Placement Agent"), and Soy Environmental Products, Inc.
(the "Company") hereby agree to extend the term of the Offering through
September 23, 1997 and to increase the total amount of the Offering to $770,000
($924,000 of Notes and 924,000 Warrants). The Note Agreement, the Class A
Warrant Agreement and Class B Warrant Agreement are also hereby amended to
reflect the increased total amount of the Offering.
All remaining terms and conditions of the Agreement, the Note
Agreement, the Class A Warrant Agreement and the Class B Warrant Agreement
remain in full force and effect.
The Placement Agent shall be responsible for notifying all prior
investors of the change of terms. The Company will be responsible for the
preparation and filing of all applicable Securities and Exchange Commission and
state blue sky notices as required with respect to the extension and expansion
of the offering and the closing as contemplated to occur on the date hereof.
If the above is in accordance with your understanding, please indicate
the same by executing below.
Very truly yours,
FOX & COMPANY INVESTMENTS, INC.
By /s/ Thomas A. Cifelli
-------------------------------------------
Thomas A. Cifelli, Executive Vice President
Accepted:
SOY ENVIRONMENTAL PRODUCTS, INC.
By /s/ Sean F. Lee
------------------------------------------
Sean F. Lee, Chief Executive Officer
Exhibit 10.3
CONSULTANCY AGREEMENT
THIS AGREEMENT made this 31st day of December, 1996 between:
Interchem (N.A.) Industries, Inc.
9135 Barton Street
Overland Park, Kansas 66214
(hereinafter called "the Consultant")
OF THE FIRST PART
and:
Soy Environmental Products, Inc.
2525 East Camelback Road
Suite 510
Phoenix, Arizona 85016
(hereinafter called "the Company")
OF THE SECOND PART
WHEREAS:
A. Interchem has certain knowledge and skills useful for the
benefit of the Company; and
B. The Company wishes to make use of Interchem's knowledge and
skills on a consultancy basis;
NOW, THEREFORE, witnesseth that in consideration of the mutual covenants of the
parties herein, the parties agree as follows:
1. The Company HEREBY APPOINTS the Consultant to act as consultant to
the Company for the period and upon the terms hereinafter provided.
2. Consultancy Services.
2.1 The Consultant will provide the Company with such
consultancy and advisory services as the Company may
from time to time reasonably require in relation to
its business.
2.2 Such services shall include but not be limited to the
provision of advice and services regarding
administration, management, marketing and finance
specifically to be provided by Lee Derr.
<PAGE>
Exhibit 10.3
2.3 The Consultant shall not be required to perform any
executive functions and shall be given reasonable
notice of all meetings which it is required to attend
in pursuance to the terms of this Agreement.
2.4 The Consultant will faithfully and diligently perform
such services as aforesaid and in the performance of
such services will comply with all such reasonable
directions and restrictions as may for the time being
be given to or imposed upon it by the Board of
Directors of the Company or by any one authorized by
the Board of Directors of the Company.
2.5 The Consultant will in the performance of its
services do all in its power to promote, develop and
extend the business of the Company and to protect and
further the reputation and interests of the business.
3. Fees and Expenses.
3.1 In consideration of its performance of the said
services, the Company will pay to the Consultant a
Consultancy Fee (which shall accrue from day to day)
at a rate of Eight Thousand Three Hundred Thirty
Three and 33/100 Dollars ($8,333.33) monthly. This
sum shall increase or decrease on the anniversary
date of this agreement by the same percentage of
increase or decrease of the consumer price index as
calculated by the Department of Labor of the USA for
the previous year.
4. Duration and Termination.
4.1 This Agreement shall be deemed to commence from the
1st of January, 1997 and shall continue in force
until the 31st of December, 1999 and subject to
termination as hereinafter provided.
4.2 The Company may nevertheless terminate this Agreement
forthwith by notice in writing to the Consultant in
the event that it is guilty of any serious default or
misconduct in connection with or affecting the
business or the affairs of the Company or if it is
declared, (or assigns itself a)
bankrupt.
4.3 On the termination of this Agreement for any reason,
the Consultant will at the Company's request
forthwith deliver up to the Company all
correspondence and other documents and property
belonging to the Company or any subsidiary or
associated company which may have been prepared by
him or have come into his possession at any time and
will not retain any copies thereof.
2
<PAGE>
Exhibit 10.3
5. Nothing herein contained shall be construed as creating the
relationship of Employer and Employee between the parties and the Consultant
agrees that it is responsible for the payment of all tax on the fees paid
hereunder.
6. Any notice to be given hereunder shall be given in writing and may
be given either personally or may be sent by registered post addressed to the
addresses hereinbefore set out or such other address as each party may advise
the other and any notice given by post shall be deemed to have been served 7
days after posting.
AS WITNESS the hands of the parties hereto the day and year first above
written.
INTERCHEM (N.A.) INDUSTRIES, INC.
/s/ Stephen Ellis By /s/ Lee E. Derr
- --------------------------------- -----------------------------
SOY ENVIRONMENTAL PRODUCTS, INC.
/s/ Kasandra M. Romo By /s/ Sean F. Lee
- --------------------------------- -----------------------------
Witness
3
AGREEMENT
This Agreement is made this 16th day of January, 1997, by and among Interchem
Environmental, Inc., a Delaware corporation, ("Interchem") and Soy Environmental
Products, Inc. a Delaware corporation, ("SEPI").
WHEREAS, Interchem is the owner of a 50% equity interest in an Iowa limited
liability company, entitled Interwest, L. C. ("Interwest"); and
WHEREAS, Interchem is willing to transfer 50% of their interest in Interwest
upon terms and conditions herein set forth; and
WHEREAS, SEPI is willing to acquire said 50% interest on the terms and
conditions herein set forth;
NOW THEREFORE, the parties do hereby agree as follows:
1. Interchem hereby agrees to transfer to SEPI 50% of its interest in
Interwest subject to the terms, conditions and limitations set
forth in the Operating Agreement of Interwest.
2. SEPI hereby agrees to acquire from Interchem the said 50% Interest
for the sum of One Hundred Ninety Thousand Dollars ($190,000.00).
3. Interchem agrees to take all actions required under the Operating
Agreement of Interwest to effectuate the transfer set forth in
Paragraph 1 above.
4. SEPI agrees to execute any and all documents or instruments
required by the Operating Agreement of Interwest to effectuate the
transfer set forth in Paragraph 1, above.
5. This Agreement shall not be assignable by either party hereto
without the written consent of the other party.
6. The terms and conditions of this Agreement shall be binding upon
the parties hereto and the legal representatives, successors and
assigns.
7. All funds obtained under this agreement shall be for the exclusive
use of the development and construction of the Interwest project.
<PAGE>
8. This Agreement contains the entire agreement between the parties
hereto and no modification of the Agreement shall be effective
unless in writing and signed by both parties.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first
written above.
Interchem Environmental, Inc.
By /s/ Lee E. Derr
-----------------------------------
Soy Environmental Products, Inc.
By /s/ Gary Haer
-----------------------------------
EXHIBIT 11
SOY ENVIRONMENTAL PRODUCTS, INC.
COMPUTATION OF LOSS PER SHARE
PERIOD FROM
DATE OF
INCEPTION
YEAR ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
---- ----
LOSS PER SHARE
WEIGHTED AVERAGE SHARES OUTSTANDING (1) 5,076,634 1,519,833
========= =========
(1) LOSS PER SHARE IS BASED UPON THE WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR EACH OF THE RESPECTIVE YEARS. ALL WEIGHTED AVERAGE SHARES
OUTSTANDING GIVE RETROACTIVE EFFECT TO THE 1 FOR 6 REVERSE STOCK SPLIT IN
NOVEMBER, 1996
(2) FULLY DILUTED EARNINGS PER SHARE HAVE NOT BEEN PRESENTED AS THEY ARE
ANTIDILUTIVE
Exhibit 21
SUBSIDIARIES OF SOY ENVIRONMENTAL PRODUCTS, INC.
Delta Environmental, Inc., a Delaware corporation
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the constituting part of this
Registration Statement on Form 10-KSB for the fiscal year ended September 30,
1997, of our report dated January 20, 1997 related to the financial statements
of Soy Environmental Products, Inc.
/s/ Semple & Cooper, L.L.P.
---------------------------------
Phoenix, Arizona
April 3, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 185,938
<SECURITIES> 0
<RECEIVABLES> 12,936
<ALLOWANCES> 0
<INVENTORY> 141,000
<CURRENT-ASSETS> 433,330
<PP&E> 13,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 648,406
<CURRENT-LIABILITIES> 417,370
<BONDS> 0
0
0
<COMMON> 5,445
<OTHER-SE> 415,085
<TOTAL-LIABILITY-AND-EQUITY> 648,406
<SALES> 56,678
<TOTAL-REVENUES> 56,678
<CGS> 43,090
<TOTAL-COSTS> 43,090
<OTHER-EXPENSES> 614,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 708,032
<INCOME-TAX> 0
<INCOME-CONTINUING> 708,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 708,032
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
SCIENTIFIC CERTIFICATION SYSTEMS
Park Plaza Building, 1939 Harrison Street, Suite 400, Oakland, California 94612
Tel 510 832-1415; Fax 510 832-0359; Web: http://www.scsl.com
19 June 1997
Mr. Gary Haer
Soy Environmental Products, Inc.
9135 Barton St.
Overland Park, Kansas 66214
FAX: 913-599-2923
PHONE: 913-599-0800
Dear Mr. Haer:
Congratulations on the certification of your five products. With this comes
original certificates attesting to the final certification of each product and
the art work for carrying the SCS environmental label (logo and claims language)
on your product label and in your marketing literature.
Please remember, these product certifications are for the five product
formulations that you have submitted without a fragrance or reodorant. I look
forward to modifying your certifications in the near future to include a
fragrance or reodorant as soon as you are able to find one that meets SCS
criteria.
I have mailed the art work for use on your product labels directly to Dawn
Cochran of Osborn and Barr per your instructions. I sent Dawn both hard copy and
electronic copy as requested. She should have both by Friday 20 June 1997.
Again, Congratulations!!!!
Please let me know if there is anything else I can do to be of service to you
and your company.
Sincerely,
/s/ Chet Chaffee
Chet Chaffee
SCS
CONSUMER TESTING LABORATORIES, INC.
490 Neponset Street
Canton, MA 02021
617-828-8060 FAX 617-828-8518
LABORATORY REPORT NO. N41548 DATE: May 13, 1997
TO: Soy Environmental Products, Inc.
9135 Barton Street
Overland Park, KS 66214
ATTN: Gary Haer
SUBJECT: One (1) Sample of Soy Clean Penetrant and Lubricant, Style No.: 02007,
Size: 22 Oz., Manufactured by Soy Environmental Products, Inc., Made in USA.
REASON FOR ANALYSIS: Tests and evaluation of the sample from the viewpoint of
physical properties and performance characteristics to verify claims made,
including lubrication, loosening of rusty or frozen bolts, and preventing
corrosion/rusting.
The report is not intended as an analysis of the composition of the product.
Also, the potential toxicological, dermatological, physiological, or
neurological damage caused by exposure to the product during its use, abuse, and
misuse are not covered within the scope of this report. Also, our report is not
intended as an evaluation of the biodegradability and non-toxic properties of
the product as claimed.
EXECUTIVE SUMMARY: The sample is rated as GOOD, exhibiting good physical
properties and performance characteristics for its intended use. The sample has
good lubrication and corrosion resistance properties, along with penetration and
cleaning characteristics.
It should be noted that the sample includes detailed use instructions (written
in English only), along with precautions to be observed during use and a warning
regarding flammability characteristics, a warning regarding watery eyes,
headache and dizziness due to prolonged overexposure to the product, and a
warning to keep product out of the reach of children. Consumer Testing
Laboratories did not evaluate the appropriateness, validity and/or correctness
of this labeling.
<PAGE>
CONSUMER TESTING LABORATORIES, INC.
Laboratory Report No. N41548
Page 2
EVALUATION OF FINDINGS: The following observations are made:
1. The sample exhibits good physical properties, including an even spray
pattern with negligible sputtering noted. The sample has a spray rate
of 0.88 gms./pump and generally conforms to its labeled content,
including 97.7 percent of its 22 oz. (650 MI). The sample emits an odor
that is not unusually offensive, and produces a film that exhibits no
evidence of gumminess, hardening, tackiness.
2. The sample exhibits good removability after spraying. There was no
immediate damage to painted wood or steel surfaces. The sample provides
good lubrication characteristics and performance characteristics;
loosening jammed or frozen bolts, mechanisms, etc., stopping squeaky
hinges, and provides good friction reduction qualities.
3. The sample displays good corrosion resistance with only some slight
rust spotting noted on the treated steel bolt, while a similar
untreated steel bolt used as control was completely covered with
surface rust.
The corrosion resistance test consisted of spraying a steel bolt, and
then placing the bolt in a humidity chamber (100% RH, 120(degree) F)
for a period of 72 hours.
4. The sample performs well in removing surface grime and certain stains,
such as tar, crease, crayons, and certain dried out adhesives, etc.
5. The sample provides easy to follow and understand use instructions,
including a list of various applications the penetrant/lubricant can be
used on. The labeling also includes various caution/warning statements.
All labeling is written in English only.
CONSUMER TESTING LABORATORIES, INC.
/s/ HEMANT PATEL /s/ STEWART A. SATTER
- ---------------------------- ----------------------------
HEMANT PATEL STEWART A. SATTER
VICE PRESIDENT & TECHNICAL MANAGER PRESIDENT
HP:dk
NOTE: Unless notified in writing, all samples will be disposed of after thirty
(30) days.
<PAGE>
CONSUMER TESTING LABORATORIES INC. Soy Environmental Products, Inc.
----------------------------------
LABORATORY REPORT NO.: N41548
-------
SUMMARY OF TEST RESULTS
PUMP SPRAY LUBRICANTS
---------------------
SAMPLE: SoyClean Penetrant and Lubricant
- -------------------------------------------
Content (oz.):
- --------------
Labeled 22 oz. (650 ml)
Actual Useable 635 ml
% of Labeled 97.7
SPRAY SYSTEM
- ------------
Spray Pattern Conical Mist
Delivery Rate (gms./sec.) 0.88 grams/pump
PERFORMANCE
- -----------
Corrosion Protection Good - In Humid Conditions
Removability Good - Easily Wiped Clean
Lubricating Characteristics Good - Reduces Friction
OIL FILM CHARACTERISTICS
- ------------------------
Gumminess None Noted
Tackiness None Noted
Hardening None Noted
ANTI-WEAR PROPERTIES Good
- --------------------
CONTAINER LEAKAGE None Noted
- -----------------
LABELING Good - English Only
- --------
OVERALL RATING Good
- --------------
<PAGE>
CONSUMER TESTING LABORATORIES, INC.
490 Neponset Street
Canton, MA 02021
617-828-8060 FAX 617-828-8518
TO: Soy Environmental Products, Inc.
9135 Barton Street
Overland Park, KS 66214
ATTN: Gary Haer
SUBJECT: One (1) Sample of Soy Clean Aerosol Graffiti Remover, Style No.: 05099,
Size: 11 oz., Manufactured by Soy Environmental Products, Inc., Made in USA.
REASON FOR ANALYSIS: Tests and evaluation of the sample from the viewpoint of
physical properties and performance characteristics to verify claims made and
evaluate the efficacy of its stain removal properties.
The report is not intended as an analysis of the composition of the product.
Also, the potential toxicological, dermatological, physiological, or
neurological damage caused by exposure to the product during its use, abuse, and
misuse are not covered within the scope of this report. Also, our report is not
intended as an evaluation of the biodegradability and non-toxic properties of
the product as claimed.
EXECUTIVE SUMMARY: The sample is rated as GOOD, exhibiting good physical
properties and performance characteristics for its intended use. The sample
works well in removing spray paint, ink, and gum with ease from various
non-porous surfaces, including glass, metal, and painted wood. However, stains
on materials having porous surfaces, such as bricks and concrete require
vigorous scrubbing and rinsing, as mentioned in the labeling, to remove them
completely,
It should be noted that the sample includes detailed use instructions (written
in English only), along with precautions to be observed during use and a warning
regarding flammability characteristics, a warning regarding watery eyes,
headache and dizziness due to prolonged overexposure to the product, and a
warning to keep product out of the reach of children. Consumer Testing
Laboratories did not evaluate the appropriateness, validity and/or correctness
of this labeling/
<PAGE>
CONSUMER TESTING LABORATORIES, INC.
Laboratory Report No. N41546
Page 2 -
EVALUATION OF FINDINGS: The following observations are made:
1. The sample exhibits good physical properties, including an even spray
pattern with negligible sputtering noted. The sample has a spray rate
of 40.2 gms./sec. and generally conforms to its labeled content,
including 98.1 percent of its 312 g (11 oz.). The sample emits a
slightly citrus odor that is not unusually offensive.
2. The sample demonstrates good performance characteristics in removing
labeled stains, including paint, spray paint, ink, and gum on various
surfaces, such as glass, metal, painted wood, bricks, and concrete. It
should be noted that the removal of stains from bricks and concrete
requires multiple cycles of vigorous scrubbing and rinsing. Also, when
removing stains from painted wood and metal surfaces, it should be
labeled that care is needed so that the original paint is not removed.
3. The sample provides easy to follow and understand use instructions,
including a list of substrates the Graffiti Remover can be used on. The
labeling also includes various caution/warning statements. All labeling
is written in English only.
CONSUMER TESTING LABORATORIES, INC.
/s/ HEMANT PATEL /s/ STEWART A. SATTER
- ---------------------------- ----------------------------
HEMANT PATEL STEWART A. SATTER
VICE PRESIDENT & TECHNICAL MANAGER PRESIDENT
HP:dk
NOTE: Unless notified in writing, all samples will be disposed of after thirty
(30) days.
<PAGE>
CONSUMER TESTING LABORATORIES INC. Soy Environmental Products, Inc.
----------------------------------
LABORATORY REPORT NO.: N41546
--------
SUMMARY OF TEST RESULTS
GRAFFITI REMOVER
----------------
SAMPLE SoyClean Graffiti Remover
Packaging: Style/Size Style: 05099/11 oz. (312 g.)
Product Form Aerosol Can
Odor Slightly Citrus/Not Offensive
CHEMISTRY
- ---------
Active Ingredients Labeled - from Soybean Oil
Physical Form Aerosol Spray-Mist
Water Solubility Rinses away with water
TEMPERATURE STABILITY
- ---------------------
High (120 degrees F - 24 Hrs.) Do not store above 120 degrees F
Low (-10 degrees F - 24 Hrs.) Best when used between 50 degrees
- 90 degrees F
PERFORMANCE
- -----------
Spray Paint: On Metal Good - Removed with ease
Spray Paint: On Painted Wood Good - Slight removal of base paint
Spray Paint: On Glass Good - Removed with ease
Spray Paint: On Brick/Concrete Good - Required Vigorous
Scrubbing/Rinsing
Effect on Base May Damage Painted Surfaces
Ease of Use Good - Easy-to-Follow Instructions
OVERALL RATING Good
- --------------
<PAGE>
CONSUMER TESTING LABORATORIES, INC.
490 Neponset Street
Canton, MA 02021
617-828-8060 FAX 617-828-8518
TO: Soy Environmental Products, Inc.
9135 Barton Street
Overland Park, KS 66214
ATTN: Gary Haer
SUBJECT: One (1) Sample of Soy Clean Aerosol Driveway, Sidewalk, and
Patio Cleaner, Style No.: 07007, Size: 22 Oz. (650 ML),
Manufactured by Soy Environmental Products, Inc., Made in USA.
REASON FOR ANALYSIS: Tests and evaluation of the sample from the viewpoint of
physical properties and performance characteristics to verify claims made and
evaluate the efficacy of its stain removal properties.
The report is not intended as an analysis of the composition of the product.
Also, the potential toxicological, dermatological, physiological, or
neurological damage caused by exposure to the product during its use, abuse, and
misuse are not covered within the scope of this report. Also, our report is not
intended as an evaluation of the biodegradability and i7on-toxic properties of
the product as claimed.
EXECUTFVE SUMINIARY: The sample is rated as SATISFACTORY, downgraded from a good
overall rating due to its inability to completely remove oil/grease stains from
asphalt and concrete, as labeled. The cleaner does remove grease from non-porous
surfaces, such as a barbecue or painted steel machinery.
it should be noted that the sample includes detailed use instructions (written
in English only), along with precautions to be observed during use and a user's
warning regarding dangerous properties of the product, including flammability
characteristics, a warning regarding damage caused due to prolonged overexposure
to the product, and a warning to keep product out of the reach of children.
Consumer Testing Laboratories did not evaluate the appropriateness, validity
and/or correctness of this labeling.
<PAGE>
CONSUMER TESTING LABORATORIES, INC.
Laboratory Report No. N41547
Page 2 -
EVALUATION OF FINDINGS: The following observations are made:
1. The sample exhibits good physical properties, including an even spray
pattern with negligible sputtering noted. The sample has a spray rate
of 0.87gms./pump. The sample does not conform to its labeled content of
22 oz. (650 MI). The sample contained 550 MI or 84.6 percent of its
labeled size. The sample is white in color and does not emit an odor
that is unusually offensive.
2. The sample demonstrates satisfactory performance characteristics,
downgraded due to its inability to completely remove oil/grease stains
on asphalt or concrete as labeled. The directions were followed and the
cycle repeated three times, but a noticeable dark area remained. The
sample does perform well on painted metal surfaces, including a
barbecue and greasy machinery. The directions were followed and the
grease was removed completely.
3. The sample provides easy to follow and understand use instructions,
including a list of substrates the cleaner can be used on. The labeling
also includes various caution/warning statements. All labeling is
written in English only.
CONSUMER TESTING LABORATORIES, INC.
- ---------------------------- -------------------------------
HEMANT PATEL STEWART A. SATTER
VICE PRESIDENT & TECHNICAL MANAGER PRESIDENT
HP:dk
NOTE: Unless notified in writing, all samples will be disposed of after thirty
(30) days.
<PAGE>
CONSUMER TESTING LABORATORIES INC. Soy Environmental Products, Inc.
----------------------------------
LABORATORY REPORT NO.: N41547
--------
SUMMARY OF TEST RESULTS
GREASE AND TAR REMOVER
----------------------
Sample Driveway, Sidewalk and Patio Cleaner
Packaging: Style/Size Style: 07007/22 oz. Trigger Spray
Bottle
Contents, Labeled/Actual 22 oz. (650 ml)/5550 ml
Product Form Milk-White Liquid
Odor Slightly Citrus/Not Offensive
CHEMISTRY
- ---------
Active Ingredients Labeled - from Soybean Oil
PH 6.10
Water Solubility Rinses away with water
TEMPERATURE STABILITY
- ---------------------
High (120 degrees F - 24 Hrs.) Labeled - For Best Results,
Use between 50 degrees - 90 degrees F
Low (-10 degrees F - 24 Hrs.) " " "
PERFORMANCE
- -----------
Tar Satisfactory - Leaves Noticeable
Residue
Grease/Oil Satisfactory - Stain Remains
Slightly
Effects on Surfaces Good - when following instructions
Ease of Use Good - Spray-On/Hose-Off
Instructions Good - English Only
OVERALL RATING Good
- --------------
COMMENTS Downgraded due to remaining stain on asphalt
following multiple removal attempts.
