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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 20, 1997
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Commodore Environmental Services, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-10054 87-0275043
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
150 East 58th Street, Suite 3400
New York, New York 10155
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 308-5800
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(Former Name or Former Address, if Changed Since Last Report)
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CURRENT REPORT ON FORM 8-K
COMMODORE ENVIRONMENTAL SERVICES, INC.
May 20, 1997
Item 5. Other Events.
Sale of $6,000,000 of 7% Series D Convertible Preferred Stock of Commodore
Environmental Services, Inc. and Warrants to Purchase 600,000 Shares of
Common Stock of Commodore Applied Technologies, Inc.
On May 20, 1997, Commodore Environmental Services, Inc., a Delaware
corporation (the "Company"), completed the sale (the "Sale"), for an aggregate
purchase price of $6,000,000, of (i) 60,000 shares of newly-created 7% Series D
Convertible Preferred Stock, par value $.01 per share (the "Series D Preferred
Stock"), and (ii) five-year common stock purchase warrants (the "Warrants"). The
Company employed Avalon Research Group, Inc. ("Avalon") as a finder in
connection with the Sale and, on the closing date of the Sale, paid Avalon a
finder's fee in cash of $600,000. The Company also incurred other transaction
costs of approximately $60,000 in connection with the Sale, resulting in net
proceeds to the Company of $5,340,000. The Company plans to utilize the net
proceeds of the Sale for working capital and general corporate purposes.
The Series D Preferred Stock has a liquidation preference of $100 per
share (plus accumulated and unpaid dividends) and pays a 7% per-annum cumulative
dividend, payable, at the Company's option, at the time of conversion in cash or
shares of common stock, par value $.001 per share (the "Applied Common Stock"),
of Commodore Applied Technologies, Inc., a Delaware corporation and the
Company's 69.3% owned subsidiary ("Applied"), at the Conversion Price (as
defined). The Company currently owns 15,000,000 shares of Applied Common Stock
and will reserve from such holdings a sufficient number of shares of Applied
Common Stock to permit the conversion in full of the outstanding Series D
Preferred Stock. The Series D Preferred Stock ranks: (i) prior to the Company's
common stock, par value $.01 per share (the "Common Stock"); (ii) pari passu
with the Company's Series B and Series C Preferred Stock; (iii) junior to the
Company's Series AA Preferred Stock; and (iv) prior to any other class or series
of capital stock of the Company created after May 16, 1997 (unless it
specifically, by its terms, ranks on parity with the Series D Preferred Stock),
in each case as to distributions of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary. The Series D
Preferred Stock is convertible into that number of shares of Applied Common
Stock equal to the Liquidation Preference divided by the Conversion Price. The
Conversion Price is defined in the Certificate of Designation of Series D
Preferred Stock (the "Certificate of Designation") to mean an amount equal to a
15% discount from the closing bid price of Applied Common Stock as reported by
Bloomberg, L.P. ("Bloomberg") averaged for the previous five business days
ending on the day before the Conversion Date (as defined); provided, however,
that the Conversion Price will be equal to certain amounts set forth in the
Certificate of Designation if the average of the closing bid price of Applied
Common Stock, as reported by Bloomberg, for any consecutive 30 days is equal to
or less than $2.00.
The Warrants entitle the registered holders thereof to purchase an
aggregate of 600,000 shares of Applied Common Stock, at an initial exercise
price equal to $7.14 per share, representing 110% of the average closing bid
prices of Applied Common Stock, as reported by Bloomberg, over the five-day
trading period ending on the day prior to the closing date of the Sale, subject
to adjustment, at any time on or after May 19, 1997 and prior to May 2002. The
Company will reserve from its holdings of Applied Common Stock a sufficient
number of shares of Applied Common Stock to permit the exercise of all of the
outstanding Warrants.
The Company and Applied have agreed that Applied shall file a
registration statement on Form S-3 with the Securities and Exchange Commission
("SEC") within 30 days after the closing date of the Sale in order to
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register the shares of Applied Common Stock issuable upon conversion of the
Series D Preferred Stock and exercise of the Warrants under the Securities Act
of 1933, as amended (the "Securities Act"). In the event that Applied is not
eligible to file a registration statement on Form S-3, the Company and Applied
have agreed that Applied shall file a registration statement on Form S-1 with
the SEC within 60 days after the closing date of the Sale in order to register
such shares of Applied Common Stock under the Securities Act.
The Sale was deemed exempt from registration under the Securities Act,
as a transaction by an issuer not involving any public offering. The recipients
of the Series D Preferred Stock and the Warrants in connection with the Sale
represented their intentions to acquire such securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were contained in the Warrants and affixed to the share
certificates representing the Series D Preferred Stock.
The information set forth above is qualified in its entirety by
reference to: (i) the Securities Purchase Agreements, dated as of May 20, 1997,
between the Company, Applied, and each of three private institutional investors,
copies of which are attached hereto as Exhibit 99.1; (ii) Warrants to purchase
an aggregate of 600,000 shares of Applied Common Stock, copies of which are
attached hereto as Exhibit 99.2; (iii) Certificate of Designation of Series D
Preferred Stock, a copy of which is attached hereto as Exhibit 99.3; and (iv)
Finder's Agreement, dated April 22, 1997, between the Company and Avalon, a copy
of which is attached hereto as Exhibit 99.4.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Not Applicable.
(b) Pro Forma Financial Information.
Not Applicable.
(c) Exhibits.
Exhibit No. Description
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99.1 Form of Securities Purchase Agreements, between the
Company, Applied, and each of Milton Partners, Okemo
Partners Limited and American Investment Group of
New York, L.P.
99.2 Form of Common Stock Purchase Warrants issued to each of
Milton Partners, Okemo Partners Limited and American
Investment Group of New York, L.P.
99.3 Certificate of Designation, Number, Powers, Preferences
and Relative, Participating, Optional, and Other Special
Rights and the Qualifications, Limitations, Restrictions,
and Other Distinguishing Characteristics of Series "D"
Preferred Stock of Commodore Environmental Services, Inc.
99.4 Finder's Agreement, dated April 22, 1997, between the
Company and Avalon Research Group, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report to be signed on its behalf by
the undersigned thereunto duly authorized.
COMMODORE ENVIRONMENTAL SERVICES, INC.
Date: June 23, 1997. By: /s/ Paul E. Hannesson
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Paul E. Hannesson, Chairman of the Board,
President and Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
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99.1 Form of Securities Purchase Agreements, between the Company,
Applied, and each of Milton Partners, Okemo Partners Limited and
American Investment Group of New York, L.P.
99.2 Form of Common Stock Purchase Warrants issued to each of Milton
Partners, Okemo Partners Limited and American Investment Group of
New York, L.P.
99.3 Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional, and Other Special Rights and the
Qualifications, Limitations, Restrictions, and Other Distinguishing
Characteristics of Series "D" Preferred Stock of Commodore
Environmental Services, Inc.
99.4 Finder's Agreement, dated April 22, 1997, between the Company and
Avalon Research Group, Inc.
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THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS SUBSCRIPTION AGREEMENT
SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
7% PREFERRED STOCK
SECURITIES PURCHASE AGREEMENT
COMMODORE ENVIRONMENTAL SERVICES, INC.
AND
COMMODORE APPLIED TECHNOLOGIES, INC.
THIS AGREEMENT is made as of the 20th day of May, 1997, by and
between COMMODORE ENVIRONMENTAL SERVICES, INC., traded on the "Pinksheets" under
the symbol "COES" (the "Parent Company"), a corporation, with its principal
office at 150 East 58th Street, New York, NY 10155, COMMODORE APPLIED
TECHNOLOGIES INC., AMEX symbol "CXI" (the "Subsidiary Company"), a corporation,
with its principal office at 150 East 58th Street, New York, NY 10155 and OKEMO
PARTNERS LIMITED (the "Purchaser"), with its principal office at 85 Old Long
Ridge Road, Suite A7, Stamford, CT 06903.
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Parent Company, Subsidiary Company and the Purchaser agree as
follows:
Section 1. Certain Definitions. For purposes of this
Agreement:
"Change in Control Transaction" means the date the Parent
Company or the Subsidiary Company (i) sells or otherwise conveys all or
substantially all of its assets or (ii) effects a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Parent Company or
the Subsidiary Company is disposed of, directly or indirectly, or if within any
12 month period there is a change of more than 50% of the members of the Parent
Company's or the Subsidiary Company's Board of Directors, or if any other
person, entity or group (as defined in Section 13(d) of the Exchange Act) and/or
any of their affiliates or associates acquires in excess of 50% of the Common
Stock.
"Closing Date" means the date agreed to by the parties for the
delivery of the stock certificate against a wire transfer of the funds to the
Parent Company.
"Closing" means the completion of the purchase and sale of the
COES Preferred Shares on the Closing Date.
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"COES Convertible Preferred Stock" means the 60,000 shares of
Series D Preferred Stock of the Parent Company, $.01 par value, convertible into
CXI Common Stock as hereinafter provided and which has the rights, preferences
and privileges set forth in the Certificate of Designation attached hereto as
Exhibit A (the "Certificate of Designation").
"COES Preferred Shares" means the shares of COES Convertible
Preferred Stock purchased hereunder.
"Conversion Date" means the date on which the Purchaser has
telecopied the Notice of Conversion to counsel for the Parent Company.
"Conversion Price" means an amount equal to a fifteen (15%)
percent discount from the closing bid price of the CXI Common Stock as reported
by Bloomberg, L.P. ("Bloomberg") averaged for the previous five (5) business
days ending on the day before the Conversion Date (the "Average Closing Bid
Price"); provided, however, if the average of the closing bid price of the CXI
Common Stock, as reported by Bloomberg ("Floor Average"), for any consecutive
thirty (30) days is equal or less than $2.00 (such thirtieth (30th) day shall be
the "First Trigger Date"), the conversion price shall equal $2.00; if the Floor
Average for any consecutive thirty (30) days beginning any day after the First
Trigger Date is less than $2.00 ("Second Trigger Date"), the conversion price
shall equal $1.90; if the Floor Average for any thirty (30) days beginning any
day after the Second Trigger Date is less than $1.90 (the "Third Trigger Date"),
the conversion price shall equal $1.80; if the Floor Average for any consecutive
thirty (30) days beginning any day after the Third Trigger Date is less than
$1.80 (the "Fourth Trigger Date"), the conversion price shall equal $1.70; if
the Floor Average for any consecutive thirty (30) days beginning any day after
the Fourth Trigger Date is less than $1.70 (the "Fifth Trigger Date"), the
conversion price shall equal $1.60; if the Floor Average for any consecutive
thirty (30) days beginning any day after the Fifth Trigger Date is less than
$1.60, the conversion price shall equal $1.50. Subject to Section 11.5 herein,
in no event shall the Conversion Price be lower than $1.50 per share of CXI
Common Stock. If the CXI Common Stock is not traded on the American Stock
Exchange, the Average Closing Bid Price shall be the average closing bid price
(and if not available, the mean of the high and low prices) of the Common Stock
on the over-the-counter-market or the principal national securities exchange or
the Nasdaq National Market System or Nasdaq SmallCap Market System on which the
CXI Common Stock is traded for the previous five (5) business days ending on the
day before the Conversion Date.
The Conversion Price shall be equitably adjusted accordingly
on a pro rata basis in the event of the happening of certain events that would
affect the CXI Common Stock or COES Convertible Preferred Stock's value
including, but not limited to, forward and reverse stock splits, issuance of
stock dividends, subdivision of shares, combinations, reclassifications, or the
like (collectively "Reclassifications"). An adjustment made pursuant to this
section shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such an event.
"Convertible Date" means the date on which the COES Preferred
Shares will become convertible, which is the day following the date that the
Registration Statement for
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the shares of CXI Common Stock underlying the COES Preferred Stock and COES
Warrants has been declared effective by the Securities and Exchange Commission
("SEC").
"Cumulative Suspension" means the date a Suspension (as
defined in Section 8.7) has occurred and is continuing or the date that is the
15th day in the aggregate that more than one Suspension has occurred since the
effective date of the Registration Statement.
"CXI Common Stock" means the underlying Common Stock of the
Subsidiary Company, $.001 par value.
"Delisting" means the date the CXI Common Stock is delisted
from AMEX and is not otherwise listed on the Nasdaq Stock Market or other
national securities exchange.
"Holder" means a holder of COES Preferred Shares.
"Insufficient CXI Common Stock" means the date the number of
shares of CXI Common Stock held by the Parent Company is not sufficient to
effect the conversion of all outstanding COES Preferred Shares then eligible for
conversion (whether or not the Holders have duly delivered Notices of
Conversion).
"Purchase Price" means the aggregate purchase price of the
COES Preferred Shares purchased.
Section 2. Authorization and Sale of Shares.
2.1 Authorization. Subject to the terms and conditions of this
Agreement, the Parent Company has authorized the sale and issuance of the COES
Preferred Shares.
2.2 Agreement to Sell and Purchase the Shares. The Parent
Company will sell and the Purchaser will buy, in reliance upon the
representations and warranties of the Parent Company, Subsidiary Company and
Purchaser contained in this Agreement, upon the terms and conditions hereinafter
set forth, Ten Thousand (10,000) COES Preferred Shares of COES Convertible
Preferred Stock for an aggregate purchase price of One Million Dollars
($1,000,000) for all such COES Preferred Shares based on U.S. $100 per share.
The COES Preferred Shares shall pay a 7% cumulative dividend, payable in cash or
CXI Common Stock at the Conversion Price, at the discretion of the Parent
Company, at the time of each conversion. Such purchase and sale shall occur on
the Closing Date. In addition, Parent Company will transfer to Purchaser, for no
additional consideration, five-year warrants ("COES Warrants") to purchase ten
(10) shares of CXI Common Stock for each COES Preferred Share purchased,
initially exercisable on the Convertible Date and for a period of five years
thereafter, at an exercise price equal to 110% of the average closing bid prices
of the CXI Common Stock, as reported by Bloomberg, over the 5-day trading period
ending on the day prior to the Closing Date.
2.3 Subsidiary Company. Whereas the Purchaser is purchasing
COES Preferred Shares from the Parent Company, and the Parent Company is
transferring CXI
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Common Stock to the Purchaser upon conversion of COES Preferred Shares and
exercise of COES Warrants, the Parent Company hereby agrees to immediately remit
2.5% of the Purchase Price ($2.50 per COES Preferred Share which has a
subscription price of $100 per COES Preferred Share) at the Closing to the
Subsidiary Company, representing a portion of the $150,000 of aggregate
consideration for the Subsidiary Company's agreement to perform its obligations
as set forth in this Agreement and the Warrant Agreement, a form of which is
attached hereto as Exhibit B.
2.4 Time and Place of Closing. The Closing shall be held at
the offices of Eilenberg & Zivian, 666 Third Avenue, 30th Floor, New York, NY
10017 as promptly as practicable as agreed to by the parties to this Agreement,
but no later than May 15, 1997 at which time either party may terminate this
Agreement.
2.5 Payment and Delivery. At or prior to the Closing, the
following shall occur:
(a) Provided that Purchaser has been notified by
Eilenberg & Zivian that the Parent Company has delivered certificates
representing the COES Preferred Shares and COES Warrants as provided in Section
2.5(b) below, Purchaser shall remit by wire transfer the Purchase Price as
payment in full for the COES Preferred Shares as follows: 89% of the Purchase
Price ($5,340,000) directly to the Parent Company, 9% of the Purchase Price
($540,000) directly to Avalon Research Group, Inc. (the "Finder"), and 2% of the
Purchase Price ($120,000) directly to Stephen A. Weiss.
(b) The Parent Company shall deliver or cause to be
delivered to Eilenberg & Zivian certificates representing the COES Preferred
Shares and the COES Warrants, registered in the name of Purchaser (or any
nominee designated by Purchaser at or prior to the Closing Date), free and clear
of all liens, claims, charges and encumbrances. Purchaser shall receive such
certificates from Eilenberg & Zivian, as applicable, after the Parent Company,
Finder and Stephen A. Weiss have received the Purchase Price directly from
Purchaser.
(c) Wire instructions for the Parent Company has been
separately provided to the Purchaser's counsel.
Section 3. General Representations and Warranties of the
Parent Company. The Parent Company hereby represents and warrants to, and
covenants with, the Purchaser that the following are true and correct as of the
date hereof and as of the Closing Date.
3.1 Organization; Qualification. The Parent Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and is in good standing under such laws. The Parent Company has all
requisite corporate power and authority to own, lease and operate its properties
and assets, and to carry on its business as presently conducted. The Parent
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
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business requires such qualification, except where failure to so qualify would
not have a material adverse effect on the Parent Company.
3.2 Capitalization. The authorized capital stock of the Parent
Company is as set forth in footnote 12 of the audited consolidated financial
statements of the Parent Company set forth in its Form 10-K for the fiscal year
ended December 31, 1996, a true copy of which has been supplied to Purchaser.
60,000 shares of the Parent Company's non-voting preferred stock has been
designated Series D Preferred Stock, $.01 par value. The Series D Preferred
Stock, when issued, shall be duly authorized and validly issued and are fully
paid and nonassessable.
3.3 CXI Common Stock Transferable Upon Conversion of COES
Preferred Shares or Exercise of COES Warrants. The Parent Company currently owns
Fifteen Million (15,000,000) shares of CXI Common Stock, all of which have been
duly authorized and validly issued and are fully paid and nonassessable. The
Parent Company will reserve from its holdings of CXI Common Stock a sufficient
number of shares of CXI Common Stock to permit the conversion in full of the
outstanding COES Preferred Shares and the exercise in full of the COES Warrants.
As of the Closing Date, the Parent Company had reserved sufficient shares of CXI
Common Stock for transfer to Purchaser upon exercise of the COES Preferred
Shares which are convertible, at Purchaser's option, at the Conversion Price, as
per Section 10 of this Agreement, and upon exercise of the COES Warrants. If the
Parent Company does not own sufficient shares of CXI Common Stock for transfer
to the Purchaser upon conversion of COES Preferred Shares and/or exercise of
COES Warrants, the Parent Company hereby agrees to promptly purchase or
otherwise acquire the sufficient amount of shares of CXI Common Stock and
transfer such shares to the Purchaser upon conversion of COES Preferred Shares
and/or exercise of COES Warrants.
Except for the consent of National Securities Corporation,
which has been obtained, the Parent Company has all requisite corporate right,
power and authority to transfer the shares of CXI Common Stock in its holdings
to Purchaser upon conversion of the COES Preferred Shares and exercise of the
COES Warrants.
3.4 Authorization. The Parent Company has all requisite
corporate right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Parent Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Parent Company, the authorization, sale, issuance and delivery of the COES
Preferred Shares and the performance of the Parent Company's obligations
hereunder has been taken. This Agreement has been duly executed and delivered by
the Parent Company and constitutes a legal, valid and binding obligation of the
Parent Company enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy as they may apply to the
indemnification provisions set forth in Section 8.4 of this Agreement. Upon
their issuance, transfer and delivery pursuant to this Agreement, the COES
Preferred Shares, COES Warrants and shares of CXI Common Stock transferable
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upon conversion of the COES Preferred Shares (the "Conversion Shares") and
exercise of the COES Warrants (the "Warrant Shares") (collectively, the
"Securities") will be validly issued, fully paid and nonassessable and will be
free of any liens or encumbrances; provided, however, that the COES Preferred
Shares and COES Warrants are subject to restrictions on transfer under state
and/or federal securities laws. The issuance and sale of the COES Preferred
Shares and COES Warrants will not give rise to any preemptive right or right of
first refusal or right of participation on behalf of any person. Upon
registration of the Conversion Shares and the Warrant Shares pursuant to Section
8 of this Agreement, there shall be no restriction on the transferability
thereof other than applicable prospectus delivery requirements.
3.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Articles of Incorporation, and any amendments thereto, Bylaws,
stockholders agreements and any amendments thereto of the Parent Company or any
material mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to the Parent Company, its properties or assets.
3.6 Accuracy of Reports and Information. The Parent Company is
in full compliance, to the extent applicable, with all reporting obligations
under Section 12(b), 12 (g) or 15(d), as applicable, of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
The Parent Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the COES Preferred Shares (or for such shorter
period that the Parent Company has been required to file such material).
3.7 SEC Filings/Full Disclosure. None of the Parent Company's
filings with the SEC since January 1, 1997 contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading. The Parent Company has, since January 1,
1997, timely filed all requisite forms, reports and exhibits thereto with the
SEC. The Parent Company's Annual Report on Form 10-K for the year ended December
31, 1996, its Quarterly Reports for the periods ended March 31, 1997 and all
Current Reports on Form 8-K filed by the Parent Company from January 1, 1996 to
date are referred to as the "COES SEC Reports."
There is no fact known to the Parent Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Purchaser which could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, business prospects,
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properties or assets of the Parent Company, or (ii) could reasonably be expected
to materially and adversely affect the ability of the Parent Company to perform
its obligations pursuant to this Agreement.
3.8 Absence of Undisclosed Liabilities. The Parent Company has
no material liabilities or obligations, absolute or contingent (individually or
in the aggregate), except as set forth in the financial statements included in
the COES SEC Reports (the "COES Financial Statements") or as incurred in the
ordinary course of business after the date of the COES Financial Statements.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Parent Company is required in connection with the
valid execution and delivery of this Agreement, or the offer, sale or issuance
of the COES Preferred Shares, or the consummation of any other transaction
contemplated hereby, except the filing with the SEC of a registration statement
on Form S-3 or Form S-1 for the purpose of registering the CXI Common Stock
underlying the COES Preferred Shares and the COES Warrants.
3.10 Intellectual Property Rights. Except as disclosed in the
COES SEC Reports, the Parent Company has sufficient trademarks, trade names,
patent rights, copyrights and licenses to conduct its business as contemplated
therein. To the Parent Company's knowledge, neither the Parent Company nor its
products is infringing or will infringe any trademark, trade name, patent right,
copyright, license, trade secret or other similar right of others currently in
existence; and there is no claim being made against the Parent Company regarding
any trademark, trade name, patent, copyright, license, trade secret or other
intellectual property right which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Parent Company.
3.11 Material Contracts. Except as set forth in the COES SEC
Reports, the agreements to which the Parent Company is a party described therein
are valid agreements, in full force and effect, the Parent Company is not in
material breach or material default (with or without notice or lapse of time, or
both) under any of such agreements, and, to the Parent Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default (with or without notice or lapse of time, or both) under any of
such agreements.
3.12 Litigation. There is no action, proceeding or
investigation pending, or to the Parent Company's knowledge threatened, against
the Parent Company which might result, either individually or in the aggregate,
in any material adverse change in the business, prospects, conditions, affairs
or operations of the Parent Company. The Parent Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Parent Company currently pending or which the
Parent Company currently intends to initiate.
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3.13 Title to Assets. Except as set forth in COES SEC Reports,
the Parent Company has good and marketable title to all properties and material
assets described therein as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Parent Company.
3.14 Subsidiaries. The Parent Company does not presently own
or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity, except as stated in the COES
SEC Reports.
3.15 Required Governmental Permits. The Parent Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
3.16 Listing. The Parent Company will maintain the listing of
its Common Stock on the "Pinksheets" or other organized, comparable United
States market or quotation system; provided, however, that the sole remedy for
Purchaser for breach of this representation shall be liquidated damages as
provided in Section 10.6.
3.17 Other Outstanding Securities/Financing Restrictions.
Except as set forth on the CXI SEC Reports (as defined herein), there are no
other outstanding debt or equity securities presently convertible into shares of
CXI Common Stock.
The Parent Company cannot, without the prior approval in
writing from the Purchaser, obtain convertible debt or equity financing which is
convertible into securities of the Subsidiary Company for a period of ninety
(90) days following the effective date of the Registration Statement (as defined
herein); however, the Parent Company will not require prior approval if (a) at
least 80% of the net proceeds of the financing is part of an acquisition by the
Parent Company of control of another company or entity, (b) at least 80% of the
net proceeds of the financing is a refinancing of the Parent Company's debt, or
(c) the financing is part of a public offering of the Parent Company's
securities.
3.18 Right of Participation. In the event the Parent Company
wishes to complete a financing similar in structure to the securities issued
hereby within one hundred and eighty (180) days from the Closing Date, the
Purchaser shall have the right to participate in such offering and shall have
three (3) business days to reply in writing after receipt of written notice of
such proposed financing from the Parent Company. In the event a writing is not
received by the Parent Company from the Purchaser specifying the extent of the
Purchaser's interest in so participating, this will be deemed a refusal by the
Purchaser of such right to participate.
3.19 Legal Opinion. Purchaser shall, upon purchase of the COES
Preferred Shares, receive an opinion letter from counsel to the Parent Company,
and the Parent Company represents that it will immediately obtain such an
opinion from counsel to the satisfaction of the Purchaser, to the effect that:
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(a) The Parent Company is duly incorporated, validly
existing and in good standing in the jurisdiction of its incorporation.
(b)There is no action, proceeding or investigation
pending, or to such counsel's knowledge, threatened against the Parent
Company which might result, either individually or in the aggregate, in
any material adverse change in the business, prospects, conditions,
affairs or operations of the Parent Company.
(c) The Parent Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
(d) There is no action, suit, proceeding or investigation
by the Parent Company currently pending or, to such counsel's knowledge,
which the Parent Company currently intends to initiate.
(e) All issued and outstanding shares of CXI Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable.
(f) This Securities Purchase Agreement and the Stock
Purchase Warrant, the issuance of the COES Preferred Shares and COES
Warrants and the transfer of the Conversion Shares and Warrant Shares have
been duly approved by all required corporate action, the requisite consent
of National Securities Corporation for the Parent Company to transfer the
shares of CXI Common Stock in its holdings to the Purchaser upon
conversion of the COES Preferred Shares and exercise of the COES Warrants
has been duly obtained, and that all such Securities, upon delivery, shall
be validly issued and outstanding, fully paid and nonassessable.
(g) The execution, delivery and performance of this
Securities Purchase Agreement and the Stock Purchase Warrant by the Parent
Company, and the consummation of the transactions contemplated thereby,
will not, with or without the giving of notice or the passage of time or
both:
(i) Violate the provisions of any law, rule or
regulation which is material to the assets,
properties or business of the Parent Company;
(ii) Violate the provisions of the charter or bylaws
of the Parent Company; or
(iii) To the best of counsel's knowledge, violate any
judgment, decree, order or award of any court,
governmental body or arbitrator.
(iv) To the best of counsel's knowledge, conflict
with, or result in the breach or termination of any
term or provision of,
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or constitute a default under, or cause any
acceleration under, or cause the creation of any
lien, charge or encumbrance upon the properties or
assets of the Parent Company pursuant to, any note,
bond, indenture, mortgage, lease, deed of trust or
other instrument, obligation, or agreement to which
the Parent Company is a party and which is material
to Parent Company, or by which the Parent Company,
or any of its material properties is or may be bound.
(h) This Securities Purchase Agreement and the Stock
Purchase Warrant constitute the valid and legally binding obligations of
the Parent Company and are enforceable against the Parent Company in
accordance with their respective terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or
other equitable remedies, and, with respect to the Securities Purchase
Agreement, to limitations of public policy as they may apply to the
indemnification provisions set forth in Section 8.4 thereof.
3.20 Use of Proceeds. Except for payments aggregating $150,000
to the Subsidiary Company as provided herein, the Parent Company represents that
the net proceeds from this offering will be used for general corporate purposes.
3.21 No Poison Pill. The Parent Company represents that it
does not have, and has no current intention to adopt, a stockholder rights plan
("poison pill").
Section 4. General Representations and Warranties of the
Subsidiary Company. The Subsidiary Company hereby represents and warrants to,
and covenants with, the Purchaser that the following are true and correct as of
the date hereof and as of the Closing Date.
4.1 Organization; Qualification. The Subsidiary Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and is in good standing under such laws. The Subsidiary Company has all
requisite corporate power and authority to own, lease and operate its properties
and assets, and to carry on its business as presently conducted. The Subsidiary
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
business requires such qualification, except where failure to so qualify would
not have a material adverse effect on the Subsidiary Company.
4.2 Capitalization. The authorized capital stock of the
Subsidiary Company is as set forth in the CXI SEC Reports. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
4.3 CXI Common Stock Transferable Upon Conversion of COES
Preferred Shares or Exercise of COES Warrants. Except for the consent of
National Securities Corporation, which has been obtained, the Subsidiary Company
has all requisite corporate
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right, power and authority to transfer shares of CXI Common Stock owned by the
Parent Company to the Purchaser upon conversion of the COES Preferred Shares and
exercise of the COES Warrants.
4.4 Authorization. The Subsidiary Company has all requisite
corporate right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Subsidiary Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Subsidiary Company, and the performance of the Subsidiary Company's obligations
hereunder has been taken. This Agreement has been duly executed and delivered by
the Subsidiary Company and constitutes a legal, valid and binding obligation of
the Subsidiary Company enforceable in accordance with its terms, subject to laws
of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 of this Agreement.
Upon their issuance, transfer and delivery pursuant to this Agreement, the
Securities will have been validly issued, fully paid and nonassessable and will
be free of any liens or encumbrances; provided, however, that the COES Preferred
Shares and COES Warrants are subject to restrictions on transfer under state
and/or federal securities laws. Upon registration of the Conversion Shares and
the Warrant Shares pursuant to Section 8 of this Agreement, there shall be no
restriction on the transferability thereof other than applicable prospectus
delivery requirements.
4.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws, stockholders agreements and any amendments thereto of the Subsidiary
Company or any material mortgage, indenture, lease or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree
statute, law, ordinance, rule or regulation applicable to the Subsidiary
Company, its properties or assets.
4.6 Accuracy of Reports and Information. The Subsidiary
Company is in full compliance, to the extent applicable, with all reporting
obligations under Section 12(b), 12 (g) or 15(d), as applicable, of the Exchange
Act. The Subsidiary Company has registered its Common Stock pursuant to Section
12 of the Exchange Act and the Common Stock is listed and trades on AMEX.
The Subsidiary Company has filed all material required to be
filed pursuant to all reporting obligations, under either Section 13(a) or 15(d)
of the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the COES Preferred Shares (or for such shorter
period that the Subsidiary Company has been required to file such material).
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4.7 SEC Filings/Full Disclosure. None of the Subsidiary
Company's filings with the SEC since January 1, 1997 contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading. The Subsidiary Company
has, since January 1, 1997, timely filed all requisite forms, reports and
exhibits thereto with the SEC. The Subsidiary Company's Prospectus declared
effective by the SEC on June 28, 1996, the Annual Report on Form 10-K for the
year ended December 31, 1996, its Quarterly Reports for the periods ended March
31, 1997 and all Current Reports on Form 8-K filed by the Subsidiary Company
from January 1, 1996 to date are referred to as the "CXI SEC Reports."
There is no fact known to the Subsidiary Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Purchaser which could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, business prospects, properties or assets of the
Subsidiary Company, or (ii) could reasonably be expected to materially and
adversely affect the ability of the Subsidiary Company to perform its
obligations pursuant to this Agreement.
4.8 Absence of Undisclosed Liabilities. The Subsidiary Company
has no material liabilities or obligations, absolute or contingent (individually
or in the aggregate), except as set forth in the financial statements included
in the CXI SEC Reports (the "CXI Financial Statements") or as incurred in the
ordinary course of business after the date of the CXI Financial Statements.
4.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Subsidiary Company is required in connection with
the valid execution and delivery of this Agreement, or the offer, sale or
issuance of the COES Preferred Shares, or the consummation of any other
transaction contemplated hereby, except the filing with the SEC of a
registration statement on Form S-3 or S-1 for the purpose of registering the CXI
Common Stock underlying the COES Preferred Shares and the COES Warrants.
4.10 Intellectual Property Rights. Except as disclosed in the
CXI SEC Reports, the Subsidiary Company has sufficient trademarks, trade names,
patent rights, copyrights and licenses to conduct its business as contemplated
therein. To the Subsidiary Company's knowledge, neither the Subsidiary Company
nor its products is infringing or will infringe any trademark, trade name,
patent right, copyright, license, trade secret or other similar right of others
currently in existence; and there is no claim being made against the Subsidiary
Company regarding any trademark, trade name, patent, copyright, license, trade
secret or other intellectual property right which could have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Subsidiary Company.
4.11 Material Contracts. Except as set forth in the CXI SEC
Reports, the agreements to which the Subsidiary Company is a party described
therein are valid
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agreements, in full force and effect, the Subsidiary Company is not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements, and, to the Subsidiary Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default (with or without notice or lapse of time, or both) under any of
such agreements.
4.12 Litigation. There is no action, proceeding or
investigation pending, or to the Subsidiary Company's knowledge threatened,
against the Subsidiary Company which might result, either individually or in the
aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Subsidiary Company. The Subsidiary
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Subsidiary Company currently pending or which the Subsidiary Company currently
intends to initiate.
4.13 Title to Assets. Except as set forth in CXI SEC Reports,
the Subsidiary Company has good and marketable title to all properties and
material assets described therein as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Subsidiary Company.
4.14 Subsidiaries. The Subsidiary Company does not presently
own or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity, except as stated in the CXI
SEC Reports.
4.15 Required Governmental Permits. The Subsidiary Company is
in possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
4.16 Listing. The Subsidiary Company will maintain the listing
of its Common Stock on AMEX or other organized, comparable United States market
or quotation system; provided, however, that the sole remedy for Purchaser for
breach of this representation shall be liquidated damages as provided in Section
10.6.
4.17 Other Outstanding Securities/Financing Restrictions.
Except as set forth in the CXI SEC Reports, there are no other outstanding debt
or equity securities presently convertible into shares of CXI Common Stock.
Except as set forth in the CXI SEC Reports, the Subsidiary Company has no
outstanding restricted shares of Common Stock, or shares of Common Stock sold
under Regulation S or Regulation D under the Securities Act of 1933, as amended
(the "Securities Act") or outstanding under any other exemption from
registration, which are available for sale as unrestricted ("free trading")
stock.
The Subsidiary Company cannot, without the prior approval in
writing from the Purchaser, obtain convertible debt or equity financing for a
period of ninety (90) days following the effective date of the Registration
Statement (as defined herein); however, the
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Subsidiary Company will not require prior approval if (a) at least 80% of the
net proceeds of the financing is part of an acquisition by the Subsidiary
Company of control of another company or entity, (b) at least 80% of the net
proceeds of the financing is a refinancing of the Subsidiary Company's debt, or
(c) the financing is part of a public offering of the Subsidiary Company's
securities.
4.18 Right of Participation. In the event the Subsidiary
Company wishes to complete a financing similar in structure to the securities
issued hereby within one hundred and eighty (180) days from the Closing Date,
the Purchaser shall have the right to participate in such offering and shall
have three (3) business days to reply in writing after receipt of written notice
of such proposed financing from the Subsidiary Company. In the event a writing
is not received by the Subsidiary Company from the Purchaser specifying the
extent of the Purchaser's interest in so participating, this will be deemed a
refusal by the Purchaser of such right to participate.
4.19 Legal Opinion. Purchaser shall, upon purchase of the COES
Preferred Shares, receive an opinion letter from counsel to the Subsidiary
Company, and the Subsidiary Company represents that it will immediately obtain
such an opinion from counsel to the satisfaction of the Purchaser, to the effect
that:
(a) The Subsidiary Company is duly incorporated, validly
existing and in good standing in the jurisdiction of its incorporation.
(b) There is no action, proceeding or investigation
pending, or to such counsel's knowledge, threatened against the Subsidiary
Company which might result, either individually or in the aggregate, in
any material adverse change in the business, prospects, conditions,
affairs or operations of the Subsidiary Company.
(c) The Subsidiary Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
(d) There is no action, suit, proceeding or investigation
by the Company currently pending, to such counsel's knowledge, or which
the Subsidiary Company currently intends to initiate.
(e) All issued and outstanding shares of CXI Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable.
(f) This Securities Purchase Agreement and the Stock
Purchase Warrant, the issuance of the COES Preferred Shares and COES
Warrants and the transfer of the Conversion Shares and Warrant Shares have
been duly approved by all required corporate action, the requisite consent
of National Securities Corporation for the Parent Company to transfer the
shares of CXI Common Stock in its holdings to the Purchaser upon
conversion of the COES Preferred Shares and exercise of the
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COES Warrants has been duly obtained, and that all such Securities, upon
delivery, shall be validly issued and outstanding, fully paid and
nonassessable.
(g) The execution, delivery and performance of this
Securities Purchase Agreement and the Stock Purchase Warrant by the
Subsidiary Company, and the consummation of the transactions contemplated
thereby, will not, with or without the giving of notice or the passage of
time or both:
(i) Violate the provisions of any law, rule or
regulation which is material to the assets,
properties or business of the Subsidiary Company;
(ii) Violate the provisions of the charter or
bylaws of the Subsidiary Company; or
(iii) To the best of counsel's knowledge, violate
any judgment, decree, order or award of any court,
governmental body or arbitrator.
(iv) To the best of counsel's knowledge, conflict
with, or result in the breach or termination of any
term or provision of, or constitute a default under,
or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the
properties or assets of the Subsidiary Company
pursuant to, any note, bond, indenture, mortgage,
lease, deed of trust or other instrument,
obligation, or agreement to which the Subsidiary
Company is a party and which is material to the
Subsidiary Company or by which the Subsidiary
Company, or any of its material properties is or may
be bound.
(h) This Securities Purchase Agreement and the Stock
Purchase Warrant constitute the valid and legally binding obligations of
the Subsidiary Company and are enforceable against the Subsidiary Company
in accordance with their respective terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or
other equitable remedies, and, with respect to the Securities Purchase
Agreement, to limitations of public policy as they may apply to the
indemnification provisions set forth in Section 8.4 thereof.
4.20 No Poison Pill. The Subsidiary Company represents that it
does not have, and has no current intention to adopt, a stockholder rights plan
("poison pill").
Section 5. Representations, Warranties and Covenants of the
Purchaser. The Purchaser represents and warrants to, and covenants with, the
Parent Company and the Subsidiary Company that the following are true and
correct as of the date hereof and as of the Closing Date.
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5.1 Authority. The Purchaser's signatory has all right, power,
authority and capacity to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and will constitute the legal, valid and binding
obligations of the Purchaser, enforceable in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 of this Agreement.
5.2 Investment Experience. Purchaser is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Purchaser is aware
of the Parent Company's and Subsidiary Company's business affairs and financial
conditions and has had access to and has acquired sufficient information about
the Parent Company and the Subsidiary Company, including the COES and CXI SEC
Reports, to reach an informed and knowledgeable decision to acquire the COES
Preferred Shares. Purchaser has such business and financial experience as is
required to give it the capacity to protect its own interests in connection with
the purchase of the COES Preferred Shares and the acquisition of the COES
Warrants.
5.3 Investment Intent. Without limiting its ability to resell
the COES Preferred Shares and the COES Warrants and underlying CXI Common Stock
pursuant to an effective registration statement, Purchaser represents that it is
purchasing the COES Preferred Shares for investment purposes. Purchaser
understands that its acquisition of the COES Preferred Shares and the COES
Warrants has not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. Purchaser will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the COES Preferred Shares or the COES Warrants except in compliance
with the Securities Act and any applicable state securities laws, and the rules
and regulations promulgated thereunder.
5.4 Registration or Exemption Requirements. Purchaser further
acknowledges and understands that the COES Preferred Shares and the COES
Warrants may not be resold or otherwise transferred except in a transaction
registered under the Securities Act and any applicable state securities laws or
unless an exemption from such registration is available. Purchaser understands
that the certificate(s) evidencing the COES Preferred Shares and the COES
Warrants will be imprinted with a legend, subject to Section 5.7 below, that
prohibits the transfer thereof unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Securities Act and, if
the Parent Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Parent Company is obtained to the effect that the
transaction is so exempt.
5.5 No Legal, Tax or Investment Advice. Purchaser understands
that nothing in this Agreement or any other materials presented to Purchaser in
connection with
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the purchase and sale of the COES Preferred Shares and the acquisition and
issuance of the COES Warrants constitutes legal, tax or investment advice.
Purchaser has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of the COES Preferred Shares and acquisition of the COES Warrants.
5.6 Purchaser Review. Purchaser hereby represents and warrants
that the Purchaser has carefully examined the COES SEC Reports and CXI SEC
Reports and the COES and CXI Financial Statements contained therein. The
Purchaser acknowledges that the Parent Company and Subsidiary Company has made
available to the Purchaser all documents and information that it has requested
relating to the Parent Company and the Subsidiary Company and has provided
answers to all of its questions concerning the Parent Company and the Subsidiary
Company, the COES Preferred Shares and the COES Warrants. Nothing stated in the
previous two sentences, however, shall be deemed to affect the representations
and warranties of the Parent Company and the Subsidiary Company contained in
this Agreement.
5.7 Legend. The certificate or certificates representing the
Securities shall be subject to a legend restricting transfer under the
Securities Act, such legend to be substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates shall also include any legends required by any applicable state
securities laws.
The legend(s) endorsed on a stock certificate pursuant to this
Section 5.7 or on any certificate representing any of the Securities shall be
removed and the Parent Company or the Subsidiary Company shall issue a
replacement certificate without such legend to the holder of such certificate if
the Securities represented by such certificate are registered under the
Securities Act or if such holder provides to the Parent Company or the
Subsidiary Company an opinion of counsel to the effect that a public sale,
transfer or assignment of such Securities may be made without registration.
5.8 Restrictions on Conversion of Shares. Notwithstanding
anything to the contrary contained herein, no COES Preferred Shares may be
converted by a Holder to the extent that, after giving effect to the Conversion
Shares issued pursuant to a Notice of Conversion, the total number of shares of
CXI Common Stock deemed beneficially owned by such Holder (other than by virtue
of the ownership of COES Preferred Shares or COES Warrants or ownership of other
securities that have limitations on a Holder's rights to convert
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or exercise similar to those limitations set forth herein), together with all
shares of CXI Common Stock deemed beneficially owned by Holder's "affiliates"
(as defined in Rule 144 under the Securities Act) that would be aggregated for
purposes of determining whether a group under Section 13(d) of the Exchange Act
exists, would exceed 4.99% of the total issued and outstanding shares of CXI
Common Stock, provided that each Holder shall have the right to waive this
restriction, in whole or in part, immediately in case of a pending Change in
Control Transaction and in any other case upon 61 days prior notice to the
Parent Company and the Subsidiary Company. The delivery of a Notice of
Conversion by any Holder shall be deemed a representation by such Holder it is
in compliance with this Section 5.8. A transferee of COES Preferred Shares shall
not be bound by this provision unless it expressly agrees to be so bound. The
term "deemed beneficially owned" as used in this Section 5.8 shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
convertibility of the COES Preferred Shares.
Section 6. Conditions to the Purchaser's Obligation to
Purchase. The Parent Company and the Subsidiary Company understand that the
Purchaser's obligation to purchase the COES Preferred Shares is conditioned
upon:
(a) Acceptance by Purchaser of this Agreement
for the sale of the COES Preferred Shares, as evidenced by the execution of this
Agreement by its authorized officers;
(b) Delivery of the COES Preferred Shares and
COES Warrants to Eilenberg & Zivian;
(c)(i) The delivery at the Closing of a certificate
from an authorized officer of the Parent Company certifying that all
representations and warranties of the Parent Company are true and correct as of
the Closing Date (in the form annexed hereto as Exhibit C1); (c)(ii) The
delivery at the Closing of a certificate from an authorized officer of the
Subsidiary Company certifying that all representations and warranties of the
Subsidiary Company are true and correct as of the Closing Date (in the form
annexed hereto as Exhibit C2); and
(d) A filed Certificate of Designation.
Section 7. Conditions to Parent Company's Obligation to Sell.
Purchaser understands that the Parent Company's obligation to sell the COES
Preferred Shares is conditioned upon:
(a) The receipt and acceptance by the Parent C
ompany of this Agreement to issue the COES Preferred Shares as evidenced by
execution of this Agreement by the President or any Vice President of the Parent
Company;
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(b) Delivery to the Company, the Finder and
Counsel for Parent by Purchaser of good funds as payment in full for the
purchase of the COES Preferred Shares; and
(c) The delivery at the Closing of a certificate
from an authorized officer or representative of Purchaser certifying that all
representations and warranties of the Purchaser are true and correct as of the
Closing Date (in the form annexed hereto as Exhibit C3).
Section 8. Registration of the Shares; Compliance with the
Securities Act.
8.1 Definitions. For the purpose of this Section 8:
(a) the term "Registration Statement" shall mean
any registration statement required to be filed by Section 8.2 below, and shall
include any preliminary prospectus, final prospectus, exhibit or amendment
included in or relating to such registration statement; and
(b) the term "untrue statement" shall include
any untrue statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
8.2 Registration Procedures and Expenses. The Parent
Company shall cause the Subsidiary Company to, and the Subsidiary Company shall:
(a) file with the SEC a registration statement
under the Securities Act on Form S-3, if the Subsidiary Company is eligible to
file a registration statement under such form, to register the Conversion Shares
and the Warrant Shares within thirty (30) days after the Closing Date and in
sufficient time to have such registration effective ninety (90) days from the
Closing Date; and if the Subsidiary Company is not eligible to file a
registration statement under Form S-3, to file with the SEC a registration
statement under the Securities Act on Form S-1 or any other form which is
appropriate, to register the Conversion Shares and the Warrant Shares within
sixty (60) days after the Closing Date and in sufficient time to have such
registration effective one hundred and twenty (120) days from the Closing Date.
(b) use its best efforts, subject to receipt of
necessary information from the Purchaser, to cause such Registration Statement
to become effective as promptly after filing as practicable;
(c) prepare and file with the SEC such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective until termination of such obligation as provided in Section
8.9 below;
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(d) furnish to the Purchaser with respect to the
CXI Common Stock registered on the Registration Statement (and to each
underwriter, if any, of such CXI Common Stock) such number of copies of
prospectuses in conformity with the requirements of the Securities Act and such
other documents as the Purchaser may reasonably request, in order to facilitate
the public sale or other disposition of all or any of the CXI Common Stock by
the Purchaser; provided, however, that the obligation of the Subsidiary Company
to deliver copies of prospectuses to the Purchaser shall be subject to the
receipt by the Subsidiary Company of reasonable assurances from the Purchaser
that the Purchaser will comply with the applicable provisions of the Securities
Act and of such other securities laws as may be applicable in connection with
any use of such prospectuses;
(e) file such documents as may be required of
the Subsidiary Company for normal securities law clearance for the resale of the
Common Stock in which states of the United States as may be reasonably requested
by the Purchaser; provided, however, that the Subsidiary Company shall not be
required in connection with this paragraph (e) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
(f) bear all expenses in connection with the
procedures in paragraphs (a) through (e) of this Section 8.2 and the
registration of the CXI Common Stock on such Registration Statement and the
satisfaction of the blue sky laws of such states, including the reasonable fees
and expenses of legal counsel to the Purchaser in connection with the procedures
in paragraph (a) through (e) of this Section 8.2, other than underwriting
discounts and selling commissions or expenses required by law to be borne by
Purchaser; and
(g) in the event of the failure of Company to
procure registration of the CXI Common Stock underlying the COES Preferred
Shares within ninety (90) days from the Closing Date if the Registration
Statement is filed under Form S-3, or within one hundred (120) days from the
Closing Date if the Registration Statement is filed under Form S-1 or any other
appropriate forms, the Parent Company will pay Purchaser by wire transfer, as
liquidated damages for such failure and not as a penalty, one (1%) percent of
the Liquidation Preference (as defined below) of the COES Preferred Shares that
have not been converted, for each month, or any part thereof, that the
Registration Statement is not effective, or in the event of a Suspension (as
defined in Section 8.7) after such date. If the Parent Company does not remit
the damages to the Purchaser as set forth above, the Parent Company will pay the
Purchaser reasonable costs of collection, including attorneys fees, in addition
to the liquidated damages. Such payment shall be made to the Purchaser
immediately if the registration of the Conversion Shares and Warrant Shares is
not effected; provided, however, that the payment of such liquidated damages
shall not relieve the Subsidiary Company from its obligations to register the
Conversion Shares and Warrant Shares pursuant to this Section. The registration
of the Conversion Shares and Warrant Shares pursuant to this provision shall not
affect or limit Purchaser's other rights or remedies as set forth in this
Agreement. The "Liquidation Preference" for a Share shall equal $100 (subject to
adjustments for Reclassifications), plus all accrued and unpaid dividends (which
shall accrue through the Conversion Date, Redemption Date or the date liquidated
damages are paid, as applicable)
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and any then unpaid liquidated damages (interest on which shall accrue at a rate
of 2% per month) arising under Sections 8.2(g), 10.2 or 10.6.
8.3 Underwriter. The Parent Company and the Subsidiary Company
understand that the Purchaser disclaims being an "underwriter" (as such term is
defined under the Securities Act and the rules and regulations promulgated
thereunder (an "Underwriter")), but Purchaser being deemed an Underwriter shall
not relieve the Parent Company and the Subsidiary Company of any obligation it
has hereunder.
8.4 Indemnification.
(a) General Indemnification. The Parent Company and the
Subsidiary Company together and the Purchaser agree to indemnify the other and
to hold the other harmless from and against any and all losses, damages,
liabilities, costs and expenses (including reasonable attorneys' fees) which the
other may sustain or incur in connection with the breach by the indemnifying
party of any representation, warranty or covenant made by it in this Agreement.
(b) Indemnification for Registration Statement.
(i) By Parent Company and Subsidiary Company. To
the extent permitted by law, the Parent Company and Subsidiary Company together
will indemnify and hold harmless each Holder, the directors, if any, of such
Holder, the officers, if any, of such Holder who sign the Registration
Statement, each person, if any, who controls such Holder, any underwriter (as
defined in the Securities Act) for the Holders and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, expenses or liabilities
(joint or several) to which any of them may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstance in which they are made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will
reimburse the Holders and each such underwriter or controlling person, promptly
as such expenses are incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability action or proceeding; provided, however, that the
indemnity agreement contained in this Section 8.4(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Parent Company and the
Subsidiary Company, which consents shall not be unreasonably withheld, nor shall
the Parent Company and Subsidiary Company
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be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by the Holders or any such underwriter
or controlling person, as the case may be. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Holders or any such underwriter or controlling person and shall survive the
transfer of the Securities by Holders.
(ii) By Holders. To the extent permitted by law,
each Holder, severally and not jointly, will indemnify and hold harmless the
Subsidiary Company, each of its directors, each of its officers who have signed
the Registration Statement, each person, if any, who controls the Subsidiary
Company within the meaning of the Securities Act or the Exchange Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such holder or underwriter, against any losses, claims, damages or
liabilities (joint or several) to which any of them may become subject, under
the Securities Act, the Exchange Act or other federal state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration, and such Holder will reimburse any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 8.4(b) shall not apply
to amounts paid in settlement of such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder, which consent
shall not be unreasonably withheld; and provided further, that the Holder shall
be liable under this paragraph for only that amount of losses, claims, damages
and liabilities as does not exceed the net proceeds to such Holder as a result
of the sale of the Securities pursuant to such registration.
(c) Procedure for Indemnification. Promptly after
receipt by an indemnified party under this Section 8.4 of notice of the
commencement of any action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8.4, deliver to the indemnifying party a written notice
of commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel for the indemnifying party, representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 8.4 only to the extent
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prejudicial to its ability to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party other than under this Section 8.4. The
indemnification required by this Section 8.4 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense,
promptly as such expense, loss, damage or liability is incurred.
(d) Contribution. To the extent any indemnification by
an indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
otherwise would be liable under this Section 8.4 to the extent permitted by law,
provided that (i) no contribution shall be made under the circumstances where
the maker would not have been liable for indemnification under the fault
standards set forth in this Section 8.4, (ii) no seller of the Securities guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of the
Securities who was not guilty of such fraudulent misrepresentation and (iii)
contribution by any seller of the Securities shall be limited in amount to the
net amount of proceeds received by such seller from the sale of such Securities.
8.5 Information Available. So long as any registration
statement is effective covering the resale of the Conversion Shares or Warrant
Shares, the Parent Company and the Subsidiary Company will each furnish to
Purchaser:
(a) as soon as possible after available, one copy of
(i) each of its Annual Report to Stockholders (which Annual Report shall contain
financial statements audited in accordance with generally accepted accounting
principles in the United States of America by a national firm of certified
public accountants); (ii) if not included in substance in the Annual Report to
Stockholders, each of its annual report on Form 10-K within 100 days after the
end of each fiscal year of each Company, (iii) each of its Quarterly Reports to
Stockholders, and its quarterly report on Form 10-Q within sixty (60) days, and
(iv) a full copy of the registration statement covering the Conversion Shares
and Warrant Shares (the foregoing, in each case, excluding exhibits); and
(b) upon the reasonable request of Purchaser, such other
information that is generally available to the public.
8.6 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Conversion Shares and the Warrant Shares to the public
without registration, the Parent Company and the Subsidiary Company agrees to
use its best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date on which the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
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(b) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(c) to furnish to Purchaser forthwith upon request a
written statement by the Parent Company or the Subsidiary Company as to its
compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Parent Company or the Subsidiary Company and other information in the possession
of or reasonably obtainable by the Parent Company or the Subsidiary Company as
Purchaser may reasonably request in availing itself of any rule or regulation of
the SEC allowing Purchaser to sell any such Conversion Shares or Warrant Shares
without registration.
8.7 Temporary Cessation of Offers and Sales by Purchaser. The
Purchaser acknowledges that there may occasionally be times when the Subsidiary
Company may be required to suspend the use of the prospectus forming part of the
Registration Statement (a "Suspension") until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by
the Commission, until the prospectus is supplemented or amended to comply with
the Securities Act, or until such time as the Subsidiary Company has filed an
appropriate report with the Commission pursuant to the Exchange Act. The
Subsidiary Company agrees to file any necessary amendments, supplements and
reports as soon as practicable under the circumstances. The Subsidiary Company
agrees to use its best efforts to cause a Suspension to be lifted within 10
business days during which time Purchaser agrees that it will not sell any
shares of Common Stock pursuant to such prospectus.
8.8 Transfer of Conversion Shares or Warrant Shares Stock
After Registration. Purchaser hereby covenants with the Parent Company and the
Subsidiary Company not to make any sale of the Conversion Shares or Warrant
Shares except either (i) in accordance with the Registration Statement, in which
case Purchaser covenants to comply with the requirement of delivering a current
prospectus, (ii) in accordance with Rule 144, in which case Purchaser covenants
to comply with Rule 144, or (iii) as otherwise permitted by applicable law.
8.9 Termination of Obligations. The obligations of the Parent
Company and Subsidiary Company pursuant to Sections 8.2, 8.3 and 8.6 hereof
shall cease and terminate upon the earlier to occur of (i) such time as all of
the Conversion Shares or Warrant Shares have been re-sold, or (ii) such time as
all of the Common Stock may be resold pursuant to Rule 144(k) under the
Securities Act.
Section 9. Legal Fees and Expenses. Each of the parties shall
pay its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby.
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Section 10. Conversion; Liquidated Damages.
10.1 Restrictions on Conversion. Conversion of all the COES
Preferred Shares may be made at the Conversion Price, the day following the date
that the Registration Statement for the CXI Common Stock underlying the COES
Preferred Stock and COES Warrants was declared effective by the SEC.
10.2 Notice of Conversion. Conversion of the COES Preferred
Shares to CXI Common Stock may be exercised in whole or in part by Purchaser
telecopying an executed and completed Notice of Conversion (in the form annexed
hereto as Exhibit D) to counsel for the Parent Company, with a copy to the
Parent Company and Subsidiary Company, and delivering the original Notice of
Conversion and the certificate representing the COES Preferred Shares to counsel
by hand or by express courier within three (3) business days of exercise. Each
date on which a Notice of Conversion is telecopied to and received by the Parent
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Subsidiary Company will reissue and transmit the certificates in the
name of the Purchaser, or any other name as instructed by the Purchaser,
representing the CXI Common Stock transferable upon conversion of all or any
part of the COES Preferred Shares and COES Warrant Shares (and the Parent
Company will transmit any certificates for replacement COES Preferred Shares not
previously converted but included in the original certificate presented for
conversion) to the Purchaser via express courier within three (3) business days
after counsel for the Parent Company has received the original Notice of
Conversion and the certificate representing the COES Preferred Shares being so
converted. The Notice of Conversion and certificate representing the portion of
the COES Preferred Shares converted shall be delivered as follows:
To counsel of Parent Company:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
To the Parent Company:
Commodore Environmental Services, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
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To the Subsidiary Company:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
or to such other person at such other place as the Parent Company shall
designate to the Purchaser in writing.
In the event that the COES Preferred Shares are not converted
within three (3) business days of the Conversion Date, the Parent Company shall
be liable to Purchaser for actual damages incurred from the fourth business day
following the Conversion Date through the ninth business day following the
Conversion Date for such failure (provided that Purchaser has delivered the
original valid Notice of Conversion and the original certificate(s) representing
the COES Preferred Shares to be converted, or an affidavit and indemnity
agreement as to lost certificates reasonably satisfactory to the Company). In
the event the COES Preferred Shares are not converted by the tenth (10th)
business day following the Conversion Date, the Parent Company shall pay to the
Purchaser, by wire transfer, as liquidated damages for such failure and not as a
penalty, an amount in cash equal to one (1%) percent per day of the Liquidation
Preference for the COES Preferred Shares to be converted which shall run from
the tenth (10th) business day following the Conversion Date; provided, however,
that actual damages and liquidated damages for a failure to deliver certificates
of CXI Common Stock shall be determined in accordance with Section 10.6, if both
of the following conditions are satisfied by the Parent Company: (i) the failure
to deliver certificates of CXI Common Stock is the result of a lack of available
shares of CXI Common Stock and (ii) the Parent Company commences, within ten
(10) business days after the initial Conversion Date to purchase or otherwise
acquire the number of shares of CXI Common Stock which is sufficient to permit
conversion of all COES Preferred Shares then outstanding at the Hypothetical
Conversion Price (as hereinafter defined) then in effect.
10.3 Mandatory Conversion. The COES Preferred Shares are
subject to mandatory conversion after five (5) years from the Closing Date, at
which time all COES Preferred Shares will automatically be converted at the
Conversion Price, upon the terms set forth in this section. Such five year
period will be extended by the number of days during such period that (i) the
Subsidiary Company's Common Stock has been Delisted and/or (ii) a Suspension has
been in effect and by the number of days after the 90th day or the 120th day,
whichever date is applicable as provided in Section 8.2(g) herein, that
Registration Statement was not declared effective. Any particular day in which
more than one of the foregoing condition events shall have been in effect shall
only be counted once in determining the number of days by which to extend the
five year period prior to mandatory conversion. In addition, mandatory
conversion shall not occur for so long as certain default events specified in
Section 5(e) of the Certificate of Designation are continuing.
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10.4 Reservation of CXI Common Stock Transferable Upon
Conversion. The Parent Company shall at all times reserve and keep available out
of its holdings of shares of CXI Common Stock, such number of shares of CXI
Common Stock as shall from time to time be sufficient to effect the conversion
of all then outstanding COES Preferred Shares and COES Warrants, the sufficiency
of which shall be determined (in the case of the COES Preferred Shares) by using
a Conversion Price (the "Hypothetical Conversion Price") derived from a
hypothetical closing market price that is 75% of either (i) the actual Average
Closing Bid Price on the Closing Date or (ii) the actual Average Closing Bid
Price from time to time, whichever is lower, and in the case of the COES
Warrants, by the exercise price thereof. The Parent Company hereby covenants and
agrees that if at any time the Hypothetical Conversion Price falls to a level
that would not enable all outstanding COES Preferred Shares to be fully
converted and the outstanding COES Warrants to be fully exercised, the Parent
Company will promptly purchase or otherwise acquire the number of shares of CXI
Common Stock sufficient to permit the conversion of all COES Preferred Shares
then outstanding at the Hypothetical Conversion Price then in effect and the
exercise of all outstanding COES Warrants.
10.5 Liquidated Damages. In the event of a Delisting, a
Cumulative Suspension or Insufficient CXI Common Stock (each a "Damage Event"),
the Parent Company will pay to Purchaser (and to all other holders of the
Shares), by wire transfer, as liquidated damages for such non-availability and
not as a penalty, an amount in cash equal to 2% per month of the Liquidation
Preference of only those COES Preferred Shares then eligible for conversion,
without regard to Section 5.8, for the first two months after the occurrence of
a Damage Event, and 3% per month for each month thereafter. Similar liquidated
damages shall be paid with respect to any COES Preferred Shares not initially
eligible for conversion when the Damage Event first occurred but which
subsequently become eligible for conversion, without regard to Section 5.8,
commencing in the first month that such COES Preferred Shares become eligible
for such conversion. Such liquidated damages shall continue to accrue and shall
be payable until the Damage Event has been cured, and, if not paid, interest
thereon shall accrue at a rate of 2% per month. At the Purchaser's election,
such liquidated damages may be paid in cash or may be added to the principal of
the COES Preferred Shares for subsequent conversion purposes. Notwithstanding
the foregoing, in the case of a Delisting, after six months from the date of
such Delisting, the Parent Company shall have the option to force Purchaser to
as promptly as possible convert (in increments of no less than $50,000) all or
part of its COES Preferred Shares, subject to Purchaser being able to sell the
underlying Conversion Shares, and simultaneously sell such Conversion Shares
(where the conversion price therefor shall not be the Conversion Price but
instead shall equal 85% of the Purchaser's sale price of the Conversion Shares,
all as determined by Purchaser's actual trading records (to be provided to the
Company). In no event may the Company force Purchaser to convert less than
$50,000 of COES Preferred Shares at any one time.
Section 11. Redemption By Parent Company.
11.1 Parent Company's Right to Redeem. The Parent Company
shall have the right, at any time and from time to time, in its sole discretion,
to redeem in whole or in
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part the COES Preferred Shares then outstanding, except that if the Purchaser or
any Holder of the COES Preferred Shares has submitted a Notice of Conversion,
the Parent Company shall not have the right to redeem the COES Preferred Shares
which were submitted for conversion and the certificates representing Conversion
Shares should be delivered promptly according to Section 10.2 herein. If the
Parent Company elects to redeem some, but not all, of the COES Preferred Shares,
the Parent Company shall redeem the COES Preferred Shares pro rata among the
Holders of all the COES Preferred Shares then outstanding. The date of the
Parent Company's redemption of COES Preferred Shares shall be referred to as the
"Redemption Date."
11.2 Redemption Price. The redemption price per COES
Preferred Share shall equal $125.
11.3 Mechanics of Redemption; Purchaser's Conversion Rights.
The Parent Company shall effect each such redemption by giving notice of its
election to redeem ("Redemption Notice"), by facsimile, by 5 P.M. New York City
time on the Redemption Date and shall provide a copy of such redemption notice
by overnight or 2-day courier, to Purchaser, all other Holders of COES Preferred
Shares and the Parent Company's Transfer Agent. Such redemption notice shall
indicate whether the Parent Company will redeem all or part of the COES
Preferred Shares. Upon the giving of any such Redemption Notice, and until the
earlier of either payment of the applicable redemption price or fifteen (15)
business days after the Redemption Date (or later as provided in Section 6(d)
below), the conversion rights in respect of the COES Preferred Shares and any
other outstanding shares of COES Convertible Preferred Stock called for
redemptions shall be suspended. Subject to the Parent Company's payment of the
applicable redemption price, the accrual of dividends in connection with the
shares of COES Convertible Preferred Stock called for redemption will suspend on
the Redemption Date.
11.4 Payment of Redemption Price. Upon receipt of a
Redemption Notice, Purchaser shall send its COES Preferred Shares being redeemed
to the Parent Company or its Transfer Agent within three (3) business days of
the receipt of such Redemption Notice, and the Parent Company shall pay the
applicable redemption price within fifteen (15) business days of the Redemption
Date (such fifteen (15) business day period shall be extended for each day the
COES Preferred Shares being redeemed have not been delivered to the Parent or
its Transfer Agent beyond the third (3rd) business day after receipt of the
Redemption Notice). The Parent Company shall not be obligated to deliver the
redemption price unless the COES Preferred Shares so redeemed are delivered to
the Parent Company or its Transfer Agent, or, in the event one or more
certificates have been lost, stolen, mutilated or destroyed, Purchaser delivers
to the Parent Company a lost certificate affidavit reasonably satisfactory to
Parent Company and its Transfer Agent.
11.5 Default of Parent Company's Redemption. If the Parent
Company fails to pay the applicable redemption price to the Purchaser and/or
other Holders of the COES Preferred Shares being redeemed by the Parent Company
within fifteen (15) business days of the Redemption Date (such fifteen (15)
business day period shall be extended for each day the COES Preferred Shares
being redeemed have not been delivered to the Parent or its
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Transfer Agent beyond the third (3rd) business day after receipt of the
Redemption Notice), the Parent Company shall be deemed to have defaulted on
their right to redeem such COES Preferred Shares. Such COES Preferred Shares
shall thereafter become immediately convertible and the Conversion Price for
such COES Preferred Shares shall be equal to 75% of the Average Closing Bid
Price. The Conversion Price for such COES Preferred Shares shall not be subject
to a floor.
11.6 Blackout Period. Notwithstanding the foregoing, the
Parent Company may not either send out a redemption notice or effect a
redemption during a Blackout Period (defined as a period during which the Parent
Company's or the Subsidiary Company's officers or directors would not be
entitled to buy or sell stock because of their holding of material non-public
information). In the event the Parent Company initiates a redemption during a
Blackout Period without having first made public material non-public
information, the Parent Company or the Subsidiary Company shall disclose the
non-public information that resulted in the Blackout Period, and no redemption
shall be effected until at least 10 days after the Company or the Subsidiary
Company shall have given the Holder written notice that the Blackout Period has
been lifted.
Section 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, or shall be sent by overnight
courier or by facsimile, and shall be deemed given when received:
(a) if to the Parent Company, to
Commodore Environmental Services, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
or to such other person at such other place as the Parent Company shall
designate to the Purchaser in writing;
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(b) if to the Subsidiary Company:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
or to such other person at such other place as the Subsidiary Company shall
designate to the Purchaser in writing;
(c) if to the Purchaser, to
Okemo Partners Limited
85 Old Long Ridge Road, Suite A7
Stamford, CT 06903
Attn.: Dan Kaminer
Telephone: 203-329-6659
Facsimile: 203-329-6659
copy to:
Eilenberg & Zivian
666 Third Avenue, 30th Floor
New York, NY 10017
Attn.: Jeffrey D. Abbey, Esq.
Telephone: 212-986-2468
Facsimile: 212-986-2399
or at such other address or addresses as may have been furnished to the Parent
Company and the Subsidiary Company in writing; or
(c) if to any transferee or transferees of a Purchaser,
at such address or addresses as shall have been furnished to the Parent Company
and the Subsidiary Company at the time of the transfer or transfers, or at such
other address or addresses as
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may have been furnished by such transferee or transferees to the Parent Company
and the Subsidiary Company in writing.
Section 13. Miscellaneous.
13.1 Entire Agreement. This Agreement and the Exhibits hereto
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement or any kind not
expressly set forth in this Agreement or the Exhibits hereto shall affect, or be
used to interpret, change or restrict, the express terms and provisions of this
Agreement.
13.2 Amendments. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Parent Company, the
Subsidiary Company and by Purchaser.
13.3 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
13.4 Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
13.5 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the courts of or located in the State of New York, specifically
the Southern District of New York and/or the Supreme Court of the State of New
York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. In addition, the parties
agree that the party against whom such judgment was obtained will pay the legal
fees of the party obtaining such judgment. Each party to this Agreement
irrevocably consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party at its address set forth herein. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by law.
13.6 Recovery of Attorney's Fees. Should any party bring an
action to enforce the terms of this Agreement then, if Purchaser prevails in
such action it should be
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<PAGE>
entitled to recovery of its attorney's fees from the Parent Company or the
Subsidiary Company, and if the Parent Company or the Subsidiary Company prevails
in such action it shall be entitled to recovery of its attorney's fees from the
Purchaser.
13.7 Fees. Notwithstanding Section 13.6, the Parent Company
and the Subsidiary Company acknowledge that Purchaser shall have no
responsibility for the payment of any of its fees in connection with this
offering.
13.8 Counterparts/Facsimile. This Agreement may be executed
in two or more counterparts, each of which shall constitute an original, but
all of which, when taken together, shall constitute but one instrument, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party. In lieu of the original, a
facsimile transmission or copy of the original shall be as effective and
enforceable as the original.
13.9 Publicity. The Purchaser shall not issue any press
releases or otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Parent
Company and the Subsidiary Company, except as may be required by applicable law
or regulation.
13.10 Survival. The representations and warranties in this
Agreement shall survive Closing.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives the day and year
first above written.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By /s/ XXXXXXXXXXXXXXXXXXXXX
-------------------------------------------
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By /s/ XXXXXXXXXXXXXXXXXXXXX
------------------------------------------
Officer
PURCHASER: OKEMO PARTNERS LIMITED
By ___________________________________________
Officer
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives the day and year
first above written.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By
-------------------------------------------
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By
------------------------------------------
Officer
PURCHASER: OKEMO PARTNERS LIMITED
By /s/ XXXXXXXXXXXXXXXXXXXXX
-------------------------------------------
Officer
33
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
<PAGE>
EXHIBIT B
FORM OF STOCK PURCHASE WARRANT
<PAGE>
EXHIBIT C1
COMMODORE ENVIRONMENTAL SERVICES, INC.
COMPLIANCE CERTIFICATE
The undersigned, an executive officer of COMMODORE ENVIRONMENTAL
SERVICES, INC., hereby certifies that the representations and warranties made by
Commodore Environmental Services, Inc. in the 7% Preferred Stock Securities
Purchase Agreement dated May 20, 1997 by and between Commodore Environmental
Services, Inc., Commodore Applied Technologies, Inc. and Okemo Partners Limited
were true and correct as of the date such representations and warranties were
made and are true and correct in all material respects as of the date hereof
with the same force and effect as through such representations and warranties
had been made on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By __________________________________________
Name ________________________________________
Title _______________________________________
<PAGE>
EXHIBIT C2
COMMODORE APPLIED TECHNOLOGIES, INC.
COMPLIANCE CERTIFICATE
The undersigned, an executive officer of COMMODORE APPLIED
TECHNOLOGIES, INC., hereby certifies that the representations and warranties
made by Commodore Applied Technologies, Inc. in the 7% Preferred Stock
Securities Purchase Agreement dated May 20, 1997 by and between Commodore
Environmental Services, Inc., Commodore Applied Technologies, Inc. and Okemo
Partners Limited were true and correct as of the date such representations and
warranties were made and are true and correct in all material respects as of the
date hereof with the same force and effect as through such representations and
warranties had been made on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
COMMODORE APPLIED TECHNOLOGIES, INC.
By __________________________________________
Name ________________________________________
Title _______________________________________
<PAGE>
EXHIBIT C3
PURCHASER
COMPLIANCE CERTIFICATE
The undersigned, _________, __________________________________
of OKEMO PARTNERS LIMITED ("Purchaser"), hereby certifies that the
representations and warranties made by Purchaser in the 7% Preferred Stock
Securities Purchase Agreement dated May 20, 1997 between Commodore Environmental
Services, Inc., Commodore Applied Technologies, Inc. and Purchaser were true and
correct as of the date such representations and warranties were made and are
true and correct in all material respects as of the date hereof with the same
force and effect as through such representations and warranties had been made on
and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
PURCHASER
OKEMO PARTNERS LIMITED
By __________________________________________
Name ________________________________________
Title _______________________________________
<PAGE>
EXHIBIT D
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
7% Preferred Stock)
The undersigned hereby irrevocably elects to convert ___________shares
of COES Preferred Stock represented by above Certificate No. into shares of
common stock of COMMODORE APPLIED TECHNOLOGIES, INC. (the "Subsidiary")
according to the conditions hereof, as of the date written below.
The undersigned represents and warrants that:
All offers and sales by the undersigned of the shares of Common Stock
issuable to the undersigned upon conversion of the COES Preferred
Shares shall be made pursuant to an exemption from registration under
the Act, or pursuant to registration of the Common Stock under the
Securities Act of 1933, as amended.
________________________________ ________________________________
Date of Conversion Applicable Conversion Price
________________________________ ________________________________
Number of Shares of Common Stock $ Amount of Conversion
upon Conversion
________________________________ ________________________________
Signature Name
Address: Delivery of Shares to:
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS SUBSCRIPTION AGREEMENT
SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
7% PREFERRED STOCK
SECURITIES PURCHASE AGREEMENT
COMMODORE ENVIRONMENTAL SERVICES, INC.
AND
COMMODORE APPLIED TECHNOLOGIES, INC.
THIS AGREEMENT is made as of the 20th day of May, 1997, by and
between COMMODORE ENVIRONMENTAL SERVICES, INC., traded on the "Pinksheets" under
the symbol "COES" (the "Parent Company"), a corporation, with its principal
office at 150 East 58th Street, New York, NY 10155, COMMODORE APPLIED
TECHNOLOGIES INC., AMEX symbol "CXI" (the "Subsidiary Company"), a corporation,
with its principal office at 150 East 58th Street, New York, NY 10155 and
AMERICAN INVESTMENT GROUP OF NEW YORK, L.P. (the "Purchaser"), with its
principal office at 85 Old Long Ridge Road, Suite A7, Stamford, CT 06903.
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Parent Company, Subsidiary Company and the Purchaser agree as
follows:
Section 1. Certain Definitions. For purposes of this Agreement:
"Change in Control Transaction" means the date the Parent
Company or the Subsidiary Company (i) sells or otherwise conveys all or
substantially all of its assets or (ii) effects a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Parent Company or
the Subsidiary Company is disposed of, directly or indirectly, or if within any
12 month period there is a change of more than 50% of the members of the Parent
Company's or the Subsidiary Company's Board of Directors, or if any other
person, entity or group (as defined in Section 13(d) of the Exchange Act) and/or
any of their affiliates or associates acquires in excess of 50% of the Common
Stock.
"Closing Date" means the date agreed to by the parties for the
delivery of the stock certificate against a wire transfer of the funds to the
Parent Company.
"Closing" means the completion of the purchase and sale of the
COES Preferred Shares on the Closing Date.
<PAGE>
"COES Convertible Preferred Stock" means the 60,000 shares of
Series D Preferred Stock of the Parent Company, $.01 par value, convertible into
CXI Common Stock as hereinafter provided and which has the rights, preferences
and privileges set forth in the Certificate of Designation attached hereto as
Exhibit A (the "Certificate of Designation").
"COES Preferred Shares" means the shares of COES Convertible
Preferred Stock purchased hereunder.
"Conversion Date" means the date on which the Purchaser has
telecopied the Notice of Conversion to counsel for the Parent Company.
"Conversion Price" means an amount equal to a fifteen (15%)
percent discount from the closing bid price of the CXI Common Stock as reported
by Bloomberg, L.P. ("Bloomberg") averaged for the previous five (5) business
days ending on the day before the Conversion Date (the "Average Closing Bid
Price"); provided, however, if the average of the closing bid price of the CXI
Common Stock, as reported by Bloomberg ("Floor Average"), for any consecutive
thirty (30) days is equal or less than $2.00 (such thirtieth (30th) day shall be
the "First Trigger Date"), the conversion price shall equal $2.00; if the Floor
Average for any consecutive thirty (30) days beginning any day after the First
Trigger Date is less than $2.00 ("Second Trigger Date"), the conversion price
shall equal $1.90; if the Floor Average for any thirty (30) days beginning any
day after the Second Trigger Date is less than $1.90 (the "Third Trigger Date"),
the conversion price shall equal $1.80; if the Floor Average for any consecutive
thirty (30) days beginning any day after the Third Trigger Date is less than
$1.80 (the "Fourth Trigger Date"), the conversion price shall equal $1.70; if
the Floor Average for any consecutive thirty (30) days beginning any day after
the Fourth Trigger Date is less than $1.70 (the "Fifth Trigger Date"), the
conversion price shall equal $1.60; if the Floor Average for any consecutive
thirty (30) days beginning any day after the Fifth Trigger Date is less than
$1.60, the conversion price shall equal $1.50. Subject to Section 11.5 herein,
in no event shall the Conversion Price be lower than $1.50 per share of CXI
Common Stock. If the CXI Common Stock is not traded on the American Stock
Exchange, the Average Closing Bid Price shall be the average closing bid price
(and if not available, the mean of the high and low prices) of the Common Stock
on the over-the-counter-market or the principal national securities exchange or
the Nasdaq National Market System or Nasdaq SmallCap Market System on which the
CXI Common Stock is traded for the previous five (5) business days ending on the
day before the Conversion Date.
The Conversion Price shall be equitably adjusted accordingly
on a pro rata basis in the event of the happening of certain events that would
affect the CXI Common Stock or COES Convertible Preferred Stock's value
including, but not limited to, forward and reverse stock splits, issuance of
stock dividends, subdivision of shares, combinations, reclassifications, or the
like (collectively "Reclassifications"). An adjustment made pursuant to this
section shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such an event.
"Convertible Date" means the date on which the COES Preferred
Shares will become convertible, which is the day following the date that the
Registration Statement for
2
<PAGE>
the shares of CXI Common Stock underlying the COES Preferred Stock and COES
Warrants has been declared effective by the Securities and Exchange Commission
("SEC").
"Cumulative Suspension" means the date a Suspension (as
defined in Section 8.7) has occurred and is continuing or the date that is the
15th day in the aggregate that more than one Suspension has occurred since the
effective date of the Registration Statement.
"CXI Common Stock" means the underlying Common Stock of the
Subsidiary Company, $.001 par value.
"Delisting" means the date the CXI Common Stock is delisted
from AMEX and is not otherwise listed on the Nasdaq Stock Market or other
national securities exchange.
"Holder" means a holder of COES Preferred Shares.
"Insufficient CXI Common Stock" means the date the number of
shares of CXI Common Stock held by the Parent Company is not sufficient to
effect the conversion of all outstanding COES Preferred Shares then eligible for
conversion (whether or not the Holders have duly delivered Notices of
Conversion).
"Purchase Price" means the aggregate purchase price of the
COES Preferred Shares purchased.
Section 2. Authorization and Sale of Shares.
2.1 Authorization. Subject to the terms and conditions of this
Agreement, the Parent Company has authorized the sale and issuance of the COES
Preferred Shares.
2.2 Agreement to Sell and Purchase the Shares. The Parent
Company will sell and the Purchaser will buy, in reliance upon the
representations and warranties of the Parent Company, Subsidiary Company and
Purchaser contained in this Agreement, upon the terms and conditions hereinafter
set forth, Thirty Thousand (30,000) COES Preferred Shares of COES Convertible
Preferred Stock for an aggregate purchase price of Three Million Dollars
($3,000,000) for all such COES Preferred Shares based on U.S. $100 per share.
The COES Preferred Shares shall pay a 7% cumulative dividend, payable in cash or
CXI Common Stock at the Conversion Price, at the discretion of the Parent
Company, at the time of each conversion. Such purchase and sale shall occur on
the Closing Date. In addition, Parent Company will transfer to Purchaser, for no
additional consideration, five-year warrants ("COES Warrants") to purchase ten
(10) shares of CXI Common Stock for each COES Preferred Share purchased,
initially exercisable on the Convertible Date and for a period of five years
thereafter, at an exercise price equal to 110% of the average closing bid prices
of the CXI Common Stock, as reported by Bloomberg, over the 5-day trading period
ending on the day prior to the Closing Date.
2.3 Subsidiary Company. Whereas the Purchaser is purchasing
COES Preferred Shares from the Parent Company, and the Parent Company is
transferring CXI
3
<PAGE>
Common Stock to the Purchaser upon conversion of COES Preferred Shares and
exercise of COES Warrants, the Parent Company hereby agrees to immediately remit
2.5% of the Purchase Price ($2.50 per COES Preferred Share which has a
subscription price of $100 per COES Preferred Share) at the Closing to the
Subsidiary Company, representing a portion of the $150,000 of aggregate
consideration for the Subsidiary Company's agreement to perform its obligations
as set forth in this Agreement and the Warrant Agreement, a form of which is
attached hereto as Exhibit B.
2.4 Time and Place of Closing. The Closing shall be held at
the offices of Eilenberg & Zivian, 666 Third Avenue, 30th Floor, New York, NY
10017 as promptly as practicable as agreed to by the parties to this Agreement,
but no later than May 15, 1997 at which time either party may terminate this
Agreement.
2.5 Payment and Delivery. At or prior to the Closing, the
following shall occur:
(a) Provided that Purchaser has been notified
by Eilenberg & Zivian that the Parent Company has delivered certificates
representing the COES Preferred Shares and COES Warrants as provided in Section
2.5(b) below, Purchaser shall remit by wire transfer the Purchase Price as
payment in full for the COES Preferred Shares as follows: 89% of the Purchase
Price ($5,340,000) directly to the Parent Company, 9% of the Purchase Price
($540,000) directly to Avalon Research Group, Inc. (the "Finder"), and 2% of the
Purchase Price ($120,000) directly to Stephen A. Weiss.
(b) The Parent Company shall deliver or cause
to be delivered to Eilenberg & Zivian certificates representing the COES
Preferred Shares and the COES Warrants, registered in the name of Purchaser (or
any nominee designated by Purchaser at or prior to the Closing Date), free and
clear of all liens, claims, charges and encumbrances. Purchaser shall receive
such certificates from Eilenberg & Zivian, as applicable, after the Parent
Company, Finder and Stephen A. Weiss have received the Purchase Price directly
from Purchaser.
(c) Wire instructions for the Parent Company
has been separately provided to the Purchaser's counsel.
Section 3. General Representations and Warranties of the
Parent Company. The Parent Company hereby represents and warrants to, and
covenants with, the Purchaser that the following are true and correct as of the
date hereof and as of the Closing Date.
3.1 Organization; Qualification. The Parent Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and is in good standing under such laws. The Parent Company has all
requisite corporate power and authority to own, lease and operate its properties
and assets, and to carry on its business as presently conducted. The Parent
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
4
<PAGE>
business requires such qualification, except where failure to so qualify would
not have a material adverse effect on the Parent Company.
3.2 Capitalization. The authorized capital stock of the Parent
Company is as set forth in footnote 12 of the audited consolidated financial
statements of the Parent Company set forth in its Form 10-K for the fiscal year
ended December 31, 1996, a true copy of which has been supplied to Purchaser.
60,000 shares of the Parent Company's non-voting preferred stock has been
designated Series D Preferred Stock, $.01 par value. The Series D Preferred
Stock, when issued, shall be duly authorized and validly issued and are fully
paid and nonassessable.
3.3 CXI Common Stock Transferable Upon Conversion of COES
Preferred Shares or Exercise of COES Warrants. The Parent Company currently owns
Fifteen Million (15,000,000) shares of CXI Common Stock, all of which have been
duly authorized and validly issued and are fully paid and nonassessable. The
Parent Company will reserve from its holdings of CXI Common Stock a sufficient
number of shares of CXI Common Stock to permit the conversion in full of the
outstanding COES Preferred Shares and the exercise in full of the COES Warrants.
As of the Closing Date, the Parent Company had reserved sufficient shares of CXI
Common Stock for transfer to Purchaser upon exercise of the COES Preferred
Shares which are convertible, at Purchaser's option, at the Conversion Price, as
per Section 10 of this Agreement, and upon exercise of the COES Warrants. If the
Parent Company does not own sufficient shares of CXI Common Stock for transfer
to the Purchaser upon conversion of COES Preferred Shares and/or exercise of
COES Warrants, the Parent Company hereby agrees to promptly purchase or
otherwise acquire the sufficient amount of shares of CXI Common Stock and
transfer such shares to the Purchaser upon conversion of COES Preferred Shares
and/or exercise of COES Warrants.
Except for the consent of National Securities Corporation,
which has been obtained, the Parent Company has all requisite corporate right,
power and authority to transfer the shares of CXI Common Stock in its holdings
to Purchaser upon conversion of the COES Preferred Shares and exercise of the
COES Warrants.
3.4 Authorization. The Parent Company has all requisite
corporate right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Parent Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Parent Company, the authorization, sale, issuance and delivery of the COES
Preferred Shares and the performance of the Parent Company's obligations
hereunder has been taken. This Agreement has been duly executed and delivered by
the Parent Company and constitutes a legal, valid and binding obligation of the
Parent Company enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy as they may apply to the
indemnification provisions set forth in Section 8.4 of this Agreement. Upon
their issuance, transfer and delivery pursuant to this Agreement, the COES
Preferred Shares, COES Warrants and shares of CXI Common Stock transferable
5
<PAGE>
upon conversion of the COES Preferred Shares (the "Conversion Shares") and
exercise of the COES Warrants (the "Warrant Shares") (collectively, the
"Securities") will be validly issued, fully paid and nonassessable and will be
free of any liens or encumbrances; provided, however, that the COES Preferred
Shares and COES Warrants are subject to restrictions on transfer under state
and/or federal securities laws. The issuance and sale of the COES Preferred
Shares and COES Warrants will not give rise to any preemptive right or right of
first refusal or right of participation on behalf of any person. Upon
registration of the Conversion Shares and the Warrant Shares pursuant to Section
8 of this Agreement, there shall be no restriction on the transferability
thereof other than applicable prospectus delivery requirements.
3.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Articles of Incorporation, and any amendments thereto, Bylaws,
stockholders agreements and any amendments thereto of the Parent Company or any
material mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to the Parent Company, its properties or assets.
3.6 Accuracy of Reports and Information. The Parent Company is
in full compliance, to the extent applicable, with all reporting obligations
under Section 12(b), 12 (g) or 15(d), as applicable, of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
The Parent Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the COES Preferred Shares (or for such shorter
period that the Parent Company has been required to file such material).
3.7 SEC Filings/Full Disclosure. None of the Parent Company's
filings with the SEC since January 1, 1997 contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading. The Parent Company has, since January 1,
1997, timely filed all requisite forms, reports and exhibits thereto with the
SEC. The Parent Company's Annual Report on Form 10-K for the year ended December
31, 1996, its Quarterly Reports for the periods ended March 31, 1997 and all
Current Reports on Form 8-K filed by the Parent Company from January 1, 1996 to
date are referred to as the "COES SEC Reports."
There is no fact known to the Parent Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Purchaser which could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, business prospects,
6
<PAGE>
properties or assets of the Parent Company, or (ii) could reasonably be expected
to materially and adversely affect the ability of the Parent Company to perform
its obligations pursuant to this Agreement.
3.8 Absence of Undisclosed Liabilities. The Parent Company has
no material liabilities or obligations, absolute or contingent (individually or
in the aggregate), except as set forth in the financial statements included in
the COES SEC Reports (the "COES Financial Statements") or as incurred in the
ordinary course of business after the date of the COES Financial Statements.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Parent Company is required in connection with the
valid execution and delivery of this Agreement, or the offer, sale or issuance
of the COES Preferred Shares, or the consummation of any other transaction
contemplated hereby, except the filing with the SEC of a registration statement
on Form S-3 or Form S-1 for the purpose of registering the CXI Common Stock
underlying the COES Preferred Shares and the COES Warrants.
3.10 Intellectual Property Rights. Except as disclosed in the
COES SEC Reports, the Parent Company has sufficient trademarks, trade names,
patent rights, copyrights and licenses to conduct its business as contemplated
therein. To the Parent Company's knowledge, neither the Parent Company nor its
products is infringing or will infringe any trademark, trade name, patent right,
copyright, license, trade secret or other similar right of others currently in
existence; and there is no claim being made against the Parent Company regarding
any trademark, trade name, patent, copyright, license, trade secret or other
intellectual property right which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Parent Company.
3.11 Material Contracts. Except as set forth in the COES SEC
Reports, the agreements to which the Parent Company is a party described therein
are valid agreements, in full force and effect, the Parent Company is not in
material breach or material default (with or without notice or lapse of time, or
both) under any of such agreements, and, to the Parent Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default (with or without notice or lapse of time, or both) under any of
such agreements.
3.12 Litigation. There is no action, proceeding or
investigation pending, or to the Parent Company's knowledge threatened, against
the Parent Company which might result, either individually or in the aggregate,
in any material adverse change in the business, prospects, conditions, affairs
or operations of the Parent Company. The Parent Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Parent Company currently pending or which the
Parent Company currently intends to initiate.
7
<PAGE>
3.13 Title to Assets. Except as set forth in COES SEC Reports,
the Parent Company has good and marketable title to all properties and material
assets described therein as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Parent Company.
3.14 Subsidiaries. The Parent Company does not presently own
or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity, except as stated in the COES
SEC Reports.
3.15 Required Governmental Permits. The Parent Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
3.16 Listing. The Parent Company will maintain the listing of
its Common Stock on the "Pinksheets" or other organized, comparable United
States market or quotation system; provided, however, that the sole remedy for
Purchaser for breach of this representation shall be liquidated damages as
provided in Section 10.6.
3.17 Other Outstanding Securities/Financing Restrictions.
Except as set forth on the CXI SEC Reports (as defined herein), there are no
other outstanding debt or equity securities presently convertible into shares of
CXI Common Stock.
The Parent Company cannot, without the prior approval in
writing from the Purchaser, obtain convertible debt or equity financing which is
convertible into securities of the Subsidiary Company for a period of ninety
(90) days following the effective date of the Registration Statement (as defined
herein); however, the Parent Company will not require prior approval if (a) at
least 80% of the net proceeds of the financing is part of an acquisition by the
Parent Company of control of another company or entity, (b) at least 80% of the
net proceeds of the financing is a refinancing of the Parent Company's debt, or
(c) the financing is part of a public offering of the Parent Company's
securities.
3.18 Right of Participation. In the event the Parent Company
wishes to complete a financing similar in structure to the securities issued
hereby within one hundred and eighty (180) days from the Closing Date, the
Purchaser shall have the right to participate in such offering and shall have
three (3) business days to reply in writing after receipt of written notice of
such proposed financing from the Parent Company. In the event a writing is not
received by the Parent Company from the Purchaser specifying the extent of the
Purchaser's interest in so participating, this will be deemed a refusal by the
Purchaser of such right to participate.
3.19 Legal Opinion. Purchaser shall, upon purchase of the COES
Preferred Shares, receive an opinion letter from counsel to the Parent Company,
and the Parent Company represents that it will immediately obtain such an
opinion from counsel to the satisfaction of the Purchaser, to the effect that:
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(a) The Parent Company is duly incorporated,
validly existing and in good standing in the jurisdiction of its
incorporation.
(b) There is no action, proceeding or investigation
pending, or to such counsel's knowledge, threatened against the Parent
Company which might result, either individually or in the aggregate, in
any material adverse change in the business, prospects, conditions,
affairs or operations of the Parent Company.
(c) The Parent Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
(d) There is no action, suit, proceeding or
investigation by the Parent Company currently pending or, to such
counsel's knowledge, which the Parent Company currently intends to
initiate.
(e) All issued and outstanding shares of CXI Common
Stock have been duly authorized and validly issued and are fully paid
and nonassessable.
(f) This Securities Purchase Agreement and the Stock
Purchase Warrant, the issuance of the COES Preferred Shares and COES
Warrants and the transfer of the Conversion Shares and Warrant Shares
have been duly approved by all required corporate action, the requisite
consent of National Securities Corporation for the Parent Company to
transfer the shares of CXI Common Stock in its holdings to the
Purchaser upon conversion of the COES Preferred Shares and exercise of
the COES Warrants has been duly obtained, and that all such Securities,
upon delivery, shall be validly issued and outstanding, fully paid and
nonassessable.
(g) The execution, delivery and performance of this
Securities Purchase Agreement and the Stock Purchase Warrant by the
Parent Company, and the consummation of the transactions contemplated
thereby, will not, with or without the giving of notice or the passage
of time or both:
(i) Violate the provisions of any law,
rule or regulation which is material to the
assets, properties or business of the Parent
Company;
(ii) Violate the provisions of the
charter or bylaws of the Parent Company; or
(iii) To the best of counsel's knowledge,
violate any judgment, decree, order or award
of any court, governmental body or
arbitrator.
(iv) To the best of counsel's knowledge,
conflict with, or result in the breach or
termination of any term or provision of,
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or constitute a default under, or cause any
acceleration under, or cause the creation of
any lien, charge or encumbrance upon the
properties or assets of the Parent Company
pursuant to, any note, bond, indenture,
mortgage, lease, deed of trust or other
instrument, obligation, or agreement to
which the Parent Company is a party and
which is material to Parent Company, or by
which the Parent Company, or any of its
material properties is or may be bound.
(h) This Securities Purchase Agreement and the Stock
Purchase Warrant constitute the valid and legally binding obligations
of the Parent Company and are enforceable against the Parent Company in
accordance with their respective terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies, and, with respect to the Securities
Purchase Agreement, to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 thereof.
3.20 Use of Proceeds. Except for payments aggregating $150,000
to the Subsidiary Company as provided herein, the Parent Company represents that
the net proceeds from this offering will be used for general corporate purposes.
3.21 No Poison Pill. The Parent Company represents that
it does not have, and has no current intention to adopt, a stockholder rights
plan ("poison pill").
Section 4. General Representations and Warranties of the
Subsidiary Company. The Subsidiary Company hereby represents and warrants to,
and covenants with, the Purchaser that the following are true and correct as of
the date hereof and as of the Closing Date.
4.1 Organization; Qualification. The Subsidiary Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and is in good standing under such laws. The Subsidiary Company has all
requisite corporate power and authority to own, lease and operate its properties
and assets, and to carry on its business as presently conducted. The Subsidiary
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
business requires such qualification, except where failure to so qualify would
not have a material adverse effect on the Subsidiary Company.
4.2 Capitalization. The authorized capital stock of the
Subsidiary Company is as set forth in the CXI SEC Reports. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
4.3 CXI Common Stock Transferable Upon Conversion of
COES Preferred Shares or Exercise of COES Warrants. Except for the consent of
National Securities Corporation, which has been obtained, the Subsidiary Company
has all requisite corporate
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right, power and authority to transfer shares of CXI Common Stock owned by the
Parent Company to the Purchaser upon conversion of the COES Preferred Shares and
exercise of the COES Warrants.
4.4 Authorization. The Subsidiary Company has all requisite
corporate right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Subsidiary Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Subsidiary Company, and the performance of the Subsidiary Company's obligations
hereunder has been taken. This Agreement has been duly executed and delivered by
the Subsidiary Company and constitutes a legal, valid and binding obligation of
the Subsidiary Company enforceable in accordance with its terms, subject to laws
of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 of this Agreement.
Upon their issuance, transfer and delivery pursuant to this Agreement, the
Securities will have been validly issued, fully paid and nonassessable and will
be free of any liens or encumbrances; provided, however, that the COES Preferred
Shares and COES Warrants are subject to restrictions on transfer under state
and/or federal securities laws. Upon registration of the Conversion Shares and
the Warrant Shares pursuant to Section 8 of this Agreement, there shall be no
restriction on the transferability thereof other than applicable prospectus
delivery requirements.
4.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws, stockholders agreements and any amendments thereto of the Subsidiary
Company or any material mortgage, indenture, lease or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree
statute, law, ordinance, rule or regulation applicable to the Subsidiary
Company, its properties or assets.
4.6 Accuracy of Reports and Information. The Subsidiary
Company is in full compliance, to the extent applicable, with all reporting
obligations under Section 12(b), 12 (g) or 15(d), as applicable, of the Exchange
Act. The Subsidiary Company has registered its Common Stock pursuant to Section
12 of the Exchange Act and the Common Stock is listed and trades on AMEX.
The Subsidiary Company has filed all material required to be
filed pursuant to all reporting obligations, under either Section 13(a) or 15(d)
of the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the COES Preferred Shares (or for such shorter
period that the Subsidiary Company has been required to file such material).
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4.7 SEC Filings/Full Disclosure. None of the Subsidiary
Company's filings with the SEC since January 1, 1997 contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading. The Subsidiary Company
has, since January 1, 1997, timely filed all requisite forms, reports and
exhibits thereto with the SEC. The Subsidiary Company's Prospectus declared
effective by the SEC on June 28, 1996, the Annual Report on Form 10-K for the
year ended December 31, 1996, its Quarterly Reports for the periods ended March
31, 1997 and all Current Reports on Form 8-K filed by the Subsidiary Company
from January 1, 1996 to date are referred to as the "CXI SEC Reports."
There is no fact known to the Subsidiary Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Purchaser which could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, business prospects, properties or assets of the
Subsidiary Company, or (ii) could reasonably be expected to materially and
adversely affect the ability of the Subsidiary Company to perform its
obligations pursuant to this Agreement.
4.8 Absence of Undisclosed Liabilities. The Subsidiary Company
has no material liabilities or obligations, absolute or contingent (individually
or in the aggregate), except as set forth in the financial statements included
in the CXI SEC Reports (the "CXI Financial Statements") or as incurred in the
ordinary course of business after the date of the CXI Financial Statements.
4.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Subsidiary Company is required in connection with
the valid execution and delivery of this Agreement, or the offer, sale or
issuance of the COES Preferred Shares, or the consummation of any other
transaction contemplated hereby, except the filing with the SEC of a
registration statement on Form S-3 or S-1 for the purpose of registering the CXI
Common Stock underlying the COES Preferred Shares and the COES Warrants.
4.10 Intellectual Property Rights. Except as disclosed in the
CXI SEC Reports, the Subsidiary Company has sufficient trademarks, trade names,
patent rights, copyrights and licenses to conduct its business as contemplated
therein. To the Subsidiary Company's knowledge, neither the Subsidiary Company
nor its products is infringing or will infringe any trademark, trade name,
patent right, copyright, license, trade secret or other similar right of others
currently in existence; and there is no claim being made against the Subsidiary
Company regarding any trademark, trade name, patent, copyright, license, trade
secret or other intellectual property right which could have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Subsidiary Company.
4.11 Material Contracts. Except as set forth in the CXI SEC
Reports, the agreements to which the Subsidiary Company is a party described
therein are valid
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agreements, in full force and effect, the Subsidiary Company is not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements, and, to the Subsidiary Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default (with or without notice or lapse of time, or both) under any of
such agreements.
4.12 Litigation. There is no action, proceeding or
investigation pending, or to the Subsidiary Company's knowledge threatened,
against the Subsidiary Company which might result, either individually or in the
aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Subsidiary Company. The Subsidiary
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Subsidiary Company currently pending or which the Subsidiary Company currently
intends to initiate.
4.13 Title to Assets. Except as set forth in CXI SEC Reports,
the Subsidiary Company has good and marketable title to all properties and
material assets described therein as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Subsidiary Company.
4.14 Subsidiaries. The Subsidiary Company does not presently
own or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity, except as stated in the CXI
SEC Reports.
4.15 Required Governmental Permits. The Subsidiary Company is
in possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
4.16 Listing. The Subsidiary Company will maintain the listing
of its Common Stock on AMEX or other organized, comparable United States market
or quotation system; provided, however, that the sole remedy for Purchaser for
breach of this representation shall be liquidated damages as provided in Section
10.6.
4.17 Other Outstanding Securities/Financing Restrictions.
Except as set forth in the CXI SEC Reports, there are no other outstanding debt
or equity securities presently convertible into shares of CXI Common Stock.
Except as set forth in the CXI SEC Reports, the Subsidiary Company has no
outstanding restricted shares of Common Stock, or shares of Common Stock sold
under Regulation S or Regulation D under the Securities Act of 1933, as amended
(the "Securities Act") or outstanding under any other exemption from
registration, which are available for sale as unrestricted ("free trading")
stock.
The Subsidiary Company cannot, without the prior approval in
writing from the Purchaser, obtain convertible debt or equity financing for a
period of ninety (90) days following the effective date of the Registration
Statement (as defined herein); however, the
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Subsidiary Company will not require prior approval if (a) at least 80% of the
net proceeds of the financing is part of an acquisition by the Subsidiary
Company of control of another company or entity, (b) at least 80% of the net
proceeds of the financing is a refinancing of the Subsidiary Company's debt, or
(c) the financing is part of a public offering of the Subsidiary Company's
securities.
4.18 Right of Participation. In the event the Subsidiary
Company wishes to complete a financing similar in structure to the securities
issued hereby within one hundred and eighty (180) days from the Closing Date,
the Purchaser shall have the right to participate in such offering and shall
have three (3) business days to reply in writing after receipt of written notice
of such proposed financing from the Subsidiary Company. In the event a writing
is not received by the Subsidiary Company from the Purchaser specifying the
extent of the Purchaser's interest in so participating, this will be deemed a
refusal by the Purchaser of such right to participate.
4.19 Legal Opinion. Purchaser shall, upon purchase of the COES
Preferred Shares, receive an opinion letter from counsel to the Subsidiary
Company, and the Subsidiary Company represents that it will immediately obtain
such an opinion from counsel to the satisfaction of the Purchaser, to the effect
that:
(a) The Subsidiary Company is duly incorporated,
validly existing and in good standing in the jurisdiction of its
incorporation.
(b) There is no action, proceeding or investigation
pending, or to such counsel's knowledge, threatened against the
Subsidiary Company which might result, either individually or in the
aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Subsidiary Company.
(c) The Subsidiary Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.
(d) There is no action, suit, proceeding or
investigation by the Company currently pending, to such counsel's
knowledge, or which the Subsidiary Company currently intends to
initiate.
(e) All issued and outstanding shares of CXI Common
Stock have been duly authorized and validly issued and are fully paid
and nonassessable.
(f) This Securities Purchase Agreement and the Stock
Purchase Warrant, the issuance of the COES Preferred Shares and COES
Warrants and the transfer of the Conversion Shares and Warrant Shares
have been duly approved by all required corporate action, the requisite
consent of National Securities Corporation for the Parent Company to
transfer the shares of CXI Common Stock in its holdings to the
Purchaser upon conversion of the COES Preferred Shares and exercise of
the
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COES Warrants has been duly obtained, and that all such Securities,
upon delivery, shall be validly issued and outstanding, fully paid and
nonassessable.
(g) The execution, delivery and performance of this
Securities Purchase Agreement and the Stock Purchase Warrant by the
Subsidiary Company, and the consummation of the transactions
contemplated thereby, will not, with or without the giving of notice or
the passage of time or both:
(i) Violate the provisions of any law,
rule or regulation which is material to the
assets, properties or business of the
Subsidiary Company;
(ii) Violate the provisions of the
charter or bylaws of the Subsidiary Company;
or
(iii) To the best of counsel's knowledge,
violate any judgment, decree, order or award
of any court, governmental body or
arbitrator.
(iv) To the best of counsel's knowledge,
conflict with, or result in the breach or
termination of any term or provision of, or
constitute a default under, or cause any
acceleration under, or cause the creation of
any lien, charge or encumbrance upon the
properties or assets of the Subsidiary
Company pursuant to, any note, bond,
indenture, mortgage, lease, deed of trust or
other instrument, obligation, or agreement
to which the Subsidiary Company is a party
and which is material to the Subsidiary
Company or by which the Subsidiary Company,
or any of its material properties is or may
be bound.
(h) This Securities Purchase Agreement and the Stock
Purchase Warrant constitute the valid and legally binding obligations
of the Subsidiary Company and are enforceable against the Subsidiary
Company in accordance with their respective terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies, and, with respect to the Securities
Purchase Agreement, to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 thereof.
4.20 No Poison Pill. The Subsidiary Company represents
that it does not have, and has no current intention to adopt, a stockholder
rights plan ("poison pill").
Section 5. Representations, Warranties and Covenants of the
Purchaser. The Purchaser represents and warrants to, and covenants with, the
Parent Company and the Subsidiary Company that the following are true and
correct as of the date hereof and as of the Closing Date.
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5.1 Authority. The Purchaser's signatory has all right, power,
authority and capacity to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and will constitute the legal, valid and binding
obligations of the Purchaser, enforceable in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 of this Agreement.
5.2 Investment Experience. Purchaser is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Purchaser is aware
of the Parent Company's and Subsidiary Company's business affairs and financial
conditions and has had access to and has acquired sufficient information about
the Parent Company and the Subsidiary Company, including the COES and CXI SEC
Reports, to reach an informed and knowledgeable decision to acquire the COES
Preferred Shares. Purchaser has such business and financial experience as is
required to give it the capacity to protect its own interests in connection with
the purchase of the COES Preferred Shares and the acquisition of the COES
Warrants.
5.3 Investment Intent. Without limiting its ability to resell
the COES Preferred Shares and the COES Warrants and underlying CXI Common Stock
pursuant to an effective registration statement, Purchaser represents that it is
purchasing the COES Preferred Shares for investment purposes. Purchaser
understands that its acquisition of the COES Preferred Shares and the COES
Warrants has not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. Purchaser will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the COES Preferred Shares or the COES Warrants except in compliance
with the Securities Act and any applicable state securities laws, and the rules
and regulations promulgated thereunder.
5.4 Registration or Exemption Requirements. Purchaser further
acknowledges and understands that the COES Preferred Shares and the COES
Warrants may not be resold or otherwise transferred except in a transaction
registered under the Securities Act and any applicable state securities laws or
unless an exemption from such registration is available. Purchaser understands
that the certificate(s) evidencing the COES Preferred Shares and the COES
Warrants will be imprinted with a legend, subject to Section 5.7 below, that
prohibits the transfer thereof unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Securities Act and, if
the Parent Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Parent Company is obtained to the effect that the
transaction is so exempt.
5.5 No Legal, Tax or Investment Advice. Purchaser
understands that nothing in this Agreement or any other materials presented to
Purchaser in connection with
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the purchase and sale of the COES Preferred Shares and the acquisition and
issuance of the COES Warrants constitutes legal, tax or investment advice.
Purchaser has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of the COES Preferred Shares and acquisition of the COES Warrants.
5.6 Purchaser Review. Purchaser hereby represents and warrants
that the Purchaser has carefully examined the COES SEC Reports and CXI SEC
Reports and the COES and CXI Financial Statements contained therein. The
Purchaser acknowledges that the Parent Company and Subsidiary Company has made
available to the Purchaser all documents and information that it has requested
relating to the Parent Company and the Subsidiary Company and has provided
answers to all of its questions concerning the Parent Company and the Subsidiary
Company, the COES Preferred Shares and the COES Warrants. Nothing stated in the
previous two sentences, however, shall be deemed to affect the representations
and warranties of the Parent Company and the Subsidiary Company contained in
this Agreement.
5.7 Legend. The certificate or certificates representing the
Securities shall be subject to a legend restricting transfer under the
Securities Act, such legend to be substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates shall also include any legends required by any applicable state
securities laws.
The legend(s) endorsed on a stock certificate pursuant to this
Section 5.7 or on any certificate representing any of the Securities shall be
removed and the Parent Company or the Subsidiary Company shall issue a
replacement certificate without such legend to the holder of such certificate if
the Securities represented by such certificate are registered under the
Securities Act or if such holder provides to the Parent Company or the
Subsidiary Company an opinion of counsel to the effect that a public sale,
transfer or assignment of such Securities may be made without registration.
5.8 Restrictions on Conversion of Shares. Notwithstanding
anything to the contrary contained herein, no COES Preferred Shares may be
converted by a Holder to the extent that, after giving effect to the Conversion
Shares issued pursuant to a Notice of Conversion, the total number of shares of
CXI Common Stock deemed beneficially owned by such Holder (other than by virtue
of the ownership of COES Preferred Shares or COES Warrants or ownership of other
securities that have limitations on a Holder's rights to convert
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or exercise similar to those limitations set forth herein), together with all
shares of CXI Common Stock deemed beneficially owned by Holder's "affiliates"
(as defined in Rule 144 under the Securities Act) that would be aggregated for
purposes of determining whether a group under Section 13(d) of the Exchange Act
exists, would exceed 4.99% of the total issued and outstanding shares of CXI
Common Stock, provided that each Holder shall have the right to waive this
restriction, in whole or in part, immediately in case of a pending Change in
Control Transaction and in any other case upon 61 days prior notice to the
Parent Company and the Subsidiary Company. The delivery of a Notice of
Conversion by any Holder shall be deemed a representation by such Holder it is
in compliance with this Section 5.8. A transferee of COES Preferred Shares shall
not be bound by this provision unless it expressly agrees to be so bound. The
term "deemed beneficially owned" as used in this Section 5.8 shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
convertibility of the COES Preferred Shares.
Section 6. Conditions to the Purchaser's Obligation to
Purchase. The Parent Company and the Subsidiary Company understand that the
Purchaser's obligation to purchase the COES Preferred Shares is conditioned
upon:
(a) Acceptance by Purchaser of this Agreement
for the sale of the COES Preferred Shares, as evidenced by the execution of this
Agreement by its authorized officers;
(b) Delivery of the COES Preferred Shares and
COES Warrants to Eilenberg & Zivian;
(c)(i) The delivery at the Closing of a certificate
from an authorized officer of the Parent Company certifying that all
representations and warranties of the Parent Company are true and correct as of
the Closing Date (in the form annexed hereto as Exhibit C1);
(c)(ii) The delivery at the Closing of a certificate
from an authorized officer of the Subsidiary Company certifying that all
representations and warranties of the Subsidiary Company are true and correct as
of the Closing Date (in the form annexed hereto as Exhibit C2); and
(d) A filed Certificate of Designation.
Section 7. Conditions to Parent Company's Obligation to Sell.
Purchaser understands that the Parent Company's obligation to sell the COES
Preferred Shares is conditioned upon:
(a) The receipt and acceptance by the Parent
Company of this Agreement to issue the COES Preferred Shares as evidenced by
execution of this Agreement by the President or any Vice President of the Parent
Company;
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(b) Delivery to the Company, the Finder and
Counsel for Parent by Purchaser of good funds as payment in full for the
purchase of the COES Preferred Shares; and
(c) The delivery at the Closing of a certificate
from an authorized officer or representative of Purchaser certifying that all
representations and warranties of the Purchaser are true and correct as of the
Closing Date (in the form annexed hereto as Exhibit C3).
Section 8. Registration of the Shares; Compliance with the
Securities Act.
8.1 Definitions. For the purpose of this Section 8:
(a) the term "Registration Statement" shall mean
any registration statement required to be filed by Section 8.2 below, and shall
include any preliminary prospectus, final prospectus, exhibit or amendment
included in or relating to such registration statement; and
(b) the term "untrue statement" shall include
any untrue statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
8.2 Registration Procedures and Expenses. The Parent
Company shall cause the Subsidiary Company to, and the Subsidiary Company shall:
(a) file with the SEC a registration statement
under the Securities Act on Form S-3, if the Subsidiary Company is eligible to
file a registration statement under such form, to register the Conversion Shares
and the Warrant Shares within thirty (30) days after the Closing Date and in
sufficient time to have such registration effective ninety (90) days from the
Closing Date; and if the Subsidiary Company is not eligible to file a
registration statement under Form S-3, to file with the SEC a registration
statement under the Securities Act on Form S-1 or any other form which is
appropriate, to register the Conversion Shares and the Warrant Shares within
sixty (60) days after the Closing Date and in sufficient time to have such
registration effective one hundred and twenty (120) days from the Closing Date.
(b) use its best efforts, subject to receipt of
necessary information from the Purchaser, to cause such Registration Statement
to become effective as promptly after filing as practicable;
(c) prepare and file with the SEC such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective until termination of such obligation as provided in Section
8.9 below;
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(d) furnish to the Purchaser with respect to
the CXI Common Stock registered on the Registration Statement (and to each
underwriter, if any, of such CXI Common Stock) such number of copies of
prospectuses in conformity with the requirements of the Securities Act and such
other documents as the Purchaser may reasonably request, in order to facilitate
the public sale or other disposition of all or any of the CXI Common Stock by
the Purchaser; provided, however, that the obligation of the Subsidiary Company
to deliver copies of prospectuses to the Purchaser shall be subject to the
receipt by the Subsidiary Company of reasonable assurances from the Purchaser
that the Purchaser will comply with the applicable provisions of the Securities
Act and of such other securities laws as may be applicable in connection with
any use of such prospectuses;
(e) file such documents as may be required of
the Subsidiary Company for normal securities law clearance for the resale of the
Common Stock in which states of the United States as may be reasonably requested
by the Purchaser; provided, however, that the Subsidiary Company shall not be
required in connection with this paragraph (e) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
(f) bear all expenses in connection with the
procedures in paragraphs (a) through (e) of this Section 8.2 and the
registration of the CXI Common Stock on such Registration Statement and the
satisfaction of the blue sky laws of such states, including the reasonable fees
and expenses of legal counsel to the Purchaser in connection with the procedures
in paragraph (a) through (e) of this Section 8.2, other than underwriting
discounts and selling commissions or expenses required by law to be borne by
Purchaser; and
(g) in the event of the failure of Company to
procure registration of the CXI Common Stock underlying the COES Preferred
Shares within ninety (90) days from the Closing Date if the Registration
Statement is filed under Form S-3, or within one hundred (120) days from the
Closing Date if the Registration Statement is filed under Form S-1 or any other
appropriate forms, the Parent Company will pay Purchaser by wire transfer, as
liquidated damages for such failure and not as a penalty, one (1%) percent of
the Liquidation Preference (as defined below) of the COES Preferred Shares that
have not been converted, for each month, or any part thereof, that the
Registration Statement is not effective, or in the event of a Suspension (as
defined in Section 8.7) after such date. If the Parent Company does not remit
the damages to the Purchaser as set forth above, the Parent Company will pay the
Purchaser reasonable costs of collection, including attorneys fees, in addition
to the liquidated damages. Such payment shall be made to the Purchaser
immediately if the registration of the Conversion Shares and Warrant Shares is
not effected; provided, however, that the payment of such liquidated damages
shall not relieve the Subsidiary Company from its obligations to register the
Conversion Shares and Warrant Shares pursuant to this Section. The registration
of the Conversion Shares and Warrant Shares pursuant to this provision shall not
affect or limit Purchaser's other rights or remedies as set forth in this
Agreement. The "Liquidation Preference" for a Share shall equal $100 (subject to
adjustments for Reclassifications), plus all accrued and unpaid dividends (which
shall accrue through the Conversion Date, Redemption Date or the date liquidated
damages are paid, as applicable)
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and any then unpaid liquidated damages (interest on which shall accrue at a rate
of 2% per month) arising under Sections 8.2(g), 10.2 or 10.6.
8.3 Underwriter. The Parent Company and the Subsidiary Company
understand that the Purchaser disclaims being an "underwriter" (as such term is
defined under the Securities Act and the rules and regulations promulgated
thereunder (an "Underwriter")), but Purchaser being deemed an Underwriter shall
not relieve the Parent Company and the Subsidiary Company of any obligation it
has hereunder.
8.4 Indemnification.
(a) General Indemnification. The Parent
Company and the Subsidiary Company together and the Purchaser agree to indemnify
the other and to hold the other harmless from and against any and all losses,
damages, liabilities, costs and expenses (including reasonable attorneys' fees)
which the other may sustain or incur in connection with the breach by the
indemnifying party of any representation, warranty or covenant made by it in
this Agreement.
(b) Indemnification for Registration Statement.
(i) By Parent Company and Subsidiary
Company. To the extent permitted by law, the Parent Company and Subsidiary
Company together will indemnify and hold harmless each Holder, the directors, if
any, of such Holder, the officers, if any, of such Holder who sign the
Registration Statement, each person, if any, who controls such Holder, any
underwriter (as defined in the Securities Act) for the Holders and each person,
if any, who controls any such underwriter within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages, expenses or
liabilities (joint or several) to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, expenses or liabilities (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstance in which they are made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will
reimburse the Holders and each such underwriter or controlling person, promptly
as such expenses are incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability action or proceeding; provided, however, that the
indemnity agreement contained in this Section 8.4(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Parent Company and the
Subsidiary Company, which consents shall not be unreasonably withheld, nor shall
the Parent Company and Subsidiary Company
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be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by the Holders or any such underwriter
or controlling person, as the case may be. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Holders or any such underwriter or controlling person and shall survive the
transfer of the Securities by Holders.
(ii) By Holders. To the extent permitted
by law, each Holder, severally and not jointly, will indemnify and hold harmless
the Subsidiary Company, each of its directors, each of its officers who have
signed the Registration Statement, each person, if any, who controls the
Subsidiary Company within the meaning of the Securities Act or the Exchange Act,
any underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such holder or underwriter, against any losses, claims, damages or
liabilities (joint or several) to which any of them may become subject, under
the Securities Act, the Exchange Act or other federal state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration, and such Holder will reimburse any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 8.4(b) shall not apply
to amounts paid in settlement of such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder, which consent
shall not be unreasonably withheld; and provided further, that the Holder shall
be liable under this paragraph for only that amount of losses, claims, damages
and liabilities as does not exceed the net proceeds to such Holder as a result
of the sale of the Securities pursuant to such registration.
(c) Procedure for Indemnification. Promptly
after receipt by an indemnified party under this Section 8.4 of notice of the
commencement of any action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8.4, deliver to the indemnifying party a written notice
of commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel for the indemnifying party, representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 8.4 only to the extent
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prejudicial to its ability to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party other than under this Section 8.4. The
indemnification required by this Section 8.4 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense,
promptly as such expense, loss, damage or liability is incurred.
(d) Contribution. To the extent any
indemnification by an indemnifying party is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with respect to any
amounts for which it otherwise would be liable under this Section 8.4 to the
extent permitted by law, provided that (i) no contribution shall be made under
the circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in this Section 8.4, (ii) no seller of the
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of the Securities who was not guilty of such fraudulent misrepresentation and
(iii) contribution by any seller of the Securities shall be limited in amount to
the net amount of proceeds received by such seller from the sale of such
Securities.
8.5 Information Available. So long as any registration
statement is effective covering the resale of the Conversion Shares or Warrant
Shares, the Parent Company and the Subsidiary Company will each furnish to
Purchaser:
(a) as soon as possible after available, one
copy of (i) each of its Annual Report to Stockholders (which Annual Report shall
contain financial statements audited in accordance with generally accepted
accounting principles in the United States of America by a national firm of
certified public accountants); (ii) if not included in substance in the Annual
Report to Stockholders, each of its annual report on Form 10-K within 100 days
after the end of each fiscal year of each Company, (iii) each of its Quarterly
Reports to Stockholders, and its quarterly report on Form 10-Q within sixty (60)
days, and (iv) a full copy of the registration statement covering the Conversion
Shares and Warrant Shares (the foregoing, in each case, excluding exhibits); and
(b) upon the reasonable request of Purchaser,
such other information that is generally available to the public.
8.6 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Conversion Shares and the Warrant Shares to the public
without registration, the Parent Company and the Subsidiary Company agrees to
use its best efforts to:
(a) make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities Act,
at all times after the effective date on which the Company becomes subject to
the reporting requirements of the Securities Act or the Exchange Act;
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(b) use its best efforts to file with the SEC
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act;
(c) to furnish to Purchaser forthwith upon
request a written statement by the Parent Company or the Subsidiary Company as
to its compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Parent Company or the Subsidiary Company and other information in the possession
of or reasonably obtainable by the Parent Company or the Subsidiary Company as
Purchaser may reasonably request in availing itself of any rule or regulation of
the SEC allowing Purchaser to sell any such Conversion Shares or Warrant Shares
without registration.
8.7 Temporary Cessation of Offers and Sales by Purchaser. The
Purchaser acknowledges that there may occasionally be times when the Subsidiary
Company may be required to suspend the use of the prospectus forming part of the
Registration Statement (a "Suspension") until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by
the Commission, until the prospectus is supplemented or amended to comply with
the Securities Act, or until such time as the Subsidiary Company has filed an
appropriate report with the Commission pursuant to the Exchange Act. The
Subsidiary Company agrees to file any necessary amendments, supplements and
reports as soon as practicable under the circumstances. The Subsidiary Company
agrees to use its best efforts to cause a Suspension to be lifted within 10
business days during which time Purchaser agrees that it will not sell any
shares of Common Stock pursuant to such prospectus.
8.8 Transfer of Conversion Shares or Warrant Shares Stock
After Registration. Purchaser hereby covenants with the Parent Company and the
Subsidiary Company not to make any sale of the Conversion Shares or Warrant
Shares except either (i) in accordance with the Registration Statement, in which
case Purchaser covenants to comply with the requirement of delivering a current
prospectus, (ii) in accordance with Rule 144, in which case Purchaser covenants
to comply with Rule 144, or (iii) as otherwise permitted by applicable law.
8.9 Termination of Obligations. The obligations of the Parent
Company and Subsidiary Company pursuant to Sections 8.2, 8.3 and 8.6 hereof
shall cease and terminate upon the earlier to occur of (i) such time as all of
the Conversion Shares or Warrant Shares have been re-sold, or (ii) such time as
all of the Common Stock may be resold pursuant to Rule 144(k) under the
Securities Act.
Section 9. Legal Fees and Expenses. Each of the parties shall
pay its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby.
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Section 10. Conversion; Liquidated Damages.
10.1 Restrictions on Conversion. Conversion of all the COES
Preferred Shares may be made at the Conversion Price, the day following the date
that the Registration Statement for the CXI Common Stock underlying the COES
Preferred Stock and COES Warrants was declared effective by the SEC.
10.2 Notice of Conversion. Conversion of the COES Preferred
Shares to CXI Common Stock may be exercised in whole or in part by Purchaser
telecopying an executed and completed Notice of Conversion (in the form annexed
hereto as Exhibit D) to counsel for the Parent Company, with a copy to the
Parent Company and Subsidiary Company, and delivering the original Notice of
Conversion and the certificate representing the COES Preferred Shares to counsel
by hand or by express courier within three (3) business days of exercise. Each
date on which a Notice of Conversion is telecopied to and received by the Parent
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Subsidiary Company will reissue and transmit the certificates in the
name of the Purchaser, or any other name as instructed by the Purchaser,
representing the CXI Common Stock transferable upon conversion of all or any
part of the COES Preferred Shares and COES Warrant Shares (and the Parent
Company will transmit any certificates for replacement COES Preferred Shares not
previously converted but included in the original certificate presented for
conversion) to the Purchaser via express courier within three (3) business days
after counsel for the Parent Company has received the original Notice of
Conversion and the certificate representing the COES Preferred Shares being so
converted. The Notice of Conversion and certificate representing the portion of
the COES Preferred Shares converted shall be delivered as follows:
To counsel of Parent Company:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
To the Parent Company:
Commodore Environmental Services, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
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To the Subsidiary Company:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
or to such other person at such other place as the Parent Company shall
designate to the Purchaser in writing.
In the event that the COES Preferred Shares are not converted
within three (3) business days of the Conversion Date, the Parent Company shall
be liable to Purchaser for actual damages incurred from the fourth business day
following the Conversion Date through the ninth business day following the
Conversion Date for such failure (provided that Purchaser has delivered the
original valid Notice of Conversion and the original certificate(s) representing
the COES Preferred Shares to be converted, or an affidavit and indemnity
agreement as to lost certificates reasonably satisfactory to the Company). In
the event the COES Preferred Shares are not converted by the tenth (10th)
business day following the Conversion Date, the Parent Company shall pay to the
Purchaser, by wire transfer, as liquidated damages for such failure and not as a
penalty, an amount in cash equal to one (1%) percent per day of the Liquidation
Preference for the COES Preferred Shares to be converted which shall run from
the tenth (10th) business day following the Conversion Date; provided, however,
that actual damages and liquidated damages for a failure to deliver certificates
of CXI Common Stock shall be determined in accordance with Section 10.6, if both
of the following conditions are satisfied by the Parent Company: (i) the failure
to deliver certificates of CXI Common Stock is the result of a lack of available
shares of CXI Common Stock and (ii) the Parent Company commences, within ten
(10) business days after the initial Conversion Date to purchase or otherwise
acquire the number of shares of CXI Common Stock which is sufficient to permit
conversion of all COES Preferred Shares then outstanding at the Hypothetical
Conversion Price (as hereinafter defined) then in effect.
10.3 Mandatory Conversion. The COES Preferred Shares are
subject to mandatory conversion after five (5) years from the Closing Date, at
which time all COES Preferred Shares will automatically be converted at the
Conversion Price, upon the terms set forth in this section. Such five year
period will be extended by the number of days during such period that (i) the
Subsidiary Company's Common Stock has been Delisted and/or (ii) a Suspension has
been in effect and by the number of days after the 90th day or the 120th day,
whichever date is applicable as provided in Section 8.2(g) herein, that
Registration Statement was not declared effective. Any particular day in which
more than one of the foregoing condition events shall have been in effect shall
only be counted once in determining the number of days by which to extend the
five year period prior to mandatory conversion. In addition, mandatory
conversion shall not occur for so long as certain default events specified in
Section 5(e) of the Certificate of Designation are continuing.
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10.4 Reservation of CXI Common Stock Transferable Upon
Conversion. The Parent Company shall at all times reserve and keep available out
of its holdings of shares of CXI Common Stock, such number of shares of CXI
Common Stock as shall from time to time be sufficient to effect the conversion
of all then outstanding COES Preferred Shares and COES Warrants, the sufficiency
of which shall be determined (in the case of the COES Preferred Shares) by using
a Conversion Price (the "Hypothetical Conversion Price") derived from a
hypothetical closing market price that is 75% of either (i) the actual Average
Closing Bid Price on the Closing Date or (ii) the actual Average Closing Bid
Price from time to time, whichever is lower, and in the case of the COES
Warrants, by the exercise price thereof. The Parent Company hereby covenants and
agrees that if at any time the Hypothetical Conversion Price falls to a level
that would not enable all outstanding COES Preferred Shares to be fully
converted and the outstanding COES Warrants to be fully exercised, the Parent
Company will promptly purchase or otherwise acquire the number of shares of CXI
Common Stock sufficient to permit the conversion of all COES Preferred Shares
then outstanding at the Hypothetical Conversion Price then in effect and the
exercise of all outstanding COES Warrants.
10.5 Liquidated Damages. In the event of a Delisting, a
Cumulative Suspension or Insufficient CXI Common Stock (each a "Damage Event"),
the Parent Company will pay to Purchaser (and to all other holders of the
Shares), by wire transfer, as liquidated damages for such non-availability and
not as a penalty, an amount in cash equal to 2% per month of the Liquidation
Preference of only those COES Preferred Shares then eligible for conversion,
without regard to Section 5.8, for the first two months after the occurrence of
a Damage Event, and 3% per month for each month thereafter. Similar liquidated
damages shall be paid with respect to any COES Preferred Shares not initially
eligible for conversion when the Damage Event first occurred but which
subsequently become eligible for conversion, without regard to Section 5.8,
commencing in the first month that such COES Preferred Shares become eligible
for such conversion. Such liquidated damages shall continue to accrue and shall
be payable until the Damage Event has been cured, and, if not paid, interest
thereon shall accrue at a rate of 2% per month. At the Purchaser's election,
such liquidated damages may be paid in cash or may be added to the principal of
the COES Preferred Shares for subsequent conversion purposes. Notwithstanding
the foregoing, in the case of a Delisting, after six months from the date of
such Delisting, the Parent Company shall have the option to force Purchaser to
as promptly as possible convert (in increments of no less than $50,000) all or
part of its COES Preferred Shares, subject to Purchaser being able to sell the
underlying Conversion Shares, and simultaneously sell such Conversion Shares
(where the conversion price therefor shall not be the Conversion Price but
instead shall equal 85% of the Purchaser's sale price of the Conversion Shares,
all as determined by Purchaser's actual trading records (to be provided to the
Company). In no event may the Company force Purchaser to convert less than
$50,000 of COES Preferred Shares at any one time.
Section 11. Redemption By Parent Company.
11.1 Parent Company's Right to Redeem. The Parent Company
shall have the right, at any time and from time to time, in its sole discretion,
to redeem in whole or in
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part the COES Preferred Shares then outstanding, except that if the Purchaser or
any Holder of the COES Preferred Shares has submitted a Notice of Conversion,
the Parent Company shall not have the right to redeem the COES Preferred Shares
which were submitted for conversion and the certificates representing Conversion
Shares should be delivered promptly according to Section 10.2 herein. If the
Parent Company elects to redeem some, but not all, of the COES Preferred Shares,
the Parent Company shall redeem the COES Preferred Shares pro rata among the
Holders of all the COES Preferred Shares then outstanding. The date of the
Parent Company's redemption of COES Preferred Shares shall be referred to as the
"Redemption Date."
11.2 Redemption Price. The redemption price per COES
Preferred Share shall equal $125.
11.3 Mechanics of Redemption; Purchaser's Conversion Rights.
The Parent Company shall effect each such redemption by giving notice of its
election to redeem ("Redemption Notice"), by facsimile, by 5 P.M. New York City
time on the Redemption Date and shall provide a copy of such redemption notice
by overnight or 2-day courier, to Purchaser, all other Holders of COES Preferred
Shares and the Parent Company's Transfer Agent. Such redemption notice shall
indicate whether the Parent Company will redeem all or part of the COES
Preferred Shares. Upon the giving of any such Redemption Notice, and until the
earlier of either payment of the applicable redemption price or fifteen (15)
business days after the Redemption Date (or later as provided in Section 6(d)
below), the conversion rights in respect of the COES Preferred Shares and any
other outstanding shares of COES Convertible Preferred Stock called for
redemptions shall be suspended. Subject to the Parent Company's payment of the
applicable redemption price, the accrual of dividends in connection with the
shares of COES Convertible Preferred Stock called for redemption will suspend on
the Redemption Date.
11.4 Payment of Redemption Price. Upon receipt of a Redemption
Notice, Purchaser shall send its COES Preferred Shares being redeemed to the
Parent Company or its Transfer Agent within three (3) business days of the
receipt of such Redemption Notice, and the Parent Company shall pay the
applicable redemption price within fifteen (15) business days of the Redemption
Date (such fifteen (15) business day period shall be extended for each day the
COES Preferred Shares being redeemed have not been delivered to the Parent or
its Transfer Agent beyond the third (3rd) business day after receipt of the
Redemption Notice). The Parent Company shall not be obligated to deliver the
redemption price unless the COES Preferred Shares so redeemed are delivered to
the Parent Company or its Transfer Agent, or, in the event one or more
certificates have been lost, stolen, mutilated or destroyed, Purchaser delivers
to the Parent Company a lost certificate affidavit reasonably satisfactory to
Parent Company and its Transfer Agent.
11.5 Default of Parent Company's Redemption. If the Parent
Company fails to pay the applicable redemption price to the Purchaser and/or
other Holders of the COES Preferred Shares being redeemed by the Parent Company
within fifteen (15) business days of the Redemption Date (such fifteen (15)
business day period shall be extended for each day the COES Preferred Shares
being redeemed have not been delivered to the Parent or its
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Transfer Agent beyond the third (3rd) business day after receipt of the
Redemption Notice), the Parent Company shall be deemed to have defaulted on
their right to redeem such COES Preferred Shares. Such COES Preferred Shares
shall thereafter become immediately convertible and the Conversion Price for
such COES Preferred Shares shall be equal to 75% of the Average Closing Bid
Price. The Conversion Price for such COES Preferred Shares shall not be subject
to a floor.
11.6 Blackout Period. Notwithstanding the foregoing, the
Parent Company may not either send out a redemption notice or effect a
redemption during a Blackout Period (defined as a period during which the Parent
Company's or the Subsidiary Company's officers or directors would not be
entitled to buy or sell stock because of their holding of material non-public
information). In the event the Parent Company initiates a redemption during a
Blackout Period without having first made public material non-public
information, the Parent Company or the Subsidiary Company shall disclose the
non-public information that resulted in the Blackout Period, and no redemption
shall be effected until at least 10 days after the Company or the Subsidiary
Company shall have given the Holder written notice that the Blackout Period has
been lifted.
Section 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, or shall be sent by overnight
courier or by facsimile, and shall be deemed given when received:
(a) if to the Parent Company, to
Commodore Environmental Services, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
or to such other person at such other place as the Parent Company shall
designate to the Purchaser in writing;
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(b) if to the Subsidiary Company:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
or to such other person at such other place as the Subsidiary Company shall
designate to the Purchaser in writing;
(c) if to the Purchaser, to
American Investment Group of New York, L.P.
85 Old Long Ridge Road, Suite A7
Stamford, CT 06903
Attn.: Dan Kaminer
Telephone: 203-329-6659
Facsimile: 203-329-6659
copy to:
Eilenberg & Zivian
666 Third Avenue, 30th Floor
New York, NY 10017
Attn.: Jeffrey D. Abbey, Esq.
Telephone: 212-986-2468
Facsimile: 212-986-2399
or at such other address or addresses as may have been furnished to the Parent
Company and the Subsidiary Company in writing; or
(c) if to any transferee or transferees of a
Purchaser, at such address or addresses as shall have been furnished to the
Parent Company and the Subsidiary Company at the time of the transfer or
transfers, or at such other address or addresses as
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may have been furnished by such transferee or transferees to the Parent Company
and the Subsidiary Company in writing.
Section 13. Miscellaneous.
13.1 Entire Agreement. This Agreement and the Exhibits hereto
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement or any kind not
expressly set forth in this Agreement or the Exhibits hereto shall affect, or be
used to interpret, change or restrict, the express terms and provisions of this
Agreement.
13.2 Amendments. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Parent Company, the
Subsidiary Company and by Purchaser.
13.3 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
13.4 Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
13.5 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the courts of or located in the State of New York, specifically
the Southern District of New York and/or the Supreme Court of the State of New
York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. In addition, the parties
agree that the party against whom such judgment was obtained will pay the legal
fees of the party obtaining such judgment. Each party to this Agreement
irrevocably consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party at its address set forth herein. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by law.
13.6 Recovery of Attorney's Fees. Should any party bring
an action to enforce the terms of this Agreement then, if Purchaser prevails in
such action it should be
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<PAGE>
entitled to recovery of its attorney's fees from the Parent Company or the
Subsidiary Company, and if the Parent Company or the Subsidiary Company prevails
in such action it shall be entitled to recovery of its attorney's fees from the
Purchaser.
13.7 Fees. Notwithstanding Section 13.6, the Parent Company
and the Subsidiary Company acknowledge that Purchaser shall have no
responsibility for the payment of any of its fees in connection with this
offering.
13.8 Counterparts/Facsimile. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
13.9 Publicity. The Purchaser shall not issue any press
releases or otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Parent
Company and the Subsidiary Company, except as may be required by applicable law
or regulation.
13.10 Survival. The representations and warranties in this
Agreement shall survive Closing.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives the day and year
first above written.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By /s/ XXXXXXXXXXXXXXXXXXXX
--------------------------------------
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By /s/ XXXXXXXXXXXXXXXXXXXXX
--------------------------------------
Officer
PURCHASER:_______________________________
By_______________________________________
Officer
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives the day and year
first above written.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By___________________________________
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By___________________________________
Officer
PURCHASER: AMERICAN INVESTMENT GROUP
OF NEW YORK, L.P.
By /s/ XXXXXXXXXXXXXXXXXXXX
----------------------------------
Officer
33
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
<PAGE>
EXHIBIT B
FORM OF STOCK PURCHASE WARRANT
<PAGE>
EXHIBIT C1
COMMODORE ENVIRONMENTAL SERVICES, INC.
COMPLIANCE CERTIFICATE
The undersigned, an executive officer of COMMODORE ENVIRONMENTAL
SERVICES, INC., hereby certifies that the representations and warranties made by
Commodore Environmental Services, Inc. in the 7% Preferred Stock Securities
Purchase Agreement dated May 20, 1997 by and between Commodore Environmental
Services, Inc., Commodore Applied Technologies, Inc. and American Investment
Group of New York, L.P. were true and correct as of the date such
representations and warranties were made and are true and correct in all
material respects as of the date hereof with the same force and effect as
through such representations and warranties had been made on and as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By____________________________________
Name__________________________________
Title_________________________________
<PAGE>
EXHIBIT C2
COMMODORE APPLIED TECHNOLOGIES, INC.
COMPLIANCE CERTIFICATE
The undersigned, an executive officer of COMMODORE APPLIED
TECHNOLOGIES, INC., hereby certifies that the representations and warranties
made by Commodore Applied Technologies, Inc. in the 7% Preferred Stock
Securities Purchase Agreement dated May 20, 1997 by and between Commodore
Environmental Services, Inc., Commodore Applied Technologies, Inc. and American
Investment Group of New York, L.P. were true and correct as of the date such
representations and warranties were made and are true and correct in all
material respects as of the date hereof with the same force and effect as
through such representations and warranties had been made on and as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
COMMODORE APPLIED TECHNOLOGIES, INC.
By__________________________________
Name________________________________
Title_______________________________
<PAGE>
EXHIBIT C3
PURCHASER
COMPLIANCE CERTIFICATE
The undersigned, ,
of AMERICAN INVESTMENT GROUP OF NEW YORK, L.P. ("Purchaser"), hereby certifies
that the representations and warranties made by Purchaser in the 7% Preferred
Stock Securities Purchase Agreement dated May 20, 1997 between Commodore
Environmental Services, Inc., Commodore Applied Technologies, Inc. and Purchaser
were true and correct as of the date such representations and warranties were
made and are true and correct in all material respects as of the date hereof
with the same force and effect as through such representations and warranties
had been made on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
PURCHASER
AMERICAN INVESTMENT GROUP OF
NEW YORK, L.P.
By__________________________
Name________________________
Title_______________________
<PAGE>
EXHIBIT D
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the 7% Preferred Stock)
The undersigned hereby irrevocably elects to convert ________ shares
of COES Preferred Stock represented by above Certificate No. ___ into shares of
common stock of COMMODORE APPLIED TECHNOLOGIES, INC. (the "Subsidiary")
according to the conditions hereof, as of the date written below.
The undersigned represents and warrants that:
All offers and sales by the undersigned of the shares of Common Stock
issuable to the undersigned upon conversion of the COES Preferred
Shares shall be made pursuant to an exemption from registration under
the Act, or pursuant to registration of the Common Stock under the
Securities Act of 1933, as amended.
-------------------------------- ---------------------------
Date of Conversion Applicable Conversion Price
-------------------------------- ---------------------------
Number of Shares of Common Stock $ Amount of Conversion
upon Conversion
-------------------------------- ---------------------------
Signature Name
Address: Delivery of Shares to:
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS SUBSCRIPTION AGREEMENT
SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
7% PREFERRED STOCK
SECURITIES PURCHASE AGREEMENT
COMMODORE ENVIRONMENTAL SERVICES, INC.
AND
COMMODORE APPLIED TECHNOLOGIES, INC.
THIS AGREEMENT is made as of the 20th day of May, 1997, by and
between COMMODORE ENVIRONMENTAL SERVICES, INC., traded on the "Pinksheets" under
the symbol "COES" (the "Parent Company"), a corporation, with its principal
office at 150 East 58th Street, New York, NY 10155, COMMODORE APPLIED
TECHNOLOGIES INC., AMEX symbol "CXI" (the "Subsidiary Company"), a corporation,
with its principal office at 150 East 58th Street, New York, NY 10155 and MILTON
PARTNERS (the "Purchaser"), with its principal office at 165 Mason Street,
Greenwich, CT 06830.
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Parent Company, Subsidiary Company and the Purchaser agree as
follows:
Section 1. Certain Definitions. For purposes of this
Agreement:
"Change in Control Transaction" means the date the Parent
Company or the Subsidiary Company (i) sells or otherwise conveys all or
substantially all of its assets or (ii) effects a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Parent Company or
the Subsidiary Company is disposed of, directly or indirectly, or if within any
12 month period there is a change of more than 50% of the members of the Parent
Company's or the Subsidiary Company's Board of Directors, or if any other
person, entity or group (as defined in Section 13(d) of the Exchange Act) and/or
any of their affiliates or associates acquires in excess of 50% of the Common
Stock.
"Closing Date" means the date agreed to by the parties for the
delivery of the stock certificate against a wire transfer of the funds to the
Parent Company.
<PAGE>
"Closing" means the completion of the purchase and sale of the
COES Preferred Shares on the Closing Date.
"COES Convertible Preferred Stock" means the 60,000 shares of
Series D Preferred Stock of the Parent Company, $.01 par value, convertible into
CXI Common Stock as hereinafter provided and which has the rights, preferences
and privileges set forth in the Certificate of Designation attached hereto as
Exhibit A (the "Certificate of Designation").
"COES Preferred Shares" means the shares of COES Convertible
Preferred Stock purchased hereunder.
"Conversion Date" means the date on which the Purchaser has
telecopied the Notice of Conversion to counsel for the Parent Company.
"Conversion Price" means an amount equal to a fifteen (15%)
percent discount from the closing bid price of the CXI Common Stock as reported
by Bloomberg, L.P. ("Bloomberg") averaged for the previous five (5) business
days ending on the day before the Conversion Date (the "Average Closing Bid
Price"); provided, however, if the average of the closing bid price of the CXI
Common Stock, as reported by Bloomberg ("Floor Average"), for any consecutive
thirty (30) days is equal or less than $2.00 (such thirtieth (30th) day shall be
the "First Trigger Date"), the conversion price shall equal $2.00; if the Floor
Average for any consecutive thirty (30) days beginning any day after the First
Trigger Date is less than $2.00 ("Second Trigger Date"), the conversion price
shall equal $1.90; if the Floor Average for any thirty (30) days beginning any
day after the Second Trigger Date is less than $1.90 (the "Third Trigger Date"),
the conversion price shall equal $1.80; if the Floor Average for any consecutive
thirty (30) days beginning any day after the Third Trigger Date is less than
$1.80 (the "Fourth Trigger Date"), the conversion price shall equal $1.70; if
the Floor Average for any consecutive thirty (30) days beginning any day after
the Fourth Trigger Date is less than $1.70 (the "Fifth Trigger Date"), the
conversion price shall equal $1.60; if the Floor Average for any consecutive
thirty (30) days beginning any day after the Fifth Trigger Date is less than
$1.60, the conversion price shall equal $1.50. Subject to Section 11.5 herein,
in no event shall the Conversion Price be lower than $1.50 per share of CXI
Common Stock. If the CXI Common Stock is not traded on the American Stock
Exchange, the Average Closing Bid Price shall be the average closing bid price
(and if not available, the mean of the high and low prices) of the Common Stock
on the over-the-counter-market or the principal national securities exchange or
the Nasdaq National Market System or Nasdaq SmallCap Market System on which the
CXI Common Stock is traded for the previous five (5) business days ending on the
day before the Conversion Date.
The Conversion Price shall be equitably adjusted accordingly
on a pro rata basis in the event of the happening of certain events that would
affect the CXI Common Stock or COES Convertible Preferred Stock's value
including, but not limited to, forward and reverse stock splits, issuance of
stock dividends, subdivision of shares, combinations, reclassifications, or the
like (collectively "Reclassifications"). An adjustment made pursuant to this
section shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such an event.
2
<PAGE>
"Convertible Date" means the date on which the COES Preferred
Shares will become convertible, which is the day following the date that the
Registration Statement for the shares of CXI Common Stock underlying the COES
Preferred Stock and COES Warrants has been declared effective by the Securities
and Exchange Commission ("SEC").
"Cumulative Suspension" means the date a Suspension (as
defined in Section 8.7) has occurred and is continuing or the date that is the
15th day in the aggregate that more than one Suspension has occurred since the
effective date of the Registration Statement.
"CXI Common Stock" means the underlying Common Stock of the
Subsidiary Company, $.001 par value.
"Delisting" means the date the CXI Common Stock is delisted
from AMEX and is not otherwise listed on the Nasdaq Stock Market or other
national securities exchange.
"Holder" means a holder of COES Preferred Shares.
"Insufficient CXI Common Stock" means the date the number of
shares of CXI Common Stock held by the Parent Company is not sufficient to
effect the conversion of all outstanding COES Preferred Shares then eligible for
conversion (whether or not the Holders have duly delivered Notices of
Conversion).
"Purchase Price" means the aggregate purchase price of the
COES Preferred Shares purchased.
Section 2. Authorization and Sale of Shares.
2.1 Authorization. Subject to the terms and conditions of this
Agreement, the Parent Company has authorized the sale and issuance of the COES
Preferred Shares.
2.2 Agreement to Sell and Purchase the Shares. The Parent
Company will sell and the Purchaser will buy, in reliance upon the
representations and warranties of the Parent Company, Subsidiary Company and
Purchaser contained in this Agreement, upon the terms and conditions hereinafter
set forth, Twenty Thousand (20,000) COES Preferred Shares of COES Convertible
Preferred Stock for an aggregate purchase price of Two Million Dollars
($2,000,000) for all such COES Preferred Shares based on U.S. $100 per share.
The COES Preferred Shares shall pay a 7% cumulative dividend, payable in cash or
CXI Common Stock at the Conversion Price, at the discretion of the Parent
Company, at the time of each conversion. Such purchase and sale shall occur on
the Closing Date. In addition, Parent Company will transfer to Purchaser, for no
additional consideration, five-year warrants ("COES Warrants") to purchase ten
(10) shares of CXI Common Stock for each COES Preferred Share purchased,
initially exercisable on the Convertible Date and for a period of five years
thereafter, at an exercise price equal to 110% of the average closing bid prices
of the CXI Common Stock, as reported by Bloomberg, over the 5-day trading period
ending on the day prior to the Closing Date.
2.3 Subsidiary Company. Whereas the Purchaser is purchasing
COES Preferred Shares from the Parent Company, and the Parent Company is
transferring CXI
3
<PAGE>
Common Stock to the Purchaser upon conversion of COES Preferred Shares and
exercise of COES Warrants, the Parent Company hereby agrees to immediately remit
2.5% of the Purchase Price ($2.50 per COES Preferred Share which has a
subscription price of $100 per COES Preferred Share) at the Closing to the
Subsidiary Company, representing a portion of the $150,000 of aggregate
consideration for the Subsidiary Company's agreement to perform its obligations
as set forth in this Agreement and the Warrant Agreement, a form of which is
attached hereto as Exhibit B.
2.4 Time and Place of Closing. The Closing shall be held at
the offices of Eilenberg & Zivian, 666 Third Avenue, 30th Floor, New York, NY
10017 as promptly as practicable as agreed to by the parties to this Agreement,
but no later than May 15, 1997 at which time either party may terminate this
Agreement.
2.5 Payment and Delivery. At or prior to the Closing, the
following shall occur:
(a) Provided that Purchaser has been notified by
Eilenberg & Zivian that the Parent Company has delivered certificates
representing the COES Preferred Shares and COES Warrants as provided in Section
2.5(b) below, Purchaser shall remit by wire transfer the Purchase Price as
payment in full for the COES Preferred Shares as follows: 89% of the Purchase
Price ($5,340,000) directly to the Parent Company, 9% of the Purchase Price
($540,000) directly to Avalon Research Group, Inc. (the "Finder"), and 2% of the
Purchase Price ($120,000) directly to Stephen A. Weiss.
(b) The Parent Company shall deliver or cause to be
delivered to Eilenberg & Zivian certificates representing the COES Preferred
Shares and the COES Warrants, registered in the name of Purchaser (or any
nominee designated by Purchaser at or prior to the Closing Date), free and clear
of all liens, claims, charges and encumbrances. Purchaser shall receive such
certificates from Eilenberg & Zivian, as applicable, after the Parent Company,
Finder and Stephen A. Weiss have received the Purchase Price directly from
Purchaser.
(c) Wire instructions for the Parent Company has been
separately provided to the Purchaser's counsel.
Section 3. General Representations and Warranties of the
Parent Company. The Parent Company hereby represents and warrants to, and
covenants with, the Purchaser that the following are true and correct as of the
date hereof and as of the Closing Date.
3.1 Organization; Qualification. The Parent Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and is in good standing under such laws. The Parent Company has all
requisite corporate power and authority to own, lease and operate its properties
and assets, and to carry on its business as presently conducted. The Parent
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
4
<PAGE>
business requires such qualification, except where failure to so qualify would
not have a material adverse effect on the Parent Company.
3.2 Capitalization. The authorized capital stock of the Parent
Company is as set forth in footnote 12 of the audited consolidated financial
statements of the Parent Company set forth in its Form 10-K for the fiscal year
ended December 31, 1996, a true copy of which has been supplied to Purchaser.
60,000 shares of the Parent Company's non-voting preferred stock has been
designated Series D Preferred Stock, $.01 par value. The Series D Preferred
Stock, when issued, shall be duly authorized and validly issued and are fully
paid and nonassessable.
3.3 CXI Common Stock Transferable Upon Conversion of COES
Preferred Shares or Exercise of COES Warrants. The Parent Company currently owns
Fifteen Million (15,000,000) shares of CXI Common Stock, all of which have been
duly authorized and validly issued and are fully paid and nonassessable. The
Parent Company will reserve from its holdings of CXI Common Stock a sufficient
number of shares of CXI Common Stock to permit the conversion in full of the
outstanding COES Preferred Shares and the exercise in full of the COES Warrants.
As of the Closing Date, the Parent Company had reserved sufficient shares of CXI
Common Stock for transfer to Purchaser upon exercise of the COES Preferred
Shares which are convertible, at Purchaser's option, at the Conversion Price, as
per Section 10 of this Agreement, and upon exercise of the COES Warrants. If the
Parent Company does not own sufficient shares of CXI Common Stock for transfer
to the Purchaser upon conversion of COES Preferred Shares and/or exercise of
COES Warrants, the Parent Company hereby agrees to promptly purchase or
otherwise acquire the sufficient amount of shares of CXI Common Stock and
transfer such shares to the Purchaser upon conversion of COES Preferred Shares
and/or exercise of COES Warrants.
Except for the consent of National Securities Corporation,
which has been obtained, the Parent Company has all requisite corporate right,
power and authority to transfer the shares of CXI Common Stock in its holdings
to Purchaser upon conversion of the COES Preferred Shares and exercise of the
COES Warrants.
3.4 Authorization. The Parent Company has all requisite
corporate right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Parent Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Parent Company, the authorization, sale, issuance and delivery of the COES
Preferred Shares and the performance of the Parent Company's obligations
hereunder has been taken. This Agreement has been duly executed and delivered by
the Parent Company and constitutes a legal, valid and binding obligation of the
Parent Company enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy as they may apply to the
indemnification provisions set forth in Section 8.4 of this Agreement. Upon
their issuance, transfer and delivery pursuant to this Agreement, the COES
Preferred Shares, COES Warrants and shares of CXI Common Stock transferable
5
<PAGE>
upon conversion of the COES Preferred Shares (the "Conversion Shares") and
exercise of the COES Warrants (the "Warrant Shares") (collectively, the
"Securities") will be validly issued, fully paid and nonassessable and will be
free of any liens or encumbrances; provided, however, that the COES Preferred
Shares and COES Warrants are subject to restrictions on transfer under state
and/or federal securities laws. The issuance and sale of the COES Preferred
Shares and COES Warrants will not give rise to any preemptive right or right of
first refusal or right of participation on behalf of any person. Upon
registration of the Conversion Shares and the Warrant Shares pursuant to Section
8 of this Agreement, there shall be no restriction on the transferability
thereof other than applicable prospectus delivery requirements.
3.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Articles of Incorporation, and any amendments thereto, Bylaws,
stockholders agreements and any amendments thereto of the Parent Company or any
material mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to the Parent Company, its properties or assets.
3.6 Accuracy of Reports and Information. The Parent Company is
in full compliance, to the extent applicable, with all reporting obligations
under Section 12(b), 12 (g) or 15(d), as applicable, of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
The Parent Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the COES Preferred Shares (or for such shorter
period that the Parent Company has been required to file such material).
3.7 SEC Filings/Full Disclosure. None of the Parent Company's
filings with the SEC since January 1, 1997 contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading. The Parent Company has, since January 1,
1997, timely filed all requisite forms, reports and exhibits thereto with the
SEC. The Parent Company's Annual Report on Form 10-K for the year ended December
31, 1996, its Quarterly Reports for the periods ended March 31, 1997 and all
Current Reports on Form 8-K filed by the Parent Company from January 1, 1996 to
date are referred to as the "COES SEC Reports."
There is no fact known to the Parent Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Purchaser which could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, business prospects,
6
<PAGE>
properties or assets of the Parent Company, or (ii) could reasonably be expected
to materially and adversely affect the ability of the Parent Company to perform
its obligations pursuant to this Agreement.
3.8 Absence of Undisclosed Liabilities. The Parent Company has
no material liabilities or obligations, absolute or contingent (individually or
in the aggregate), except as set forth in the financial statements included in
the COES SEC Reports (the "COES Financial Statements") or as incurred in the
ordinary course of business after the date of the COES Financial Statements.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Parent Company is required in connection with the
valid execution and delivery of this Agreement, or the offer, sale or issuance
of the COES Preferred Shares, or the consummation of any other transaction
contemplated hereby, except the filing with the SEC of a registration statement
on Form S-3 or Form S-1 for the purpose of registering the CXI Common Stock
underlying the COES Preferred Shares and the COES Warrants.
3.10 Intellectual Property Rights. Except as disclosed in the
COES SEC Reports, the Parent Company has sufficient trademarks, trade names,
patent rights, copyrights and licenses to conduct its business as contemplated
therein. To the Parent Company's knowledge, neither the Parent Company nor its
products is infringing or will infringe any trademark, trade name, patent right,
copyright, license, trade secret or other similar right of others currently in
existence; and there is no claim being made against the Parent Company regarding
any trademark, trade name, patent, copyright, license, trade secret or other
intellectual property right which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Parent Company.
3.11 Material Contracts. Except as set forth in the COES SEC
Reports, the agreements to which the Parent Company is a party described therein
are valid agreements, in full force and effect, the Parent Company is not in
material breach or material default (with or without notice or lapse of time, or
both) under any of such agreements, and, to the Parent Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default (with or without notice or lapse of time, or both) under any of
such agreements.
3.12 Litigation. There is no action, proceeding or
investigation pending, or to the Parent Company's knowledge threatened, against
the Parent Company which might result, either individually or in the aggregate,
in any material adverse change in the business, prospects, conditions, affairs
or operations of the Parent Company. The Parent Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Parent Company currently pending or which the
Parent Company currently intends to initiate.
7
<PAGE>
3.13 Title to Assets. Except as set forth in COES SEC Reports,
the Parent Company has good and marketable title to all properties and material
assets described therein as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Parent Company.
3.14 Subsidiaries. The Parent Company does not presently own
or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity, except as stated in the COES
SEC Reports.
3.15 Required Governmental Permits. The Parent Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
3.16 Listing. The Parent Company will maintain the listing of
its Common Stock on the "Pinksheets" or other organized, comparable United
States market or quotation system; provided, however, that the sole remedy for
Purchaser for breach of this representation shall be liquidated damages as
provided in Section 10.6.
3.17 Other Outstanding Securities/Financing Restrictions.
Except as set forth on the CXI SEC Reports (as defined herein), there are no
other outstanding debt or equity securities presently convertible into shares of
CXI Common Stock.
The Parent Company cannot, without the prior approval in
writing from the Purchaser, obtain convertible debt or equity financing which is
convertible into securities of the Subsidiary Company for a period of ninety
(90) days following the effective date of the Registration Statement (as defined
herein); however, the Parent Company will not require prior approval if (a) at
least 80% of the net proceeds of the financing is part of an acquisition by the
Parent Company of control of another company or entity, (b) at least 80% of the
net proceeds of the financing is a refinancing of the Parent Company's debt, or
(c) the financing is part of a public offering of the Parent Company's
securities.
3.18 Right of Participation. In the event the Parent Company
wishes to complete a financing similar in structure to the securities issued
hereby within one hundred and eighty (180) days from the Closing Date, the
Purchaser shall have the right to participate in such offering and shall have
three (3) business days to reply in writing after receipt of written notice of
such proposed financing from the Parent Company. In the event a writing is not
received by the Parent Company from the Purchaser specifying the extent of the
Purchaser's interest in so participating, this will be deemed a refusal by the
Purchaser of such right to participate.
3.19 Legal Opinion. Purchaser shall, upon purchase of the COES
Preferred Shares, receive an opinion letter from counsel to the Parent Company,
and the Parent Company represents that it will immediately obtain such an
opinion from counsel to the satisfaction of the Purchaser, to the effect that:
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(a) The Parent Company is duly incorporated, validly
existing and in good standing in the jurisdiction of its incorporation.
(b) There is no action, proceeding or investigation
pending, or to such counsel's knowledge, threatened against the Parent
Company which might result, either individually or in the aggregate, in
any material adverse change in the business, prospects, conditions,
affairs or operations of the Parent Company.
(c) The Parent Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
(d) There is no action, suit, proceeding or
investigation by the Parent Company currently pending or, to such
counsel's knowledge, which the Parent Company currently intends to
initiate.
(e) All issued and outstanding shares of CXI Common
Stock have been duly authorized and validly issued and are fully paid
and nonassessable.
(f) This Securities Purchase Agreement and the Stock
Purchase Warrant, the issuance of the COES Preferred Shares and COES
Warrants and the transfer of the Conversion Shares and Warrant Shares
have been duly approved by all required corporate action, the requisite
consent of National Securities Corporation for the Parent Company to
transfer the shares of CXI Common Stock in its holdings to the
Purchaser upon conversion of the COES Preferred Shares and exercise of
the COES Warrants has been duly obtained, and that all such Securities,
upon delivery, shall be validly issued and outstanding, fully paid and
nonassessable.
(g) The execution, delivery and performance of this
Securities Purchase Agreement and the Stock Purchase Warrant by the
Parent Company, and the consummation of the transactions contemplated
thereby, will not, with or without the giving of notice or the passage
of time or both:
(i) Violate the provisions of any law, rule
or regulation which is material to the
assets, properties or business of the Parent
Company;
(ii) Violate the provisions of the charter
or bylaws of the Parent Company; or
(iii) To the best of counsel's knowledge,
violate any judgment, decree, order or award
of any court, governmental body or
arbitrator.
(iv) To the best of counsel's knowledge,
conflict with, or result in the breach or
termination of any term or provision of,
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or constitute a default under, or cause any
acceleration under, or cause the creation of
any lien, charge or encumbrance upon the
properties or assets of the Parent Company
pursuant to, any note, bond, indenture,
mortgage, lease, deed of trust or other
instrument, obligation, or agreement to
which the Parent Company is a party and
which is material to Parent Company, or by
which the Parent Company, or any of its
material properties is or may be bound.
(h) This Securities Purchase Agreement and the Stock
Purchase Warrant constitute the valid and legally binding obligations
of the Parent Company and are enforceable against the Parent Company in
accordance with their respective terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies, and, with respect to the Securities
Purchase Agreement, to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 thereof.
3.20 Use of Proceeds. Except for payments aggregating $150,000
to the Subsidiary Company as provided herein, the Parent Company represents that
the net proceeds from this offering will be used for general corporate purposes.
3.21 No Poison Pill. The Parent Company represents that it
does not have, and has no current intention to adopt, a stockholder rights plan
("poison pill").
Section 4. General Representations and Warranties of the
Subsidiary Company. The Subsidiary Company hereby represents and warrants to,
and covenants with, the Purchaser that the following are true and correct as of
the date hereof and as of the Closing Date.
4.1 Organization; Qualification. The Subsidiary Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware and is in good standing under such laws. The Subsidiary Company has all
requisite corporate power and authority to own, lease and operate its properties
and assets, and to carry on its business as presently conducted. The Subsidiary
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
business requires such qualification, except where failure to so qualify would
not have a material adverse effect on the Subsidiary Company.
4.2 Capitalization. The authorized capital stock of the
Subsidiary Company is as set forth in the CXI SEC Reports. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
4.3 CXI Common Stock Transferable Upon Conversion of COES
Preferred Shares or Exercise of COES Warrants. Except for the consent of
National Securities Corporation, which has been obtained, the Subsidiary Company
has all requisite corporate
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right, power and authority to transfer shares of CXI Common Stock owned by the
Parent Company to the Purchaser upon conversion of the COES Preferred Shares and
exercise of the COES Warrants.
4.4 Authorization. The Subsidiary Company has all requisite
corporate right, power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. All corporate action on the
part of the Subsidiary Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Subsidiary Company, and the performance of the Subsidiary Company's obligations
hereunder has been taken. This Agreement has been duly executed and delivered by
the Subsidiary Company and constitutes a legal, valid and binding obligation of
the Subsidiary Company enforceable in accordance with its terms, subject to laws
of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 of this Agreement.
Upon their issuance, transfer and delivery pursuant to this Agreement, the
Securities will have been validly issued, fully paid and nonassessable and will
be free of any liens or encumbrances; provided, however, that the COES Preferred
Shares and COES Warrants are subject to restrictions on transfer under state
and/or federal securities laws. Upon registration of the Conversion Shares and
the Warrant Shares pursuant to Section 8 of this Agreement, there shall be no
restriction on the transferability thereof other than applicable prospectus
delivery requirements.
4.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws, stockholders agreements and any amendments thereto of the Subsidiary
Company or any material mortgage, indenture, lease or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree
statute, law, ordinance, rule or regulation applicable to the Subsidiary
Company, its properties or assets.
4.6 Accuracy of Reports and Information. The Subsidiary
Company is in full compliance, to the extent applicable, with all reporting
obligations under Section 12(b), 12 (g) or 15(d), as applicable, of the Exchange
Act. The Subsidiary Company has registered its Common Stock pursuant to Section
12 of the Exchange Act and the Common Stock is listed and trades on AMEX.
The Subsidiary Company has filed all material required to be
filed pursuant to all reporting obligations, under either Section 13(a) or 15(d)
of the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the COES Preferred Shares (or for such shorter
period that the Subsidiary Company has been required to file such material).
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4.7 SEC Filings/Full Disclosure. None of the Subsidiary
Company's filings with the SEC since January 1, 1997 contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading. The Subsidiary Company
has, since January 1, 1997, timely filed all requisite forms, reports and
exhibits thereto with the SEC. The Subsidiary Company's Prospectus declared
effective by the SEC on June 28, 1996, the Annual Report on Form 10-K for the
year ended December 31, 1996, its Quarterly Reports for the periods ended March
31, 1997 and all Current Reports on Form 8-K filed by the Subsidiary Company
from January 1, 1996 to date are referred to as the "CXI SEC Reports."
There is no fact known to the Subsidiary Company (other than
general economic conditions known to the public generally) that has not been
disclosed in writing to the Purchaser which could reasonably be expected to have
a material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, business prospects, properties or assets of the
Subsidiary Company, or (ii) could reasonably be expected to materially and
adversely affect the ability of the Subsidiary Company to perform its
obligations pursuant to this Agreement.
4.8 Absence of Undisclosed Liabilities. The Subsidiary Company
has no material liabilities or obligations, absolute or contingent (individually
or in the aggregate), except as set forth in the financial statements included
in the CXI SEC Reports (the "CXI Financial Statements") or as incurred in the
ordinary course of business after the date of the CXI Financial Statements.
4.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Subsidiary Company is required in connection with
the valid execution and delivery of this Agreement, or the offer, sale or
issuance of the COES Preferred Shares, or the consummation of any other
transaction contemplated hereby, except the filing with the SEC of a
registration statement on Form S-3 or S-1 for the purpose of registering the CXI
Common Stock underlying the COES Preferred Shares and the COES Warrants.
4.10 Intellectual Property Rights. Except as disclosed in the
CXI SEC Reports, the Subsidiary Company has sufficient trademarks, trade names,
patent rights, copyrights and licenses to conduct its business as contemplated
therein. To the Subsidiary Company's knowledge, neither the Subsidiary Company
nor its products is infringing or will infringe any trademark, trade name,
patent right, copyright, license, trade secret or other similar right of others
currently in existence; and there is no claim being made against the Subsidiary
Company regarding any trademark, trade name, patent, copyright, license, trade
secret or other intellectual property right which could have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Subsidiary Company.
4.11 Material Contracts. Except as set forth in the CXI SEC
Reports, the agreements to which the Subsidiary Company is a party described
therein are valid
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agreements, in full force and effect, the Subsidiary Company is not in material
breach or material default (with or without notice or lapse of time, or both)
under any of such agreements, and, to the Subsidiary Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default (with or without notice or lapse of time, or both) under any of
such agreements.
4.12 Litigation. There is no action, proceeding or
investigation pending, or to the Subsidiary Company's knowledge threatened,
against the Subsidiary Company which might result, either individually or in the
aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Subsidiary Company. The Subsidiary
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Subsidiary Company currently pending or which the Subsidiary Company currently
intends to initiate.
4.13 Title to Assets. Except as set forth in CXI SEC Reports,
the Subsidiary Company has good and marketable title to all properties and
material assets described therein as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest other than
such as are not material to the business of the Subsidiary Company.
4.14 Subsidiaries. The Subsidiary Company does not presently
own or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity, except as stated in the CXI
SEC Reports.
4.15 Required Governmental Permits. The Subsidiary Company is
in possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
4.16 Listing. The Subsidiary Company will maintain the listing
of its Common Stock on AMEX or other organized, comparable United States market
or quotation system; provided, however, that the sole remedy for Purchaser for
breach of this representation shall be liquidated damages as provided in Section
10.6.
4.17 Other Outstanding Securities/Financing Restrictions.
Except as set forth in the CXI SEC Reports, there are no other outstanding debt
or equity securities presently convertible into shares of CXI Common Stock.
Except as set forth in the CXI SEC Reports, the Subsidiary Company has no
outstanding restricted shares of Common Stock, or shares of Common Stock sold
under Regulation S or Regulation D under the Securities Act of 1933, as amended
(the "Securities Act") or outstanding under any other exemption from
registration, which are available for sale as unrestricted ("free trading")
stock.
The Subsidiary Company cannot, without the prior approval in
writing from the Purchaser, obtain convertible debt or equity financing for a
period of ninety (90) days following the effective date of the Registration
Statement (as defined herein); however, the
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Subsidiary Company will not require prior approval if (a) at least 80% of the
net proceeds of the financing is part of an acquisition by the Subsidiary
Company of control of another company or entity, (b) at least 80% of the net
proceeds of the financing is a refinancing of the Subsidiary Company's debt, or
(c) the financing is part of a public offering of the Subsidiary Company's
securities.
4.18 Right of Participation. In the event the Subsidiary
Company wishes to complete a financing similar in structure to the securities
issued hereby within one hundred and eighty (180) days from the Closing Date,
the Purchaser shall have the right to participate in such offering and shall
have three (3) business days to reply in writing after receipt of written notice
of such proposed financing from the Subsidiary Company. In the event a writing
is not received by the Subsidiary Company from the Purchaser specifying the
extent of the Purchaser's interest in so participating, this will be deemed a
refusal by the Purchaser of such right to participate.
4.19 Legal Opinion. Purchaser shall, upon purchase of the COES
Preferred Shares, receive an opinion letter from counsel to the Subsidiary
Company, and the Subsidiary Company represents that it will immediately obtain
such an opinion from counsel to the satisfaction of the Purchaser, to the effect
that:
(a) The Subsidiary Company is duly incorporated,
validly existing and in good standing in the jurisdiction of its
incorporation.
(b) There is no action, proceeding or investigation
pending, or to such counsel's knowledge, threatened against the
Subsidiary Company which might result, either individually or in the
aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Subsidiary Company.
(c) The Subsidiary Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.
(d) There is no action, suit, proceeding or
investigation by the Company currently pending, to such counsel's
knowledge, or which the Subsidiary Company currently intends to
initiate.
(e) All issued and outstanding shares of CXI Common
Stock have been duly authorized and validly issued and are fully paid
and nonassessable.
(f) This Securities Purchase Agreement and the Stock
Purchase Warrant, the issuance of the COES Preferred Shares and COES
Warrants and the transfer of the Conversion Shares and Warrant Shares
have been duly approved by all required corporate action, the requisite
consent of National Securities Corporation for the Parent Company to
transfer the shares of CXI Common Stock in its holdings to the
Purchaser upon conversion of the COES Preferred Shares and exercise of
the
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COES Warrants has been duly obtained, and that all such Securities,
upon delivery, shall be validly issued and outstanding, fully paid and
nonassessable.
(g) The execution, delivery and performance of this
Securities Purchase Agreement and the Stock Purchase Warrant by the
Subsidiary Company, and the consummation of the transactions
contemplated thereby, will not, with or without the giving of notice or
the passage of time or both:
(i) Violate the provisions of any law, rule
or regulation which is material to the
assets, properties or business of the
Subsidiary Company;
(ii) Violate the provisions of the charter
or bylaws of the Subsidiary Company; or
(iii) To the best of counsel's knowledge,
violate any judgment, decree, order or award
of any court, governmental body or
arbitrator.
(iv) To the best of counsel's knowledge,
conflict with, or result in the breach or
termination of any term or provision of, or
constitute a default under, or cause any
acceleration under, or cause the creation of
any lien, charge or encumbrance upon the
properties or assets of the Subsidiary
Company pursuant to, any note, bond,
indenture, mortgage, lease, deed of trust or
other instrument, obligation, or agreement
to which the Subsidiary Company is a party
and which is material to the Subsidiary
Company or by which the Subsidiary Company,
or any of its material properties is or may
be bound.
(h) This Securities Purchase Agreement and the Stock
Purchase Warrant constitute the valid and legally binding obligations
of the Subsidiary Company and are enforceable against the Subsidiary
Company in accordance with their respective terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies, and, with respect to the Securities
Purchase Agreement, to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 thereof.
4.20 No Poison Pill. The Subsidiary Company represents that it
does not have, and has no current intention to adopt, a stockholder rights plan
("poison pill").
Section 5. Representations, Warranties and Covenants of the
Purchaser. The Purchaser represents and warrants to, and covenants with, the
Parent Company and the Subsidiary Company that the following are true and
correct as of the date hereof and as of the Closing Date.
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5.1 Authority. The Purchaser's signatory has all right, power,
authority and capacity to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and will constitute the legal, valid and binding
obligations of the Purchaser, enforceable in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in Section 8.4 of this Agreement.
5.2 Investment Experience. Purchaser is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Purchaser is aware
of the Parent Company's and Subsidiary Company's business affairs and financial
conditions and has had access to and has acquired sufficient information about
the Parent Company and the Subsidiary Company, including the COES and CXI SEC
Reports, to reach an informed and knowledgeable decision to acquire the COES
Preferred Shares. Purchaser has such business and financial experience as is
required to give it the capacity to protect its own interests in connection with
the purchase of the COES Preferred Shares and the acquisition of the COES
Warrants.
5.3 Investment Intent. Without limiting its ability to resell
the COES Preferred Shares and the COES Warrants and underlying CXI Common Stock
pursuant to an effective registration statement, Purchaser represents that it is
purchasing the COES Preferred Shares for investment purposes. Purchaser
understands that its acquisition of the COES Preferred Shares and the COES
Warrants has not been registered under the Securities Act or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. Purchaser will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the COES Preferred Shares or the COES Warrants except in compliance
with the Securities Act and any applicable state securities laws, and the rules
and regulations promulgated thereunder.
5.4 Registration or Exemption Requirements. Purchaser further
acknowledges and understands that the COES Preferred Shares and the COES
Warrants may not be resold or otherwise transferred except in a transaction
registered under the Securities Act and any applicable state securities laws or
unless an exemption from such registration is available. Purchaser understands
that the certificate(s) evidencing the COES Preferred Shares and the COES
Warrants will be imprinted with a legend, subject to Section 5.7 below, that
prohibits the transfer thereof unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Securities Act and, if
the Parent Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Parent Company is obtained to the effect that the
transaction is so exempt.
5.5 No Legal, Tax or Investment Advice. Purchaser understands
that nothing in this Agreement or any other materials presented to Purchaser in
connection with
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the purchase and sale of the COES Preferred Shares and the acquisition and
issuance of the COES Warrants constitutes legal, tax or investment advice.
Purchaser has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of the COES Preferred Shares and acquisition of the COES Warrants.
5.6 Purchaser Review. Purchaser hereby represents and warrants
that the Purchaser has carefully examined the COES SEC Reports and CXI SEC
Reports and the COES and CXI Financial Statements contained therein. The
Purchaser acknowledges that the Parent Company and Subsidiary Company has made
available to the Purchaser all documents and information that it has requested
relating to the Parent Company and the Subsidiary Company and has provided
answers to all of its questions concerning the Parent Company and the Subsidiary
Company, the COES Preferred Shares and the COES Warrants. Nothing stated in the
previous two sentences, however, shall be deemed to affect the representations
and warranties of the Parent Company and the Subsidiary Company contained in
this Agreement.
5.7 Legend. The certificate or certificates representing the
Securities shall be subject to a legend restricting transfer under the
Securities Act, such legend to be substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates shall also include any legends required by any applicable state
securities laws.
The legend(s) endorsed on a stock certificate pursuant to this
Section 5.7 or on any certificate representing any of the Securities shall be
removed and the Parent Company or the Subsidiary Company shall issue a
replacement certificate without such legend to the holder of such certificate if
the Securities represented by such certificate are registered under the
Securities Act or if such holder provides to the Parent Company or the
Subsidiary Company an opinion of counsel to the effect that a public sale,
transfer or assignment of such Securities may be made without registration.
5.8 Restrictions on Conversion of Shares. Notwithstanding
anything to the contrary contained herein, no COES Preferred Shares may be
converted by a Holder to the extent that, after giving effect to the Conversion
Shares issued pursuant to a Notice of Conversion, the total number of shares of
CXI Common Stock deemed beneficially owned by such Holder (other than by virtue
of the ownership of COES Preferred Shares or COES Warrants or ownership of other
securities that have limitations on a Holder's rights to convert
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or exercise similar to those limitations set forth herein), together with all
shares of CXI Common Stock deemed beneficially owned by Holder's "affiliates"
(as defined in Rule 144 under the Securities Act) that would be aggregated for
purposes of determining whether a group under Section 13(d) of the Exchange Act
exists, would exceed 4.99% of the total issued and outstanding shares of CXI
Common Stock, provided that each Holder shall have the right to waive this
restriction, in whole or in part, immediately in case of a pending Change in
Control Transaction and in any other case upon 61 days prior notice to the
Parent Company and the Subsidiary Company. The delivery of a Notice of
Conversion by any Holder shall be deemed a representation by such Holder it is
in compliance with this Section 5.8. A transferee of COES Preferred Shares shall
not be bound by this provision unless it expressly agrees to be so bound. The
term "deemed beneficially owned" as used in this Section 5.8 shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
convertibility of the COES Preferred Shares.
Section 6. Conditions to the Purchaser's Obligation to
Purchase. The Parent Company and the Subsidiary Company understand that the
Purchaser's obligation to purchase the COES Preferred Shares is conditioned
upon:
(a) Acceptance by Purchaser of this Agreement for the
sale of the COES Preferred Shares, as evidenced by the execution of this
Agreement by its authorized officers;
(b) Delivery of the COES Preferred Shares and COES
Warrants to Eilenberg & Zivian;
(c)(i) The delivery at the Closing of a certificate
from an authorized officer of the Parent Company certifying that all
representations and warranties of the Parent Company are true and correct as of
the Closing Date (in the form annexed hereto as Exhibit C1);
(c)(ii) The delivery at the Closing of a certificate
from an authorized officer of the Subsidiary Company certifying that all
representations and warranties of the Subsidiary Company are true and correct as
of the Closing Date (in the form annexed hereto as Exhibit C2); and
(d) A filed Certificate of Designation.
Section 7. Conditions to Parent Company's Obligation to Sell.
Purchaser understands that the Parent Company's obligation to sell the COES
Preferred Shares is conditioned upon:
(a) The receipt and acceptance by the Parent Company
of this Agreement to issue the COES Preferred Shares as evidenced by execution
of this Agreement by the President or any Vice President of the Parent Company;
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(b) Delivery to the Company, the Finder and Counsel
for Parent by Purchaser of good funds as payment in full for the purchase of the
COES Preferred Shares; and
(c) The delivery at the Closing of a certificate from
an authorized officer or representative of Purchaser certifying that all
representations and warranties of the Purchaser are true and correct as of the
Closing Date (in the form annexed hereto as Exhibit C3).
Section 8. Registration of the Shares; Compliance with the
Securities Act.
8.1 Definitions. For the purpose of this Section 8:
(a) the term "Registration Statement" shall mean any
registration statement required to be filed by Section 8.2 below, and shall
include any preliminary prospectus, final prospectus, exhibit or amendment
included in or relating to such registration statement; and
(b) the term "untrue statement" shall include any
untrue statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
8.2 Registration Procedures and Expenses. The Parent
Company shall cause the Subsidiary Company to, and the Subsidiary Company shall:
(a) file with the SEC a registration statement under
the Securities Act on Form S-3, if the Subsidiary Company is eligible to file a
registration statement under such form, to register the Conversion Shares and
the Warrant Shares within thirty (30) days after the Closing Date and in
sufficient time to have such registration effective ninety (90) days from the
Closing Date; and if the Subsidiary Company is not eligible to file a
registration statement under Form S-3, to file with the SEC a registration
statement under the Securities Act on Form S-1 or any other form which is
appropriate, to register the Conversion Shares and the Warrant Shares within
sixty (60) days after the Closing Date and in sufficient time to have such
registration effective one hundred and twenty (120) days from the Closing Date.
(b) use its best efforts, subject to receipt of
necessary information from the Purchaser, to cause such Registration Statement
to become effective as promptly after filing as practicable;
(c) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
until termination of such obligation as provided in Section 8.9 below;
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(d) furnish to the Purchaser with respect to the CXI
Common Stock registered on the Registration Statement (and to each underwriter,
if any, of such CXI Common Stock) such number of copies of prospectuses in
conformity with the requirements of the Securities Act and such other documents
as the Purchaser may reasonably request, in order to facilitate the public sale
or other disposition of all or any of the CXI Common Stock by the Purchaser;
provided, however, that the obligation of the Subsidiary Company to deliver
copies of prospectuses to the Purchaser shall be subject to the receipt by the
Subsidiary Company of reasonable assurances from the Purchaser that the
Purchaser will comply with the applicable provisions of the Securities Act and
of such other securities laws as may be applicable in connection with any use of
such prospectuses;
(e) file such documents as may be required of the
Subsidiary Company for normal securities law clearance for the resale of the
Common Stock in which states of the United States as may be reasonably requested
by the Purchaser; provided, however, that the Subsidiary Company shall not be
required in connection with this paragraph (e) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
(f) bear all expenses in connection with the
procedures in paragraphs (a) through (e) of this Section 8.2 and the
registration of the CXI Common Stock on such Registration Statement and the
satisfaction of the blue sky laws of such states, including the reasonable fees
and expenses of legal counsel to the Purchaser in connection with the procedures
in paragraph (a) through (e) of this Section 8.2, other than underwriting
discounts and selling commissions or expenses required by law to be borne by
Purchaser; and
(g) in the event of the failure of Company to procure
registration of the CXI Common Stock underlying the COES Preferred Shares within
ninety (90) days from the Closing Date if the Registration Statement is filed
under Form S-3, or within one hundred (120) days from the Closing Date if the
Registration Statement is filed under Form S-1 or any other appropriate forms,
the Parent Company will pay Purchaser by wire transfer, as liquidated damages
for such failure and not as a penalty, one (1%) percent of the Liquidation
Preference (as defined below) of the COES Preferred Shares that have not been
converted, for each month, or any part thereof, that the Registration Statement
is not effective, or in the event of a Suspension (as defined in Section 8.7)
after such date. If the Parent Company does not remit the damages to the
Purchaser as set forth above, the Parent Company will pay the Purchaser
reasonable costs of collection, including attorneys fees, in addition to the
liquidated damages. Such payment shall be made to the Purchaser immediately if
the registration of the Conversion Shares and Warrant Shares is not effected;
provided, however, that the payment of such liquidated damages shall not relieve
the Subsidiary Company from its obligations to register the Conversion Shares
and Warrant Shares pursuant to this Section. The registration of the Conversion
Shares and Warrant Shares pursuant to this provision shall not affect or limit
Purchaser's other rights or remedies as set forth in this Agreement. The
"Liquidation Preference" for a Share shall equal $100 (subject to adjustments
for Reclassifications), plus all accrued and unpaid dividends (which shall
accrue through the Conversion Date, Redemption Date or the date liquidated
damages are paid, as applicable)
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and any then unpaid liquidated damages (interest on which shall accrue at a rate
of 2% per month) arising under Sections 8.2(g), 10.2 or 10.6.
8.3 Underwriter. The Parent Company and the Subsidiary Company
understand that the Purchaser disclaims being an "underwriter" (as such term is
defined under the Securities Act and the rules and regulations promulgated
thereunder (an "Underwriter")), but Purchaser being deemed an Underwriter shall
not relieve the Parent Company and the Subsidiary Company of any obligation it
has hereunder.
8.4 Indemnification.
(a) General Indemnification. The Parent Company and
the Subsidiary Company together and the Purchaser agree to indemnify the other
and to hold the other harmless from and against any and all losses, damages,
liabilities, costs and expenses (including reasonable attorneys' fees) which the
other may sustain or incur in connection with the breach by the indemnifying
party of any representation, warranty or covenant made by it in this Agreement.
(b) Indemnification for Registration Statement.
(i) By Parent Company and Subsidiary Company. To
the extent permitted by law, the Parent Company and Subsidiary Company together
will indemnify and hold harmless each Holder, the directors, if any, of such
Holder, the officers, if any, of such Holder who sign the Registration
Statement, each person, if any, who controls such Holder, any underwriter (as
defined in the Securities Act) for the Holders and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, expenses or liabilities
(joint or several) to which any of them may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages,
expenses or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstance in which they are made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will
reimburse the Holders and each such underwriter or controlling person, promptly
as such expenses are incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability action or proceeding; provided, however, that the
indemnity agreement contained in this Section 8.4(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Parent Company and the
Subsidiary Company, which consents shall not be unreasonably withheld, nor shall
the Parent Company and Subsidiary Company
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be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by the Holders or any such underwriter
or controlling person, as the case may be. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Holders or any such underwriter or controlling person and shall survive the
transfer of the Securities by Holders.
(ii) By Holders. To the extent permitted by law,
each Holder, severally and not jointly, will indemnify and hold harmless the
Subsidiary Company, each of its directors, each of its officers who have signed
the Registration Statement, each person, if any, who controls the Subsidiary
Company within the meaning of the Securities Act or the Exchange Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such holder or underwriter, against any losses, claims, damages or
liabilities (joint or several) to which any of them may become subject, under
the Securities Act, the Exchange Act or other federal state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration, and such Holder will reimburse any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 8.4(b) shall not apply
to amounts paid in settlement of such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder, which consent
shall not be unreasonably withheld; and provided further, that the Holder shall
be liable under this paragraph for only that amount of losses, claims, damages
and liabilities as does not exceed the net proceeds to such Holder as a result
of the sale of the Securities pursuant to such registration.
(c) Procedure for Indemnification. Promptly after
receipt by an indemnified party under this Section 8.4 of notice of the
commencement of any action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8.4, deliver to the indemnifying party a written notice
of commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel for the indemnifying party, representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 8.4 only to the extent
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prejudicial to its ability to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party other than under this Section 8.4. The
indemnification required by this Section 8.4 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense,
promptly as such expense, loss, damage or liability is incurred.
(d) Contribution. To the extent any indemnification
by an indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
otherwise would be liable under this Section 8.4 to the extent permitted by law,
provided that (i) no contribution shall be made under the circumstances where
the maker would not have been liable for indemnification under the fault
standards set forth in this Section 8.4, (ii) no seller of the Securities guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of the
Securities who was not guilty of such fraudulent misrepresentation and (iii)
contribution by any seller of the Securities shall be limited in amount to the
net amount of proceeds received by such seller from the sale of such Securities.
8.5 Information Available. So long as any registration
statement is effective covering the resale of the Conversion Shares or Warrant
Shares, the Parent Company and the Subsidiary Company will each furnish to
Purchaser:
(a) as soon as possible after available, one copy of
(i) each of its Annual Report to Stockholders (which Annual Report shall contain
financial statements audited in accordance with generally accepted accounting
principles in the United States of America by a national firm of certified
public accountants); (ii) if not included in substance in the Annual Report to
Stockholders, each of its annual report on Form 10-K within 100 days after the
end of each fiscal year of each Company, (iii) each of its Quarterly Reports to
Stockholders, and its quarterly report on Form 10-Q within sixty (60) days, and
(iv) a full copy of the registration statement covering the Conversion Shares
and Warrant Shares (the foregoing, in each case, excluding exhibits); and
(b) upon the reasonable request of Purchaser, such
other information that is generally available to the public.
8.6 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Conversion Shares and the Warrant Shares to the public
without registration, the Parent Company and the Subsidiary Company agrees to
use its best efforts to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date on which the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
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(b) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(c) to furnish to Purchaser forthwith upon request a
written statement by the Parent Company or the Subsidiary Company as to its
compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Parent Company or the Subsidiary Company and other information in the possession
of or reasonably obtainable by the Parent Company or the Subsidiary Company as
Purchaser may reasonably request in availing itself of any rule or regulation of
the SEC allowing Purchaser to sell any such Conversion Shares or Warrant Shares
without registration.
8.7 Temporary Cessation of Offers and Sales by Purchaser. The
Purchaser acknowledges that there may occasionally be times when the Subsidiary
Company may be required to suspend the use of the prospectus forming part of the
Registration Statement (a "Suspension") until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by
the Commission, until the prospectus is supplemented or amended to comply with
the Securities Act, or until such time as the Subsidiary Company has filed an
appropriate report with the Commission pursuant to the Exchange Act. The
Subsidiary Company agrees to file any necessary amendments, supplements and
reports as soon as practicable under the circumstances. The Subsidiary Company
agrees to use its best efforts to cause a Suspension to be lifted within 10
business days during which time Purchaser agrees that it will not sell any
shares of Common Stock pursuant to such prospectus.
8.8 Transfer of Conversion Shares or Warrant Shares Stock
After Registration. Purchaser hereby covenants with the Parent Company and the
Subsidiary Company not to make any sale of the Conversion Shares or Warrant
Shares except either (i) in accordance with the Registration Statement, in which
case Purchaser covenants to comply with the requirement of delivering a current
prospectus, (ii) in accordance with Rule 144, in which case Purchaser covenants
to comply with Rule 144, or (iii) as otherwise permitted by applicable law.
8.9 Termination of Obligations. The obligations of the Parent
Company and Subsidiary Company pursuant to Sections 8.2, 8.3 and 8.6 hereof
shall cease and terminate upon the earlier to occur of (i) such time as all of
the Conversion Shares or Warrant Shares have been re-sold, or (ii) such time as
all of the Common Stock may be resold pursuant to Rule 144(k) under the
Securities Act.
Section 9. Legal Fees and Expenses. Each of the parties shall
pay its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby.
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Section 10. Conversion; Liquidated Damages.
10.1 Restrictions on Conversion. Conversion of all the COES
Preferred Shares may be made at the Conversion Price, the day following the date
that the Registration Statement for the CXI Common Stock underlying the COES
Preferred Stock and COES Warrants was declared effective by the SEC.
10.2 Notice of Conversion. Conversion of the COES Preferred
Shares to CXI Common Stock may be exercised in whole or in part by Purchaser
telecopying an executed and completed Notice of Conversion (in the form annexed
hereto as Exhibit D) to counsel for the Parent Company, with a copy to the
Parent Company and Subsidiary Company, and delivering the original Notice of
Conversion and the certificate representing the COES Preferred Shares to counsel
by hand or by express courier within three (3) business days of exercise. Each
date on which a Notice of Conversion is telecopied to and received by the Parent
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Subsidiary Company will reissue and transmit the certificates in the
name of the Purchaser, or any other name as instructed by the Purchaser,
representing the CXI Common Stock transferable upon conversion of all or any
part of the COES Preferred Shares and COES Warrant Shares (and the Parent
Company will transmit any certificates for replacement COES Preferred Shares not
previously converted but included in the original certificate presented for
conversion) to the Purchaser via express courier within three (3) business days
after counsel for the Parent Company has received the original Notice of
Conversion and the certificate representing the COES Preferred Shares being so
converted. The Notice of Conversion and certificate representing the portion of
the COES Preferred Shares converted shall be delivered as follows:
To counsel of Parent Company:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
To the Parent Company:
Commodore Environmental Services, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
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To the Subsidiary Company:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
or to such other person at such other place as the Parent Company shall
designate to the Purchaser in writing.
In the event that the COES Preferred Shares are not converted
within three (3) business days of the Conversion Date, the Parent Company shall
be liable to Purchaser for actual damages incurred from the fourth business day
following the Conversion Date through the ninth business day following the
Conversion Date for such failure (provided that Purchaser has delivered the
original valid Notice of Conversion and the original certificate(s) representing
the COES Preferred Shares to be converted, or an affidavit and indemnity
agreement as to lost certificates reasonably satisfactory to the Company). In
the event the COES Preferred Shares are not converted by the tenth (10th)
business day following the Conversion Date, the Parent Company shall pay to the
Purchaser, by wire transfer, as liquidated damages for such failure and not as a
penalty, an amount in cash equal to one (1%) percent per day of the Liquidation
Preference for the COES Preferred Shares to be converted which shall run from
the tenth (10th) business day following the Conversion Date; provided, however,
that actual damages and liquidated damages for a failure to deliver certificates
of CXI Common Stock shall be determined in accordance with Section 10.6, if both
of the following conditions are satisfied by the Parent Company: (i) the failure
to deliver certificates of CXI Common Stock is the result of a lack of available
shares of CXI Common Stock and (ii) the Parent Company commences, within ten
(10) business days after the initial Conversion Date to purchase or otherwise
acquire the number of shares of CXI Common Stock which is sufficient to permit
conversion of all COES Preferred Shares then outstanding at the Hypothetical
Conversion Price (as hereinafter defined) then in effect.
10.3 Mandatory Conversion. The COES Preferred Shares are
subject to mandatory conversion after five (5) years from the Closing Date, at
which time all COES Preferred Shares will automatically be converted at the
Conversion Price, upon the terms set forth in this section. Such five year
period will be extended by the number of days during such period that (i) the
Subsidiary Company's Common Stock has been Delisted and/or (ii) a Suspension has
been in effect and by the number of days after the 90th day or the 120th day,
whichever date is applicable as provided in Section 8.2(g) herein, that
Registration Statement was not declared effective. Any particular day in which
more than one of the foregoing condition events shall have been in effect shall
only be counted once in determining the number of days by which to extend the
five year period prior to mandatory conversion. In addition, mandatory
conversion shall not occur for so long as certain default events specified in
Section 5(e) of the Certificate of Designation are continuing.
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10.4 Reservation of CXI Common Stock Transferable Upon
Conversion. The Parent Company shall at all times reserve and keep available out
of its holdings of shares of CXI Common Stock, such number of shares of CXI
Common Stock as shall from time to time be sufficient to effect the conversion
of all then outstanding COES Preferred Shares and COES Warrants, the sufficiency
of which shall be determined (in the case of the COES Preferred Shares) by using
a Conversion Price (the "Hypothetical Conversion Price") derived from a
hypothetical closing market price that is 75% of either (i) the actual Average
Closing Bid Price on the Closing Date or (ii) the actual Average Closing Bid
Price from time to time, whichever is lower, and in the case of the COES
Warrants, by the exercise price thereof. The Parent Company hereby covenants and
agrees that if at any time the Hypothetical Conversion Price falls to a level
that would not enable all outstanding COES Preferred Shares to be fully
converted and the outstanding COES Warrants to be fully exercised, the Parent
Company will promptly purchase or otherwise acquire the number of shares of CXI
Common Stock sufficient to permit the conversion of all COES Preferred Shares
then outstanding at the Hypothetical Conversion Price then in effect and the
exercise of all outstanding COES Warrants.
10.5 Liquidated Damages. In the event of a Delisting, a
Cumulative Suspension or Insufficient CXI Common Stock (each a "Damage Event"),
the Parent Company will pay to Purchaser (and to all other holders of the
Shares), by wire transfer, as liquidated damages for such non-availability and
not as a penalty, an amount in cash equal to 2% per month of the Liquidation
Preference of only those COES Preferred Shares then eligible for conversion,
without regard to Section 5.8, for the first two months after the occurrence of
a Damage Event, and 3% per month for each month thereafter. Similar liquidated
damages shall be paid with respect to any COES Preferred Shares not initially
eligible for conversion when the Damage Event first occurred but which
subsequently become eligible for conversion, without regard to Section 5.8,
commencing in the first month that such COES Preferred Shares become eligible
for such conversion. Such liquidated damages shall continue to accrue and shall
be payable until the Damage Event has been cured, and, if not paid, interest
thereon shall accrue at a rate of 2% per month. At the Purchaser's election,
such liquidated damages may be paid in cash or may be added to the principal of
the COES Preferred Shares for subsequent conversion purposes. Notwithstanding
the foregoing, in the case of a Delisting, after six months from the date of
such Delisting, the Parent Company shall have the option to force Purchaser to
as promptly as possible convert (in increments of no less than $50,000) all or
part of its COES Preferred Shares, subject to Purchaser being able to sell the
underlying Conversion Shares, and simultaneously sell such Conversion Shares
(where the conversion price therefor shall not be the Conversion Price but
instead shall equal 85% of the Purchaser's sale price of the Conversion Shares,
all as determined by Purchaser's actual trading records (to be provided to the
Company). In no event may the Company force Purchaser to convert less than
$50,000 of COES Preferred Shares at any one time.
Section 11. Redemption By Parent Company.
11.1 Parent Company's Right to Redeem. The Parent Company
shall have the right, at any time and from time to time, in its sole discretion,
to redeem in whole or in
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part the COES Preferred Shares then outstanding, except that if the Purchaser or
any Holder of the COES Preferred Shares has submitted a Notice of Conversion,
the Parent Company shall not have the right to redeem the COES Preferred Shares
which were submitted for conversion and the certificates representing Conversion
Shares should be delivered promptly according to Section 10.2 herein. If the
Parent Company elects to redeem some, but not all, of the COES Preferred Shares,
the Parent Company shall redeem the COES Preferred Shares pro rata among the
Holders of all the COES Preferred Shares then outstanding. The date of the
Parent Company's redemption of COES Preferred Shares shall be referred to as the
"Redemption Date."
11.2 Redemption Price. The redemption price per COES Preferred
Share shall equal $125.
11.3 Mechanics of Redemption; Purchaser's Conversion Rights.
The Parent Company shall effect each such redemption by giving notice of its
election to redeem ("Redemption Notice"), by facsimile, by 5 P.M. New York City
time on the Redemption Date and shall provide a copy of such redemption notice
by overnight or 2-day courier, to Purchaser, all other Holders of COES Preferred
Shares and the Parent Company's Transfer Agent. Such redemption notice shall
indicate whether the Parent Company will redeem all or part of the COES
Preferred Shares. Upon the giving of any such Redemption Notice, and until the
earlier of either payment of the applicable redemption price or fifteen (15)
business days after the Redemption Date (or later as provided in Section 6(d)
below), the conversion rights in respect of the COES Preferred Shares and any
other outstanding shares of COES Convertible Preferred Stock called for
redemptions shall be suspended. Subject to the Parent Company's payment of the
applicable redemption price, the accrual of dividends in connection with the
shares of COES Convertible Preferred Stock called for redemption will suspend on
the Redemption Date.
11.4 Payment of Redemption Price. Upon receipt of a Redemption
Notice, Purchaser shall send its COES Preferred Shares being redeemed to the
Parent Company or its Transfer Agent within three (3) business days of the
receipt of such Redemption Notice, and the Parent Company shall pay the
applicable redemption price within fifteen (15) business days of the Redemption
Date (such fifteen (15) business day period shall be extended for each day the
COES Preferred Shares being redeemed have not been delivered to the Parent or
its Transfer Agent beyond the third (3rd) business day after receipt of the
Redemption Notice). The Parent Company shall not be obligated to deliver the
redemption price unless the COES Preferred Shares so redeemed are delivered to
the Parent Company or its Transfer Agent, or, in the event one or more
certificates have been lost, stolen, mutilated or destroyed, Purchaser delivers
to the Parent Company a lost certificate affidavit reasonably satisfactory to
Parent Company and its Transfer Agent.
11.5 Default of Parent Company's Redemption. If the Parent
Company fails to pay the applicable redemption price to the Purchaser and/or
other Holders of the COES Preferred Shares being redeemed by the Parent Company
within fifteen (15) business days of the Redemption Date (such fifteen (15)
business day period shall be extended for each day the COES Preferred Shares
being redeemed have not been delivered to the Parent or its
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Transfer Agent beyond the third (3rd) business day after receipt of the
Redemption Notice), the Parent Company shall be deemed to have defaulted on
their right to redeem such COES Preferred Shares. Such COES Preferred Shares
shall thereafter become immediately convertible and the Conversion Price for
such COES Preferred Shares shall be equal to 75% of the Average Closing Bid
Price. The Conversion Price for such COES Preferred Shares shall not be subject
to a floor.
11.6 Blackout Period. Notwithstanding the foregoing, the
Parent Company may not either send out a redemption notice or effect a
redemption during a Blackout Period (defined as a period during which the Parent
Company's or the Subsidiary Company's officers or directors would not be
entitled to buy or sell stock because of their holding of material non-public
information). In the event the Parent Company initiates a redemption during a
Blackout Period without having first made public material non-public
information, the Parent Company or the Subsidiary Company shall disclose the
non-public information that resulted in the Blackout Period, and no redemption
shall be effected until at least 10 days after the Company or the Subsidiary
Company shall have given the Holder written notice that the Blackout Period has
been lifted.
Section 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first class
registered or certified airmail, postage prepaid, or shall be sent by overnight
courier or by facsimile, and shall be deemed given when received:
(a) if to the Parent Company, to
Commodore Environmental Services, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
or to such other person at such other place as the Parent Company shall
designate to the Purchaser in writing;
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(b) if to the Subsidiary Company:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
or to such other person at such other place as the Subsidiary Company shall
designate to the Purchaser in writing;
(c) if to the Purchaser, to
Milton Partners
165 Mason Street
Greenwich, CT 06830
Attn.: Jon Altman
Telephone: 203-661-7022
Facsimile: 203-661-7665
copy to:
Eilenberg & Zivian
666 Third Avenue, 30th Floor
New York, NY 10017
Attn.: Jeffrey D. Abbey, Esq.
Telephone: 212-986-2468
Facsimile: 212-986-2399
or at such other address or addresses as may have been furnished to the Parent
Company and the Subsidiary Company in writing; or
(c) if to any transferee or transferees of a Purchaser, at
such address or addresses as shall have been furnished to the Parent Company and
the Subsidiary Company at the time of the transfer or transfers, or at such
other address or addresses as
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may have been furnished by such transferee or transferees to the Parent Company
and the Subsidiary Company in writing.
Section 13. Miscellaneous.
13.1 Entire Agreement. This Agreement and the Exhibits hereto
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement or any kind not
expressly set forth in this Agreement or the Exhibits hereto shall affect, or be
used to interpret, change or restrict, the express terms and provisions of this
Agreement.
13.2 Amendments. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Parent Company, the
Subsidiary Company and by Purchaser.
13.3 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
13.4 Severability. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
13.5 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the courts of or located in the State of New York, specifically
the Southern District of New York and/or the Supreme Court of the State of New
York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. In addition, the parties
agree that the party against whom such judgment was obtained will pay the legal
fees of the party obtaining such judgment. Each party to this Agreement
irrevocably consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party at its address set forth herein. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by law.
13.6 Recovery of Attorney's Fees. Should any party bring an
action to enforce the terms of this Agreement then, if Purchaser prevails in
such action it should be
31
<PAGE>
entitled to recovery of its attorney's fees from the Parent Company or the
Subsidiary Company, and if the Parent Company or the Subsidiary Company prevails
in such action it shall be entitled to recovery of its attorney's fees from the
Purchaser.
13.7 Fees. Notwithstanding Section 13.6, the Parent Company
and the Subsidiary Company acknowledge that Purchaser shall have no
responsibility for the payment of any of its fees in connection with this
offering.
13.8 Counterparts/Facsimile. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
13.9 Publicity. The Purchaser shall not issue any press
releases or otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Parent
Company and the Subsidiary Company, except as may be required by applicable law
or regulation.
13.10 Survival. The representations and warranties in this
Agreement shall survive Closing.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives the day and year
first above written.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By
-------------------------------------
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By
-------------------------------------
Officer
PURCHASER:
-----------------------------
By
------------------------------------
Officer
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their duly authorized representatives the day and year
first above written.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By XXXXXXXXXXXXXXXXXXXXXXXX
-------------------------------------
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By XXXXXXXXXXXXXXXXXXXXXXXXX
-------------------------------------
Officer
PURCHASER: MILTON PARTNERS
By
------------------------------------
Officer
34
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
<PAGE>
EXHIBIT B
FORM OF STOCK PURCHASE WARRANT
<PAGE>
EXHIBIT C1
COMMODORE ENVIRONMENTAL SERVICES, INC.
COMPLIANCE CERTIFICATE
The undersigned, an executive officer of COMMODORE ENVIRONMENTAL
SERVICES, INC., hereby certifies that the representations and warranties made by
Commodore Environmental Services, Inc. in the 7% Preferred Stock Securities
Purchase Agreement dated May 20, 1997 by and between Commodore Environmental
Services, Inc., Commodore Applied Technologies, Inc. and Milton Partners were
true and correct as of the date such representations and warranties were made
and are true and correct in all material respects as of the date hereof with the
same force and effect as through such representations and warranties had been
made on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
COMMODORE ENVIRONMENTAL SERVICES, INC.
By
------------------------------------------
Name
----------------------------------------
Title
---------------------------------------
<PAGE>
EXHIBIT C2
COMMODORE APPLIED TECHNOLOGIES, INC.
COMPLIANCE CERTIFICATE
The undersigned, an executive officer of COMMODORE APPLIED
TECHNOLOGIES, INC., hereby certifies that the representations and warranties
made by Commodore Applied Technologies, Inc. in the 7% Preferred Stock
Securities Purchase Agreement dated May 20, 1997 by and between Commodore
Environmental Services, Inc., Commodore Applied Technologies, Inc. and Milton
Partners were true and correct as of the date such representations and
warranties were made and are true and correct in all material respects as of the
date hereof with the same force and effect as through such representations and
warranties had been made on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
COMMODORE APPLIED TECHNOLOGIES, INC.
By
------------------------------------------
Name
----------------------------------------
Title
---------------------------------------
<PAGE>
EXHIBIT C3
PURCHASER
COMPLIANCE CERTIFICATE
The undersigned, ,
------------------- -------------------------
of MILTON PARTNERS ("Purchaser"), hereby certifies that the representations and
warranties made by Purchaser in the 7% Preferred Stock Securities Purchase
Agreement dated May 20, 1997 between Commodore Environmental Services, Inc.,
Commodore Applied Technologies, Inc. and Purchaser were true and correct as of
the date such representations and warranties were made and are true and correct
in all material respects as of the date hereof with the same force and effect as
through such representations and warranties had been made on and as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate as of this 20th day of May 1997.
PURCHASER
MILTON PARTNERS
By
------------------------------------------
Name
----------------------------------------
Title
---------------------------------------
<PAGE>
EXHIBIT D
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the 7%
Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of COES
Preferred Stock represented by above Certificate No. into shares of common stock
of COMMODORE APPLIED TECHNOLOGIES, INC. (the "Subsidiary") according to the
conditions hereof, as of the date written below.
The undersigned represents and warrants that:
All offers and sales by the undersigned of the shares of Common Stock
issuable to the undersigned upon conversion of the COES Preferred
Shares shall be made pursuant to an exemption from registration under
the Act, or pursuant to registration of the Common Stock under the
Securities Act of 1933, as amended.
---------------------------------- ---------------------------
Date of Conversion Applicable Conversion Price
---------------------------------- ---------------------------
Number of Shares of Common Stock $ Amount of Conversion
upon Conversion
---------------------------------- ---------------------------
Signature Name
Address: Delivery of Shares to:
<PAGE>
EXHIBIT 2
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS STOCK PURCHASE WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
No. 97-D1
STOCK PURCHASE WARRANT
To Purchase 200,000 Shares of Common Stock of
COMMODORE APPLIED TECHNOLOGIES, INC.
from
COMMODORE ENVIRONMENTAL SCIENCES, INC.
THIS CERTIFIES that, for value received, MILTON PARTNERS (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after May 20, 1997 (the "Initial
Exercise Date") and on or prior to May 20, 2002 (the "Termination Date") but not
thereafter, to subscribe for and purchase from COMMODORE ENVIRONMENTAL SCIENCES,
INC., a Delaware corporation (the "Parent Company"), 200,000 shares of its
holdings of Common Stock of COMMODORE APPLIED TECHNOLOGIES, INC. ("CXI Common
Stock"), a Delaware corporation (the "Subsidiary Company") (the "Warrant
Shares"). The purchase price of one share of CXI Common Stock (the "Exercise
Price") under this Warrant shall be Seven Dollars and Fourteen Cents ($7.14).
The Exercise Price and the number of Warrant Shares shall be subject to
adjustment as provided herein. This warrant is being issued pursuant to a
Preferred Stock Securities Purchase Agreement, dated May 20, 1997, complete with
all listed exhibits thereto (the "Agreement") by and between the Parent Company,
Subsidiary Company and the Investor and is subject to its terms. In the event of
any conflict between the terms of this Warrant and the Agreement, the Agreement
shall control.
1. Title of Warrant. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Parent Company, by the holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
<PAGE>
2. Authorization of Shares. The Parent Company and the
Subsidiary Company covenant that all shares of CXI Common Stock which may be
transferred upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made at any time or times, in whole or in
part, on or after the Initial Exercise Date, and before the close of business on
the Termination Date, or such earlier date on which this Warrant may terminate
as provided in paragraph 11(a) below, by the surrender of this Warrant and the
Form of Election to Purchase annexed hereto duly executed, at the office of the
Parent Company (with copy to Stephen A. Weiss, Esq., Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, 153 East 53rd Street, New York, NY 10022 or
such other office or agency of the Parent Company as it may designate by notice
in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment of the Exercise Price of
the shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of CXI Common Stock
so purchased immediately. In the event upon exercising the Warrant, the transfer
agent requires an opinion of counsel, the Parent Company or the Subsidiary
Company shall have such opinion furnished to the transfer agent to the transfer
agent's satisfaction. In the event the Investor is relying on an exemption from
registration under the 1933 Act, the Warrant Shares shall be issued immediately,
if the Investor furnishes an opinion of counsel, reasonably satisfactory to the
Subsidiary Company, that such exemption from registration is available.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within three business days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the shares
may be by certified check or cashier's check or by wire transfer to an account
designated by the Parent Company in an amount equal to the Exercise Price
multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Reissuance of certificates in
the name of the holder hereof for shares of CXI Common Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the holder of this Warrant or
in such name or names as may be directed by the holder of this Warrant;
provided, however, that in the event certificates for shares of CXI Common Stock
are to be issued in a name other than the name of the holder of this Warrant,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the holder hereof, together
with evidence satisfactory to the Subsidiary Company that such transfer or
assignment is being made in compliance with all applicable federal and state
securities laws; and provided further, that upon any transfer involved in the
issuance or
2
<PAGE>
delivery of any certificates for shares of CXI Common Stock, the Subsidiary
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Parent Company and the Subsidiary
Company will at no time close its shareholder books or records in any manner
which interferes with the timely exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Subsidiary Company prior to the exercise thereof. If,
however, at the time of the surrender of this Warrant and purchase the holder
hereof shall be entitled to exercise this Warrant, the shares so purchased shall
be and be deemed to be transferred and reissued to such holder as the record
owner of such shares as of the close of business on the date on which this
Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Parent Company (or such other office or
agency of the Parent Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Parent Company); provided, however, that this Warrant may not be resold or
otherwise transferred except (i) in a transaction registered under the
Securities Act, or (ii) in a transaction pursuant to an exemption, if available,
from such registration and whereby, if requested by the Parent Company or the
Subsidiary Company, an opinion of counsel reasonably satisfactory to the Parent
Company or the Subsidiary Company is obtained by the holder of this Warrant to
the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. Each of
the Parent Company and the Subsidiary Company represents and warrants that upon
receipt by the Parent Company or the Subsidiary Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Parent
Company or the Subsidiary Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Parent Company or the Subsidiary Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
11. Effect of Certain Events.
(a) If at any time:
3
<PAGE>
(i) the Parent Company or the Subsidiary Company
shall declare any cash dividend upon the CXI Common Stock;
(ii) the Parent Company or the Subsidiary Company
shall declare a dividend upon the CXI Common Stock payable in
securities (other than a dividend payable solely in CXI Common
Stock) or make any special dividend or other distribution to
the holders of its Units;
(iii) the Parent Company or the Subsidiary Company
proposes (A) to sell or otherwise convey all or substantially
all of its assets or (B) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the
Parent Company or the Subsidiary Company is disposed of
(collectively, a "Sale or Merger Transaction"), in which the
consideration to be received by the Parent Company or the
Subsidiary Company or its shareholders consists solely of
cash;
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Parent Company
or the Subsidiary Company;
the Parent Company or the Subsidiary Company shall give the holder of this
Warrant fifteen (15) days' written notice of the proposed effective date, by
certified or registered mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Parent Company. Such notice shall also specify, in the case of any such
dividend, distribution or option rights, the date on which the holders of Common
Shares shall be entitled thereto. Any notice relating to a Sale or Merger
Transaction shall also specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, as the case may be. If the
Holder of the Warrant does not exercise this Warrant prior to the occurrence of
an event described above, except as provided in Section 13(a), the Holder shall
not be entitled to receive the benefits accruing to existing holders of the
Common Shares in such event.
(b) In case the Parent Company or Subsidiary Company shall at
any time effect a Sale or Merger Transaction in which the consideration to be
received by the Parent Company or the Subsidiary or their shareholders consists
in part of consideration other than cash, or shall issue any shares of its
capital stock in a reclassification of the CXI Common Stock, the holder of this
Warrant shall have the right thereafter to purchase, by exercise of this Warrant
and payment of the aggregate Exercise Price in effect immediately prior to such
action, the kind and amount of shares and other securities and property which it
would have owned or have been entitled to receive after the happening of such
transaction had this Warrant been exercised immediately prior thereto.
12. Registration Rights. The Subsidiary Company shall register
the Warrant Shares pursuant to Section 8 of the Agreement. In the event of the
failure of the Subsidiary Company to procure registration of the Warrant Shares
by the later of (i) the
4
<PAGE>
Initial Exercise Date, or (ii) ninety (90) days from the Closing Date (as
defined in the Agreement) if the Subsidiary Company is registering the Warrant
Shares under Form S-3 or one hundred and twenty (120) days from the Closing Date
if the Subsidiary Company is registering the Warrant Shares under Form S-1, or
during a Suspension, as defined under the Agreement, the Parent Company will pay
to the Investor by wire transfer, as liquidated damages for such failure and not
as a penalty, one (1%) percent of the product of the Exercise Price and the
number of Warrants that have not been exercised, for each month, or any part
thereof, that the registration statement is not effective or that such
Suspension continues. If not paid as required, interest on such damages will
accrue at a rate of 2% per month. If the Parent Company does not remit the
damages to the Investor as set forth above, the Parent Company will pay the
Investor reasonable costs of collection, including attorneys fees, in addition
to the liquidated damages. Such payment shall be made to the Investor
immediately if the registration of the Warrant Shares is not effected and
maintained; provided, however, that the payment of such liquidated damages shall
not relieve the Subsidiary Company from its obligations to register the Warrant
Shares pursuant to this paragraph 12. The registration of the Warrant Shares
pursuant to this provision shall not effect or limit Investor's other rights or
remedies as set forth in this Warrant. The obligations of the Parent Company and
the Subsidiary Company under this paragraph 12 shall cease and terminate upon
the earlier to occur of (x) such time as all of the Warrant Shares have been
re-sold or (y) such time as all of the Warrant Shares may be re-sold pursuant to
Rule 144 under the Securities Act.
13. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of certain events, as hereinafter set forth:
(a) In case the Subsidiary Company shall at any time subdivide
its outstanding shares of Common Stock ("CXI Common Shares") into a greater
number of CXI Common Shares or declare a dividend or distribution upon its CXI
Common Shares payable in CXI Common Shares, the Exercise Price in effect
immediately prior to such subdivision or declaration shall be proportionately
reduced, and the number of Warrant Shares transferable upon exercise of the
Warrants shall be proportionately increased. Conversely, in case the outstanding
CXI Common Shares of the Subsidiary Company shall be combined into a smaller
number of CXI Common Shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased, and the number of Warrant
Shares issuable upon exercise of the Warrants shall be proportionately reduced.
(b) (x) In case the Subsidiary Company shall issue shares of
CXI Common Stock ("Additional Shares") or (y) in case the Subsidiary Company
shall issue rights, options or warrants to purchase shares of CXI Common Stock
or securities convertible into or exchangeable or exercisable for CXI Common
Stock, in any case at a Price Per Share (as defined in paragraph (c) below)
which is lower than the price per share of CXI Common Stock equal to the average
closing bid prices of the CXI Common Stock (as reported by Bloomberg, L.P.
("Bloomberg") over the 5-day trading period ending on the day prior to the
5
<PAGE>
Closing (the "Trigger Price"), the number of Warrant Shares hereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon exercise of this
Warrant by the following fraction:
(A)(i) The number of shares of CXI Common Stock outstanding immediately
prior to the issuance of such Additional Shares or rights, options,
warrants or convertible securities, plus (ii) the number of Additional
Shares actually subscribed for and purchased and shares of CXI Common
Stock issuable upon conversion or exercise of such rights, options,
warrants or convertible securities, divided by
(B)(i) The number of shares of CXI Common Stock outstanding immediately
prior to issuance of such Additional Shares or rights, options,
warrants or convertible securities plus (ii) the number of shares of
CXI Common Stock which the aggregate Proceeds (as defined in paragraph
(c) below) received by the Subsidiary Company upon the sale of such
Additional Shares or exercise or conversion of such rights, options,
warrants and convertible securities would purchase at the Trigger
Price.
Such adjustment shall be made whenever such Additional Shares or
rights, options, warrants or convertible securities are issued, and shall become
effective on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
(c) For purposes of this Section 13, "Price Per Share" shall
be defined and determined according to the following formula:
R
P = ------------
N
where
P = Price Per Share,
R = the "Proceeds" received or receivable by the
Subsidiary Company which (i) in the case of shares of
CXI Common Stock is the total amount received or
receivable by the Subsidiary Company in consideration
for the sale and issuance of such shares; (ii) in the
case of rights, options or warrants to subscribe for
or purchase shares of CXI Common Stock or of
securities convertible into or exchangeable or
exercisable for shares of CXI Common Stock, is the
total amount received or receivable by the Subsidiary
Company in consideration for the sale and issuance of
such rights, options, warrants or convertible or
exchangeable or exercisable securities, plus the
minimum aggregate amount of additional consideration,
other than the surrender of such convertible or
exchangeable securities, payable to the CXI Company
upon exercise, conversion or exchange thereof; and
(iii) in the case of
6
<PAGE>
rights, options or warrants to subscribe for or
purchase convertible or exchangeable or exercisable
securities, is the total amount received or
receivable by the Subsidiary Company in consideration
for the sale and issuance of such rights, options or
warrants, plus the minimum aggregate amount of
additional consideration other than the surrender of
such convertible or exchangeable securities, payable
upon the exercise, conversion or exchange of such
rights, options or warrants and upon the conversion
or exchange or exercise of the convertible or
exchangeable or exercisable securities; provided that
in each case the proceeds received or receivable by
the Subsidiary Company shall be deemed to be the
gross cash proceeds without deducting therefrom any
compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or
dealers or other performing similar services or any
expenses incurred in connection therewith,
and
N = the "Number of shares," which (i) in the case of
CXI Common Stock is the number of shares issued; (ii)
in the case of rights, options or warrants to
subscribe for or purchase shares of CXI Common Stock
or of securities convertible into or exchangeable or
exercisable for shares of CXI Common Stock, is the
maximum number of shares of CXI Common Stock
initially issuable upon exercise, conversion or
exchange thereof; and (iii) in the case of rights,
options or warrants to subscribe for or purchase
convertible or exchangeable or exercisable
securities, is the maximum number of shares of CXI
Common Stock initially issuable upon conversion,
exchange or exercise of the convertible, exchangeable
or exercisable securities issuable upon the exercise
of such rights, options or warrants.
If the Subsidiary Company shall issue shares of CXI Common
Stock or rights, options, warrants or convertible or exchangeable or exercisable
securities for a consideration consisting, in whole or in part, of property
other than cash, the amount of such consideration shall be determined in good
faith by the Board of Directors of the Subsidiary Company whose determination
shall be conclusive.
(d) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise Price
payable upon exercise of this Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would result in an increase
or decrease of at least one percent (1%) percent of the Exercise Price; provided
that any adjustments which by
7
<PAGE>
reason of this paragraph (e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest cent or to the nearest one-thousandth of a share,
as the case may be.
(f) No adjustment in the number of Warrant Shares purchasable
upon the exercise of this Warrant need be made under paragraph (b) or (c) if the
Subsidiary Company issues or distributes to the holder of this Warrant the
shares, rights, options, warrants or convertible or exchangeable securities, or
evidences of indebtedness or assets referred to in those paragraphs which the
holder of this Warrant would have been entitled to receive had this Warrant been
exercised prior to the happening of such event or the record date with respect
thereto. In no event shall the Subsidiary Company be required or obligated to
make any such distribution otherwise than in its sole discretion. No adjustment
in the number of Warrant shares purchasable upon the exercise of this Warrant
need be made for sales of CXI Common Stock pursuant to a Subsidiary Company plan
for reinvestment of dividends or interest. No adjustment need be made for a
change in the par value of the CXI Common Stock.
(g) In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the holder of this Warrant
shall become entitled to purchase any securities of the Subsidiary Company other
than shares of CXI Common Stock, thereafter the number of such other shares so
purchasable upon exercise of this Warrant and the Exercise Price of such shares
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in paragraphs (a) through (g), inclusive, above.
14. Voluntary Adjustment by the Parent Company or the
Subsidiary Company. The Parent Company or the Subsidiary Company may at its
option, at any time during the term of this Warrant, reduce the then current
Exchange Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Parent Company or the Subsidiary Company.
15. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Parent Company or the Subsidiary Company shall promptly mail by registered
or certified mail, return receipt requested, to the transfer agent for the CXI
Common Stock and to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Parent Company covenants that
during the period the Warrant is outstanding, it will reserve from its holdings
of CXI Common Stock a sufficient number of shares to provide for the transfer of
CXI Common Stock upon the
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exercise of any purchase rights under this Warrant. Such reservation of shares
of CXI Common Stock shall be in addition to those shares of CXI Common Stock
reserved pursuant to the Parent Company's Certificate of Designation for its
Series D Preferred Stock. The Parent Company and the Subsidiary Company further
covenant that the issuance of this Warrant shall constitute full authority to
their officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Subsidiary
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Parent Company and the Subsidiary Company will take all such
reasonable action as may be necessary to assure that such shares of CXI Common
Stock may be transferred and reissued as provided herein without violation of
any applicable law or regulation, or of any requirements of AMEX or any domestic
securities exchange upon which the CXI Common Stock may be listed.
17. Restrictions on Exercise. Notwithstanding anything to the
contrary contained herein, no Warrants may be converted by a holder of Warrants
("Holder") to the extent that, after giving effect to the shares of CXI Common
Stock issued pursuant to the exercise hereof, the total number of shares of CXI
Common Stock deemed beneficially owned by such Holder (other than by virtue of
the ownership of shares of Series D Preferred Stock or Warrants or ownership of
other securities that have limitations on a Holder's rights to convert or
exercise similar to those limitations set forth herein), together with all
shares of CXI Common Stock deemed beneficially owned by Holder's "affiliates"
(as defined in Rule 144 under the 1933 Act) that would be aggregated for
purposes of determining whether a group under Section 13(d) of the Securities
Exchange Act of 1934, as amended, exists, would exceed 4.99% of the total issued
and outstanding shares of CXI Common Stock, provided that each Holder shall have
the right to waive this restriction, in whole or in part, immediately in case of
a pending Change in Control Transaction (as defined in the Agreement) and in any
other case upon 61 days prior to the exercise hereunder by Holder. The exercise
of all or part of this Warrant by any Holder shall be deemed a representation by
such Holder it is in compliance with this Section 17. A transferee of Warrants
shall not be bound by this provision unless it expressly agrees to be so bound.
The term "deemed beneficially owned" as used in this Section 17 shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
exercisability of the Warrants.
18. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued and
delivered by the Parent Company and the Subsidiary Company on the date hereof.
This Warrant shall be binding upon any successors or assigns of the Parent
Company and the Subsidiary Company. This Warrant shall constitute a contract
under the laws of New York and for all purposes shall be construed in accordance
with and governed by the laws of said state without regard to its conflict of
law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the CXI
Common Stock acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
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<PAGE>
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof or the Parent Company
or the Subsidiary Company shall be delivered or shall be sent by certified or
registered mail, postage prepaid, or by overnight courier or by facsimile to
each such holder at its address (or fax number) as shown on the books of the
Parent Company or the Subsidiary Company or to the Parent Company and the
Subsidiary Company at the addresses (or fax numbers) set forth in the Agreement.
IN WITNESS WHEREOF, the Parent Company and the Subsidiary
Company have caused this Warrant to be executed by their officers thereunto duly
authorized.
Dated: May 20, 1997
COMMODORE ENVIRONMENTAL SCIENCES, INC.
By /s/ xxxxxxxxxx
-----------------------------------
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By /s/ xxxxxxxxxx
-----------------------------------
Officer
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to________________________________________________
whose address is______________________________________________________________ .
Dated:____________ , ______
Holder's Signature:________________________________
Holder's Address: ________________________________
________________________________
Signature Guaranteed:__________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
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[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase_____________Shares of CXI
Common Stock at an Exercise Price of $______, and herewith tenders in payment
for such securities a certified check or official bank check payable in New York
Clearing House Funds to the order of Commodore Environmental Sciences, Inc. in
the amount of $ , all in accordance with the terms of the Stock Purchase Warrant
of Commodore Environmental Sciences, Inc. and Commodore Applied Technologies,
Inc. dated May 20, 1997. The undersigned requests that a certificate for such
securities be registered in the name of_________________ whose address is
___________________________________________ and that such Certificate be
delivered to whose address is .
Dated:__________________
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
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THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS STOCK PURCHASE WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
No. 97-D2
STOCK PURCHASE WARRANT
To Purchase 100,000 Shares of Common Stock of
COMMODORE APPLIED TECHNOLOGIES, INC.
from
COMMODORE ENVIRONMENTAL SCIENCES, INC.
THIS CERTIFIES that, for value received, OKEMO PARTNERS LIMTED
(the "Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after May 20, 1997 (the "Initial
Exercise Date") and on or prior to May 20, 2002 (the "Termination Date") but not
thereafter, to subscribe for and purchase from COMMODORE ENVIRONMENTAL SCIENCES,
INC., a Delaware corporation (the "Parent Company"), 100,000 shares of its
holdings of Common Stock of COMMODORE APPLIED TECHNOLOGIES, INC. ("CXI Common
Stock"), a Delaware corporation (the "Subsidiary Company") (the "Warrant
Shares"). The purchase price of one share of CXI Common Stock (the "Exercise
Price") under this Warrant shall be Seven Dollars and Fourteen Cents ($7.14).
The Exercise Price and the number of Warrant Shares shall be subject to
adjustment as provided herein. This warrant is being issued pursuant to a
Preferred Stock Securities Purchase Agreement, dated May 20, 1997, complete with
all listed exhibits thereto (the "Agreement") by and between the Parent Company,
Subsidiary Company and the Investor and is subject to its terms. In the event of
any conflict between the terms of this Warrant and the Agreement, the Agreement
shall control.
1. Title of Warrant. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Parent Company, by the holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
<PAGE>
2. Authorization of Shares. The Parent Company and the
Subsidiary Company covenant that all shares of CXI Common Stock which may be
transferred upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made at any time or times, in whole or in
part, on or after the Initial Exercise Date, and before the close of business on
the Termination Date, or such earlier date on which this Warrant may terminate
as provided in paragraph 11(a) below, by the surrender of this Warrant and the
Form of Election to Purchase annexed hereto duly executed, at the office of the
Parent Company (with copy to Stephen A. Weiss, Esq., Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, 153 East 53rd Street, New York, NY 10022 or
such other office or agency of the Parent Company as it may designate by notice
in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment of the Exercise Price of
the shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of CXI Common Stock
so purchased immediately. In the event upon exercising the Warrant, the transfer
agent requires an opinion of counsel, the Parent Company or the Subsidiary
Company shall have such opinion furnished to the transfer agent to the transfer
agent's satisfaction. In the event the Investor is relying on an exemption from
registration under the 1933 Act, the Warrant Shares shall be issued immediately,
if the Investor furnishes an opinion of counsel, reasonably satisfactory to the
Subsidiary Company, that such exemption from registration is available.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within three business days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the shares
may be by certified check or cashier's check or by wire transfer to an account
designated by the Parent Company in an amount equal to the Exercise Price
multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Reissuance of certificates in
the name of the holder hereof for shares of CXI Common Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the holder of this Warrant or
in such name or names as may be directed by the holder of this Warrant;
provided, however, that in the event certificates for shares of CXI Common Stock
are to be issued in a name other than the name of the holder of this Warrant,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the holder hereof, together
with evidence satisfactory to the Subsidiary Company that such transfer or
assignment is being made in compliance with all applicable federal and state
securities laws; and provided further, that upon any transfer involved in the
issuance or
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<PAGE>
delivery of any certificates for shares of CXI Common Stock, the Subsidiary
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Parent Company and the Subsidiary
Company will at no time close its shareholder books or records in any manner
which interferes with the timely exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Subsidiary Company prior to the exercise thereof. If,
however, at the time of the surrender of this Warrant and purchase the holder
hereof shall be entitled to exercise this Warrant, the shares so purchased shall
be and be deemed to be transferred and reissued to such holder as the record
owner of such shares as of the close of business on the date on which this
Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Parent Company (or such other office or
agency of the Parent Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Parent Company); provided, however, that this Warrant may not be resold or
otherwise transferred except (i) in a transaction registered under the
Securities Act, or (ii) in a transaction pursuant to an exemption, if available,
from such registration and whereby, if requested by the Parent Company or the
Subsidiary Company, an opinion of counsel reasonably satisfactory to the Parent
Company or the Subsidiary Company is obtained by the holder of this Warrant to
the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. Each of
the Parent Company and the Subsidiary Company represents and warrants that upon
receipt by the Parent Company or the Subsidiary Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Parent
Company or the Subsidiary Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Parent Company or the Subsidiary Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
11. Effect of Certain Events.
(a) If at any time:
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<PAGE>
(i) the Parent Company or the Subsidiary Company
shall declare any cash dividend upon the CXI Common Stock;
(ii) the Parent Company or the Subsidiary Company
shall declare a dividend upon the CXI Common Stock payable in
securities (other than a dividend payable solely in CXI Common
Stock) or make any special dividend or other distribution to
the holders of its Units;
(iii) the Parent Company or the Subsidiary Company
proposes (A) to sell or otherwise convey all or substantially
all of its assets or (B) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the
Parent Company or the Subsidiary Company is disposed of
(collectively, a "Sale or Merger Transaction"), in which the
consideration to be received by the Parent Company or the
Subsidiary Company or its shareholders consists solely of
cash;
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Parent Company
or the Subsidiary Company;
the Parent Company or the Subsidiary Company shall give the holder of this
Warrant fifteen (15) days' written notice of the proposed effective date, by
certified or registered mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Parent Company. Such notice shall also specify, in the case of any such
dividend, distribution or option rights, the date on which the holders of Common
Shares shall be entitled thereto. Any notice relating to a Sale or Merger
Transaction shall also specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, as the case may be. If the
Holder of the Warrant does not exercise this Warrant prior to the occurrence of
an event described above, except as provided in Section 13(a), the Holder shall
not be entitled to receive the benefits accruing to existing holders of the
Common Shares in such event.
(b) In case the Parent Company or Subsidiary Company shall at
any time effect a Sale or Merger Transaction in which the consideration to be
received by the Parent Company or the Subsidiary or their shareholders consists
in part of consideration other than cash, or shall issue any shares of its
capital stock in a reclassification of the CXI Common Stock, the holder of this
Warrant shall have the right thereafter to purchase, by exercise of this Warrant
and payment of the aggregate Exercise Price in effect immediately prior to such
action, the kind and amount of shares and other securities and property which it
would have owned or have been entitled to receive after the happening of such
transaction had this Warrant been exercised immediately prior thereto.
12. Registration Rights. The Subsidiary Company shall register
the Warrant Shares pursuant to Section 8 of the Agreement. In the event of the
failure of the Subsidiary Company to procure registration of the Warrant Shares
by the later of (i) the
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<PAGE>
Initial Exercise Date, or (ii) ninety (90) days from the Closing Date (as
defined in the Agreement) if the Subsidiary Company is registering the Warrant
Shares under Form S-3 or one hundred and twenty (120) days from the Closing Date
if the Subsidiary Company is registering the Warrant Shares under Form S-1, or
during a Suspension, as defined under the Agreement, the Parent Company will pay
to the Investor by wire transfer, as liquidated damages for such failure and not
as a penalty, one (1%) percent of the product of the Exercise Price and the
number of Warrants that have not been exercised, for each month, or any part
thereof, that the registration statement is not effective or that such
Suspension continues. If not paid as required, interest on such damages will
accrue at a rate of 2% per month. If the Parent Company does not remit the
damages to the Investor as set forth above, the Parent Company will pay the
Investor reasonable costs of collection, including attorneys fees, in addition
to the liquidated damages. Such payment shall be made to the Investor
immediately if the registration of the Warrant Shares is not effected and
maintained; provided, however, that the payment of such liquidated damages shall
not relieve the Subsidiary Company from its obligations to register the Warrant
Shares pursuant to this paragraph 12. The registration of the Warrant Shares
pursuant to this provision shall not effect or limit Investor's other rights or
remedies as set forth in this Warrant. The obligations of the Parent Company and
the Subsidiary Company under this paragraph 12 shall cease and terminate upon
the earlier to occur of (x) such time as all of the Warrant Shares have been
re-sold or (y) such time as all of the Warrant Shares may be re-sold pursuant to
Rule 144 under the Securities Act.
13. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of certain events, as hereinafter set forth:
(a) In case the Subsidiary Company shall at any time subdivide
its outstanding shares of Common Stock ("CXI Common Shares") into a greater
number of CXI Common Shares or declare a dividend or distribution upon its CXI
Common Shares payable in CXI Common Shares, the Exercise Price in effect
immediately prior to such subdivision or declaration shall be proportionately
reduced, and the number of Warrant Shares transferable upon exercise of the
Warrants shall be proportionately increased. Conversely, in case the outstanding
CXI Common Shares of the Subsidiary Company shall be combined into a smaller
number of CXI Common Shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased, and the number of Warrant
Shares issuable upon exercise of the Warrants shall be proportionately reduced.
(b) (x) In case the Subsidiary Company shall issue shares of
CXI Common Stock ("Additional Shares") or (y) in case the Subsidiary Company
shall issue rights, options or warrants to purchase shares of CXI Common Stock
or securities convertible into or exchangeable or exercisable for CXI Common
Stock, in any case at a Price Per Share (as defined in paragraph (c) below)
which is lower than the price per share of CXI Common Stock equal to the average
closing bid prices of the CXI Common Stock (as reported by Bloomberg, L.P.
("Bloomberg") over the 5-day trading period ending on the day prior to the
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<PAGE>
Closing (the "Trigger Price"), the number of Warrant Shares hereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon exercise of this
Warrant by the following fraction:
(A)(i) The number of shares of CXI Common Stock outstanding immediately
prior to the issuance of such Additional Shares or rights, options,
warrants or convertible securities, plus (ii) the number of Additional
Shares actually subscribed for and purchased and shares of CXI Common
Stock issuable upon conversion or exercise of such rights, options,
warrants or convertible securities, divided by
(B)(i) The number of shares of CXI Common Stock outstanding immediately
prior to issuance of such Additional Shares or rights, options,
warrants or convertible securities plus (ii) the number of shares of
CXI Common Stock which the aggregate Proceeds (as defined in paragraph
(c) below) received by the Subsidiary Company upon the sale of such
Additional Shares or exercise or conversion of such rights, options,
warrants and convertible securities would purchase at the Trigger
Price.
Such adjustment shall be made whenever such Additional Shares or
rights, options, warrants or convertible securities are issued, and shall become
effective on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
(c) For purposes of this Section 13, "Price Per Share" shall
be defined and determined according to the following formula:
R
P = ------------
N
where
P = Price Per Share,
R = the "Proceeds" received or receivable by the
Subsidiary Company which (i) in the case of shares of
CXI Common Stock is the total amount received or
receivable by the Subsidiary Company in consideration
for the sale and issuance of such shares; (ii) in the
case of rights, options or warrants to subscribe for
or purchase shares of CXI Common Stock or of
securities convertible into or exchangeable or
exercisable for shares of CXI Common Stock, is the
total amount received or receivable by the Subsidiary
Company in consideration for the sale and issuance of
such rights, options, warrants or convertible or
exchangeable or exercisable securities, plus the
minimum aggregate amount of additional consideration,
other than the surrender of such convertible or
exchangeable securities, payable to the CXI Company
upon exercise, conversion or exchange thereof; and
(iii) in the case of
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<PAGE>
rights, options or warrants to subscribe for or
purchase convertible or exchangeable or exercisable
securities, is the total amount received or
receivable by the Subsidiary Company in consideration
for the sale and issuance of such rights, options or
warrants, plus the minimum aggregate amount of
additional consideration other than the surrender of
such convertible or exchangeable securities, payable
upon the exercise, conversion or exchange of such
rights, options or warrants and upon the conversion
or exchange or exercise of the convertible or
exchangeable or exercisable securities; provided that
in each case the proceeds received or receivable by
the Subsidiary Company shall be deemed to be the
gross cash proceeds without deducting therefrom any
compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or
dealers or other performing similar services or any
expenses incurred in connection therewith,
and
N = the "Number of shares," which (i) in the case of
CXI Common Stock is the number of shares issued; (ii)
in the case of rights, options or warrants to
subscribe for or purchase shares of CXI Common Stock
or of securities convertible into or exchangeable or
exercisable for shares of CXI Common Stock, is the
maximum number of shares of CXI Common Stock
initially issuable upon exercise, conversion or
exchange thereof; and (iii) in the case of rights,
options or warrants to subscribe for or purchase
convertible or exchangeable or exercisable
securities, is the maximum number of shares of CXI
Common Stock initially issuable upon conversion,
exchange or exercise of the convertible, exchangeable
or exercisable securities issuable upon the exercise
of such rights, options or warrants.
If the Subsidiary Company shall issue shares of CXI Common
Stock or rights, options, warrants or convertible or exchangeable or exercisable
securities for a consideration consisting, in whole or in part, of property
other than cash, the amount of such consideration shall be determined in good
faith by the Board of Directors of the Subsidiary Company whose determination
shall be conclusive.
(d) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise Price
payable upon exercise of this Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would result in an increase
or decrease of at least one percent (1%) percent of the Exercise Price; provided
that any adjustments which by
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<PAGE>
reason of this paragraph (e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest cent or to the nearest one-thousandth of a share,
as the case may be.
(f) No adjustment in the number of Warrant Shares purchasable
upon the exercise of this Warrant need be made under paragraph (b) or (c) if the
Subsidiary Company issues or distributes to the holder of this Warrant the
shares, rights, options, warrants or convertible or exchangeable securities, or
evidences of indebtedness or assets referred to in those paragraphs which the
holder of this Warrant would have been entitled to receive had this Warrant been
exercised prior to the happening of such event or the record date with respect
thereto. In no event shall the Subsidiary Company be required or obligated to
make any such distribution otherwise than in its sole discretion. No adjustment
in the number of Warrant shares purchasable upon the exercise of this Warrant
need be made for sales of CXI Common Stock pursuant to a Subsidiary Company plan
for reinvestment of dividends or interest. No adjustment need be made for a
change in the par value of the CXI Common Stock.
(g) In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the holder of this Warrant
shall become entitled to purchase any securities of the Subsidiary Company other
than shares of CXI Common Stock, thereafter the number of such other shares so
purchasable upon exercise of this Warrant and the Exercise Price of such shares
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in paragraphs (a) through (g), inclusive, above.
14. Voluntary Adjustment by the Parent Company or the
Subsidiary Company. The Parent Company or the Subsidiary Company may at its
option, at any time during the term of this Warrant, reduce the then current
Exchange Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Parent Company or the Subsidiary Company.
15. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Parent Company or the Subsidiary Company shall promptly mail by registered
or certified mail, return receipt requested, to the transfer agent for the CXI
Common Stock and to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Parent Company covenants that
during the period the Warrant is outstanding, it will reserve from its holdings
of CXI Common Stock a sufficient number of shares to provide for the transfer of
CXI Common Stock upon the
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exercise of any purchase rights under this Warrant. Such reservation of shares
of CXI Common Stock shall be in addition to those shares of CXI Common Stock
reserved pursuant to the Parent Company's Certificate of Designation for its
Series D Preferred Stock. The Parent Company and the Subsidiary Company further
covenant that the issuance of this Warrant shall constitute full authority to
their officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Subsidiary
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Parent Company and the Subsidiary Company will take all such
reasonable action as may be necessary to assure that such shares of CXI Common
Stock may be transferred and reissued as provided herein without violation of
any applicable law or regulation, or of any requirements of AMEX or any domestic
securities exchange upon which the CXI Common Stock may be listed.
17. Restrictions on Exercise. Notwithstanding anything to the
contrary contained herein, no Warrants may be converted by a holder of Warrants
("Holder") to the extent that, after giving effect to the shares of CXI Common
Stock issued pursuant to the exercise hereof, the total number of shares of CXI
Common Stock deemed beneficially owned by such Holder (other than by virtue of
the ownership of shares of Series D Preferred Stock or Warrants or ownership of
other securities that have limitations on a Holder's rights to convert or
exercise similar to those limitations set forth herein), together with all
shares of CXI Common Stock deemed beneficially owned by Holder's "affiliates"
(as defined in Rule 144 under the 1933 Act) that would be aggregated for
purposes of determining whether a group under Section 13(d) of the Securities
Exchange Act of 1934, as amended, exists, would exceed 4.99% of the total issued
and outstanding shares of CXI Common Stock, provided that each Holder shall have
the right to waive this restriction, in whole or in part, immediately in case of
a pending Change in Control Transaction (as defined in the Agreement) and in any
other case upon 61 days prior to the exercise hereunder by Holder. The exercise
of all or part of this Warrant by any Holder shall be deemed a representation by
such Holder it is in compliance with this Section 17. A transferee of Warrants
shall not be bound by this provision unless it expressly agrees to be so bound.
The term "deemed beneficially owned" as used in this Section 17 shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
exercisability of the Warrants.
18. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued and
delivered by the Parent Company and the Subsidiary Company on the date hereof.
This Warrant shall be binding upon any successors or assigns of the Parent
Company and the Subsidiary Company. This Warrant shall constitute a contract
under the laws of New York and for all purposes shall be construed in accordance
with and governed by the laws of said state without regard to its conflict of
law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the CXI
Common Stock acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
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(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof or the Parent Company
or the Subsidiary Company shall be delivered or shall be sent by certified or
registered mail, postage prepaid, or by overnight courier or by facsimile to
each such holder at its address (or fax number) as shown on the books of the
Parent Company or the Subsidiary Company or to the Parent Company and the
Subsidiary Company at the addresses (or fax numbers) set forth in the Agreement.
IN WITNESS WHEREOF, the Parent Company and the Subsidiary
Company have caused this Warrant to be executed by their officers thereunto duly
authorized.
Dated: May 20, 1997
COMMODORE ENVIRONMENTAL SCIENCES, INC.
By /s/ xxxxxxxxx
-----------------------------------
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By /s/ xxxxxxxxx
-----------------------------------
Officer
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to__________________________________________________
whose address is________________________________________________________________
Dated:______________, ______
Holder's Signature:_________________________________
Holder's Address:___________________________________
Signature Guaranteed:_________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
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[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ________________ Shares of
CXI Common Stock at an Exercise Price of $ , and herewith tenders in payment for
such securities a certified check or official bank check payable in New York
Clearing House Funds to the order of Commodore Environmental Sciences, Inc. in
the amount of $ , all in accordance with the terms of the Stock Purchase Warrant
of Commodore Environmental Sciences, Inc. and Commodore Applied Technologies,
Inc. dated May 20, 1997. The undersigned requests that a certificate for such
securities be registered in the name __________________________of whose address
is and that such Certificate be delivered to whose address is .
Dated:__________________
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
_____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
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THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS STOCK PURCHASE WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
No. 97-D3
STOCK PURCHASE WARRANT
To Purchase 300,000 Shares of Common Stock of
COMMODORE APPLIED TECHNOLOGIES, INC.
from
COMMODORE ENVIRONMENTAL SCIENCES, INC.
THIS CERTIFIES that, for value received, AMERICAN INVESTMENT
GROUP OF NEW YORK, L.P. (the "Investor"), is entitled, upon the terms and
subject to the conditions hereinafter set forth, at any time on or after May 20,
1997 (the "Initial Exercise Date") and on or prior to May 20, 2002 (the
"Termination Date") but not thereafter, to subscribe for and purchase from
COMMODORE ENVIRONMENTAL SCIENCES, INC., a Delaware corporation (the "Parent
Company"), 300,000 shares of its holdings of Common Stock of COMMODORE APPLIED
TECHNOLOGIES, INC. ("CXI Common Stock"), a Delaware corporation (the "Subsidiary
Company") (the "Warrant Shares"). The purchase price of one share of CXI Common
Stock (the "Exercise Price") under this Warrant shall be Seven Dollars and
Fourteen Cents ($7.14). The Exercise Price and the number of Warrant Shares
shall be subject to adjustment as provided herein. This warrant is being issued
pursuant to a Preferred Stock Securities Purchase Agreement, dated May 20, 1997,
complete with all listed exhibits thereto (the "Agreement") by and between the
Parent Company, Subsidiary Company and the Investor and is subject to its terms.
In the event of any conflict between the terms of this Warrant and the
Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Parent Company, by the holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
<PAGE>
2. Authorization of Shares. The Parent Company and the
Subsidiary Company covenant that all shares of CXI Common Stock which may be
transferred upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made at any time or times, in whole or in
part, on or after the Initial Exercise Date, and before the close of business on
the Termination Date, or such earlier date on which this Warrant may terminate
as provided in paragraph 11(a) below, by the surrender of this Warrant and the
Form of Election to Purchase annexed hereto duly executed, at the office of the
Parent Company (with copy to Stephen A. Weiss, Esq., Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, 153 East 53rd Street, New York, NY 10022 or
such other office or agency of the Parent Company as it may designate by notice
in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company) and upon payment of the Exercise Price of
the shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of CXI Common Stock
so purchased immediately. In the event upon exercising the Warrant, the transfer
agent requires an opinion of counsel, the Parent Company or the Subsidiary
Company shall have such opinion furnished to the transfer agent to the transfer
agent's satisfaction. In the event the Investor is relying on an exemption from
registration under the 1933 Act, the Warrant Shares shall be issued immediately,
if the Investor furnishes an opinion of counsel, reasonably satisfactory to the
Subsidiary Company, that such exemption from registration is available.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within three business days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the shares
may be by certified check or cashier's check or by wire transfer to an account
designated by the Parent Company in an amount equal to the Exercise Price
multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Reissuance of certificates in
the name of the holder hereof for shares of CXI Common Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the holder of this Warrant or
in such name or names as may be directed by the holder of this Warrant;
provided, however, that in the event certificates for shares of CXI Common Stock
are to be issued in a name other than the name of the holder of this Warrant,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the holder hereof, together
with evidence satisfactory to the Subsidiary Company that such transfer or
assignment is being made in compliance with all applicable federal and state
securities laws; and provided further, that upon any transfer involved in the
issuance or
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<PAGE>
delivery of any certificates for shares of CXI Common Stock, the Subsidiary
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Parent Company and the Subsidiary
Company will at no time close its shareholder books or records in any manner
which interferes with the timely exercise of this Warrant.
7. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Subsidiary Company prior to the exercise thereof. If,
however, at the time of the surrender of this Warrant and purchase the holder
hereof shall be entitled to exercise this Warrant, the shares so purchased shall
be and be deemed to be transferred and reissued to such holder as the record
owner of such shares as of the close of business on the date on which this
Warrant shall have been exercised.
8. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Parent Company (or such other office or
agency of the Parent Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Parent Company); provided, however, that this Warrant may not be resold or
otherwise transferred except (i) in a transaction registered under the
Securities Act, or (ii) in a transaction pursuant to an exemption, if available,
from such registration and whereby, if requested by the Parent Company or the
Subsidiary Company, an opinion of counsel reasonably satisfactory to the Parent
Company or the Subsidiary Company is obtained by the holder of this Warrant to
the effect that the transaction is so exempt.
9. Loss, Theft, Destruction or Mutilation of Warrant. Each of
the Parent Company and the Subsidiary Company represents and warrants that upon
receipt by the Parent Company or the Subsidiary Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Parent
Company or the Subsidiary Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Parent Company or the Subsidiary Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
11. Effect of Certain Events.
(a) If at any time:
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<PAGE>
(i) the Parent Company or the Subsidiary Company
shall declare any cash dividend upon the CXI Common Stock;
(ii) the Parent Company or the Subsidiary Company
shall declare a dividend upon the CXI Common Stock payable in
securities (other than a dividend payable solely in CXI Common
Stock) or make any special dividend or other distribution to
the holders of its Units;
(iii) the Parent Company or the Subsidiary Company
proposes (A) to sell or otherwise convey all or substantially
all of its assets or (B) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the
Parent Company or the Subsidiary Company is disposed of
(collectively, a "Sale or Merger Transaction"), in which the
consideration to be received by the Parent Company or the
Subsidiary Company or its shareholders consists solely of
cash;
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Parent Company
or the Subsidiary Company;
the Parent Company or the Subsidiary Company shall give the holder of this
Warrant fifteen (15) days' written notice of the proposed effective date, by
certified or registered mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Parent Company. Such notice shall also specify, in the case of any such
dividend, distribution or option rights, the date on which the holders of Common
Shares shall be entitled thereto. Any notice relating to a Sale or Merger
Transaction shall also specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, as the case may be. If the
Holder of the Warrant does not exercise this Warrant prior to the occurrence of
an event described above, except as provided in Section 13(a), the Holder shall
not be entitled to receive the benefits accruing to existing holders of the
Common Shares in such event.
(b) In case the Parent Company or Subsidiary Company shall at
any time effect a Sale or Merger Transaction in which the consideration to be
received by the Parent Company or the Subsidiary or their shareholders consists
in part of consideration other than cash, or shall issue any shares of its
capital stock in a reclassification of the CXI Common Stock, the holder of this
Warrant shall have the right thereafter to purchase, by exercise of this Warrant
and payment of the aggregate Exercise Price in effect immediately prior to such
action, the kind and amount of shares and other securities and property which it
would have owned or have been entitled to receive after the happening of such
transaction had this Warrant been exercised immediately prior thereto.
12. Registration Rights. The Subsidiary Company shall register
the Warrant Shares pursuant to Section 8 of the Agreement. In the event of the
failure of the Subsidiary Company to procure registration of the Warrant Shares
by the later of (i) the
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<PAGE>
Initial Exercise Date, or (ii) ninety (90) days from the Closing Date (as
defined in the Agreement) if the Subsidiary Company is registering the Warrant
Shares under Form S-3 or one hundred and twenty (120) days from the Closing Date
if the Subsidiary Company is registering the Warrant Shares under Form S-1, or
during a Suspension, as defined under the Agreement, the Parent Company will pay
to the Investor by wire transfer, as liquidated damages for such failure and not
as a penalty, one (1%) percent of the product of the Exercise Price and the
number of Warrants that have not been exercised, for each month, or any part
thereof, that the registration statement is not effective or that such
Suspension continues. If not paid as required, interest on such damages will
accrue at a rate of 2% per month. If the Parent Company does not remit the
damages to the Investor as set forth above, the Parent Company will pay the
Investor reasonable costs of collection, including attorneys fees, in addition
to the liquidated damages. Such payment shall be made to the Investor
immediately if the registration of the Warrant Shares is not effected and
maintained; provided, however, that the payment of such liquidated damages shall
not relieve the Subsidiary Company from its obligations to register the Warrant
Shares pursuant to this paragraph 12. The registration of the Warrant Shares
pursuant to this provision shall not effect or limit Investor's other rights or
remedies as set forth in this Warrant. The obligations of the Parent Company and
the Subsidiary Company under this paragraph 12 shall cease and terminate upon
the earlier to occur of (x) such time as all of the Warrant Shares have been
re-sold or (y) such time as all of the Warrant Shares may be re-sold pursuant to
Rule 144 under the Securities Act.
13. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of certain events, as hereinafter set forth:
(a) In case the Subsidiary Company shall at any time subdivide
its outstanding shares of Common Stock ("CXI Common Shares") into a greater
number of CXI Common Shares or declare a dividend or distribution upon its CXI
Common Shares payable in CXI Common Shares, the Exercise Price in effect
immediately prior to such subdivision or declaration shall be proportionately
reduced, and the number of Warrant Shares transferable upon exercise of the
Warrants shall be proportionately increased. Conversely, in case the outstanding
CXI Common Shares of the Subsidiary Company shall be combined into a smaller
number of CXI Common Shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased, and the number of Warrant
Shares issuable upon exercise of the Warrants shall be proportionately reduced.
(b) (x) In case the Subsidiary Company shall issue shares of
CXI Common Stock ("Additional Shares") or (y) in case the Subsidiary Company
shall issue rights, options or warrants to purchase shares of CXI Common Stock
or securities convertible into or exchangeable or exercisable for CXI Common
Stock, in any case at a Price Per Share (as defined in paragraph (c) below)
which is lower than the price per share of CXI Common Stock equal to the average
closing bid prices of the CXI Common Stock (as reported by Bloomberg, L.P.
("Bloomberg") over the 5-day trading period ending on the day prior to the
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<PAGE>
Closing (the "Trigger Price"), the number of Warrant Shares hereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon exercise of this
Warrant by the following fraction:
(A)(i) The number of shares of CXI Common Stock outstanding immediately
prior to the issuance of such Additional Shares or rights, options,
warrants or convertible securities, plus (ii) the number of Additional
Shares actually subscribed for and purchased and shares of CXI Common
Stock issuable upon conversion or exercise of such rights, options,
warrants or convertible securities, divided by
(B)(i) The number of shares of CXI Common Stock outstanding immediately
prior to issuance of such Additional Shares or rights, options,
warrants or convertible securities plus (ii) the number of shares of
CXI Common Stock which the aggregate Proceeds (as defined in paragraph
(c) below) received by the Subsidiary Company upon the sale of such
Additional Shares or exercise or conversion of such rights, options,
warrants and convertible securities would purchase at the Trigger
Price.
Such adjustment shall be made whenever such Additional Shares or
rights, options, warrants or convertible securities are issued, and shall become
effective on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
(c) For purposes of this Section 13, "Price Per Share" shall
be defined and determined according to the following formula:
R
P = ------------
N
where
P = Price Per Share,
R = the "Proceeds" received or receivable by the
Subsidiary Company which (i) in the case of shares of
CXI Common Stock is the total amount received or
receivable by the Subsidiary Company in consideration
for the sale and issuance of such shares; (ii) in the
case of rights, options or warrants to subscribe for
or purchase shares of CXI Common Stock or of
securities convertible into or exchangeable or
exercisable for shares of CXI Common Stock, is the
total amount received or receivable by the Subsidiary
Company in consideration for the sale and issuance of
such rights, options, warrants or convertible or
exchangeable or exercisable securities, plus the
minimum aggregate amount of additional consideration,
other than the surrender of such convertible or
exchangeable securities, payable to the CXI Company
upon exercise, conversion or exchange thereof; and
(iii) in the case of
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rights, options or warrants to subscribe for or
purchase convertible or exchangeable or exercisable
securities, is the total amount received or
receivable by the Subsidiary Company in consideration
for the sale and issuance of such rights, options or
warrants, plus the minimum aggregate amount of
additional consideration other than the surrender of
such convertible or exchangeable securities, payable
upon the exercise, conversion or exchange of such
rights, options or warrants and upon the conversion
or exchange or exercise of the convertible or
exchangeable or exercisable securities; provided that
in each case the proceeds received or receivable by
the Subsidiary Company shall be deemed to be the
gross cash proceeds without deducting therefrom any
compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or
dealers or other performing similar services or any
expenses incurred in connection therewith,
and
N = the "Number of shares," which (i) in the case of
CXI Common Stock is the number of shares issued; (ii)
in the case of rights, options or warrants to
subscribe for or purchase shares of CXI Common Stock
or of securities convertible into or exchangeable or
exercisable for shares of CXI Common Stock, is the
maximum number of shares of CXI Common Stock
initially issuable upon exercise, conversion or
exchange thereof; and (iii) in the case of rights,
options or warrants to subscribe for or purchase
convertible or exchangeable or exercisable
securities, is the maximum number of shares of CXI
Common Stock initially issuable upon conversion,
exchange or exercise of the convertible, exchangeable
or exercisable securities issuable upon the exercise
of such rights, options or warrants.
If the Subsidiary Company shall issue shares of CXI Common
Stock or rights, options, warrants or convertible or exchangeable or exercisable
securities for a consideration consisting, in whole or in part, of property
other than cash, the amount of such consideration shall be determined in good
faith by the Board of Directors of the Subsidiary Company whose determination
shall be conclusive.
(d) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise Price
payable upon exercise of this Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would result in an increase
or decrease of at least one percent (1%) percent of the Exercise Price; provided
that any adjustments which by
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reason of this paragraph (e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest cent or to the nearest one-thousandth of a share,
as the case may be.
(f) No adjustment in the number of Warrant Shares purchasable
upon the exercise of this Warrant need be made under paragraph (b) or (c) if the
Subsidiary Company issues or distributes to the holder of this Warrant the
shares, rights, options, warrants or convertible or exchangeable securities, or
evidences of indebtedness or assets referred to in those paragraphs which the
holder of this Warrant would have been entitled to receive had this Warrant been
exercised prior to the happening of such event or the record date with respect
thereto. In no event shall the Subsidiary Company be required or obligated to
make any such distribution otherwise than in its sole discretion. No adjustment
in the number of Warrant shares purchasable upon the exercise of this Warrant
need be made for sales of CXI Common Stock pursuant to a Subsidiary Company plan
for reinvestment of dividends or interest. No adjustment need be made for a
change in the par value of the CXI Common Stock.
(g) In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the holder of this Warrant
shall become entitled to purchase any securities of the Subsidiary Company other
than shares of CXI Common Stock, thereafter the number of such other shares so
purchasable upon exercise of this Warrant and the Exercise Price of such shares
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in paragraphs (a) through (g), inclusive, above.
14. Voluntary Adjustment by the Parent Company or the
Subsidiary Company. The Parent Company or the Subsidiary Company may at its
option, at any time during the term of this Warrant, reduce the then current
Exchange Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Parent Company or the Subsidiary Company.
15. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Parent Company or the Subsidiary Company shall promptly mail by registered
or certified mail, return receipt requested, to the transfer agent for the CXI
Common Stock and to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Parent Company covenants that
during the period the Warrant is outstanding, it will reserve from its holdings
of CXI Common Stock a sufficient number of shares to provide for the transfer of
CXI Common Stock upon the
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exercise of any purchase rights under this Warrant. Such reservation of shares
of CXI Common Stock shall be in addition to those shares of CXI Common Stock
reserved pursuant to the Parent Company's Certificate of Designation for its
Series D Preferred Stock. The Parent Company and the Subsidiary Company further
covenant that the issuance of this Warrant shall constitute full authority to
their officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Subsidiary
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Parent Company and the Subsidiary Company will take all such
reasonable action as may be necessary to assure that such shares of CXI Common
Stock may be transferred and reissued as provided herein without violation of
any applicable law or regulation, or of any requirements of AMEX or any domestic
securities exchange upon which the CXI Common Stock may be listed.
17. Restrictions on Exercise. Notwithstanding anything to the
contrary contained herein, no Warrants may be converted by a holder of Warrants
("Holder") to the extent that, after giving effect to the shares of CXI Common
Stock issued pursuant to the exercise hereof, the total number of shares of CXI
Common Stock deemed beneficially owned by such Holder (other than by virtue of
the ownership of shares of Series D Preferred Stock or Warrants or ownership of
other securities that have limitations on a Holder's rights to convert or
exercise similar to those limitations set forth herein), together with all
shares of CXI Common Stock deemed beneficially owned by Holder's "affiliates"
(as defined in Rule 144 under the 1933 Act) that would be aggregated for
purposes of determining whether a group under Section 13(d) of the Securities
Exchange Act of 1934, as amended, exists, would exceed 4.99% of the total issued
and outstanding shares of CXI Common Stock, provided that each Holder shall have
the right to waive this restriction, in whole or in part, immediately in case of
a pending Change in Control Transaction (as defined in the Agreement) and in any
other case upon 61 days prior to the exercise hereunder by Holder. The exercise
of all or part of this Warrant by any Holder shall be deemed a representation by
such Holder it is in compliance with this Section 17. A transferee of Warrants
shall not be bound by this provision unless it expressly agrees to be so bound.
The term "deemed beneficially owned" as used in this Section 17 shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
exercisability of the Warrants.
18. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued and
delivered by the Parent Company and the Subsidiary Company on the date hereof.
This Warrant shall be binding upon any successors or assigns of the Parent
Company and the Subsidiary Company. This Warrant shall constitute a contract
under the laws of New York and for all purposes shall be construed in accordance
with and governed by the laws of said state without regard to its conflict of
law, principles or rules.
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<PAGE>
(b) Restrictions. The holder hereof acknowledges that the CXI
Common Stock acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof or the Parent Company
or the Subsidiary Company shall be delivered or shall be sent by certified or
registered mail, postage prepaid, or by overnight courier or by facsimile to
each such holder at its address (or fax number) as shown on the books of the
Parent Company or the Subsidiary Company or to the Parent Company and the
Subsidiary Company at the addresses (or fax numbers) set forth in the Agreement.
IN WITNESS WHEREOF, the Parent Company and the Subsidiary
Company have caused this Warrant to be executed by their officers thereunto duly
authorized.
Dated: May 20, 1997
COMMODORE ENVIRONMENTAL SCIENCES, INC.
By /s/ xxxxxxxx
-----------------------------------
Officer
COMMODORE APPLIED TECHNOLOGIES, INC.
By /s/ xxxxxxxx
-----------------------------------
Officer
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to _______________________________________
whose address is_______________________________________________________________.
Dated: ___________, _____
Holder's Signature:_________________________
Holder's Address: _________________________
_________________________
Signature Guaranteed:____________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
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<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________________Shares
of CXI Common Stock at an Exercise Price of $__________________, and herewith
tenders in payment for such securities a certified check or official bank check
payable in New York Clearing House Funds to the order of Commodore Environmental
Sciences, Inc. in the amount of $ , all in accordance with the terms of the
Stock Purchase Warrant of Commodore Environmental Sciences, Inc. and Commodore
Applied Technologies, Inc. dated May 20, 1997. The undersigned requests that a
certificate for such securities be registered in the name of
________________________________ whose address is ______________________________
____________________________________and that such Certificate be delivered to
_________________________ whose address is _________________________________ .
Dated:____________________
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
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<PAGE>
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS,
AND OTHER DISTINGUISHING CHARACTERISTICS OF
SERIES "D" PREFERRED STOCK
OF
COMMODORE ENVIRONMENTAL SCIENCES, INC.
a Delaware Corporation
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is
Commodore Environmental Sciences, Inc.
2. The certificate of incorporation [as amended] of the Company
authorizes the issuance of 10,000,000 shares of Preferred Stock, par value $.01,
and expressly vests in the Board of Directors of the Company the authority
provided therein to issue any or all of said shares in one or more series any by
resolution or resolutions, the designation, number, full or limited voting
powers, or the denial of voting powers, preferences and relative, participating,
optional, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics of each series to be
issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series "D" issue of Preferred Stock:
RESOLVED, that Sixty Thousand (60,000) of the 10,000,000 authorized
shares of Preferred Stock of the Company shall be designated Series D Preferred
Stock, $.01 par value per share and shall possess the rights and preferences set
forth below:
Section 1. Designation and Amount. The series of Preferred Stock
designated and known as the "Series D Preferred Stock" shall have a par value of
$.01 per share and the number of shares constituting the Series D Preferred
Stock shall be 60,000. The Series D Preferred Stock shall have a stated value of
$100 per share, with a 7% per annum dividend as set forth herein.
Section 2. Rank. The Series D Preferred Stock shall rank: (i) prior to
all of the Company's Common Stock, par value $.01 per share ("Common Stock");
(ii) pari passu with all the Company's Series B and Series C Preferred Stock;
(iii) junior to the Company Series AA Preferred Stock; (iv) prior to any other
class or series of capital stock of the Company hereafter created (unless it
specifically, by its terms, ranks on parity with the Series D Preferred Stock),
in each case as to distributions of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary (all such
distributions being referred to collectively as "Distributions").
<PAGE>
Section 3. Dividends. The Series D Preferred Stock will bear a 7% per
annum cumulative dividend, payable at the time of conversion in cash or common
stock of Commodore Applied Technologies, Inc. ("CXI Common Stock"), which is a
subsidiary of the Company (the "Subsidiary"), at the Conversion Price (as
defined herein), at the Company's option. No dividends shall be paid on the CXI
Common Stock or any stock issued pursuant to Section 8 prior to the payment of
dividends on the Series D Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Company or the Subsidiary, either voluntary or involuntary, the Holders of
Series D Preferred Stock, pari passu with the Holders of Series B Preferred
Stock and Series C Preferred Stock, but after payment of an amount equal to
$1.00 per share plus any declared but unpaid dividends per share on all
outstanding Series AA Preferred Stock, shall be entitled to receive an amount
per share equal to the sum of (i) $100 for each outstanding share of Series D
Preferred Stock (subject to adjustments for Reclassifications (as defined
herein), plus (ii) an amount equal to all accrued and unpaid dividends (which
shall accrue through the Conversion Date, Redemption Date (both as defined
herein) or the date liquidated damages are paid, as applicable) and any then
unpaid liquidated damages (interest on which shall accrue at a rate of 2% per
month) arising under Sections 5(c) or (g) (the "Liquidation Preference"). If
upon the occurrence of such event, the assets and funds available to be
distributed among the Holders of the Series D Preferred Stock shall be
insufficient to permit the payment to such Holders of the full preferential
amounts due to such Holders, then the entire assets and funds of the Company or
the Subsidiary legally available for distribution shall be distributed, first to
the Holders of the Series AA Preferred Stock, and then among the Holders of the
Series C and Series D Preferred Stock on a pro rata basis.
(b) A sale, conveyance or disposition of all or substantially all of
the assets of the Company or the Subsidiary shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 4; provided further
that, a consolidation, merger, acquisition, or other business combination of the
Company or the Subsidiary with or into any other company or companies or the
effectuation by the Company or the Subsidiary of a transaction or series of
related transactions in which more than 50% of the voting power of the Company
or the Subsidiary is disposed of shall not be treated as a liquidation,
dissolution or winding up within the meaning of this Section 4, but instead
shall be treated pursuant to Section 5(h)(ii) hereof.
Section 5. Conversion. The record Holders of this Series D Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series D Preferred Stock
shall be entitled to convert shares of Series D Preferred Stock beginning the
day following the date that the Registration Statement for the CXI Common Stock
underlying the Series D Preferred Stock was declared effective by the Securities
and Exchange Commission, and at anytime thereafter, into that number of
fully-paid and non-assessable shares of CXI Common Stock of
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<PAGE>
the Subsidiary (the "Conversion Shares") calculated in accordance with the
following formula (the "Conversion Rate"):
Number of shares issued upon conversion of one (1) share of Series D Preferred
Stock =
Liquidation Preference
-----------------------------
Conversion Price
where, "Conversion Price" means an amount equal to a fifteen (15%) percent
discount from the closing bid price of the CXI Common Stock as reported by
Bloomberg, L.P. ("Bloomberg") averaged for the previous five (5) business days
ending on the day before the Conversion Date (the "Average Closing Bid Price");
provided, however, if the average of the closing bid price of the CXI Common
Stock, as reported by Bloomberg ("Floor Average"), for any consecutive thirty
(30) days is equal or less than $2.00 (such thirtieth (30th) day shall be the
"First Trigger Date"), the conversion price shall equal $2.00; if the Floor
Average for any consecutive thirty (30) days beginning any day after the First
Trigger Date is less than $2.00 ("Second Trigger Date"), the conversion price
shall equal $1.90; if the Floor Average for any thirty (30) days beginning any
day after the Second Trigger Date is less than $1.90 (the "Third Trigger Date"),
the conversion price shall equal $1.80; if the Floor Average for any consecutive
thirty (30) days beginning any day after the Third Trigger Date is less than
$1.80 (the "Fourth Trigger Date"), the conversion price shall equal $1.70; if
the Floor Average for any consecutive thirty (30) days beginning any day after
the Fourth Trigger Date is less than $1.70 (the "Fifth Trigger Date"), the
conversion price shall equal $1.60; if the Floor Average for any consecutive
thirty (30) days beginning any day after the Fifth Trigger Date is less than
$1.60, the conversion price shall equal $1.50. Subject to Section 6(e) herein,
in no event shall the Conversion Price be lower than $1.50 per share of CXI
Common Stock. If the CXI Common Stock is not traded on the American Stock
Exchange, the Average Closing Bid Price shall be the average closing bid price
(and if not available, the mean of the high and low prices) of the Common Stock
on the over-the-counter-market or the principal national securities exchange or
the Nasdaq National Market System or Nasdaq SmallCap Market System on which the
CXI Common Stock is traded for the previous five (5) business days ending on the
day before the Conversion Date.
The Conversion Price shall be equitably adjusted accordingly on a pro
rata basis in the event of the happening of certain events that would affect the
CXI Common Stock or Series D Preferred Stock's value including, but not limited
to, forward and reverse stock splits, issuance of stock dividends, subdivision
of shares, combinations, reclassifications, or the like (collectively
"Reclassifications"). An adjustment made pursuant to this section shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such an event.
(b) Mechanics of Conversion. Conversion of the Series D Preferred Stock
to CXI Common Stock may be exercised in whole or in part by Holder telecopying
an executed and completed Notice of Conversion (in the form annexed hereto as
Exhibit A) to counsel for the Company, with a copy to the Company and the
Subsidiary, and delivering the original Notice of Conversion and the certificate
representing the Series D Preferred Stock to counsel by
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<PAGE>
hand or by express courier within three (3) business days of exercise. Each date
on which a Notice of Conversion is telecopied to and received by the Company in
accordance with the provisions hereof shall be deemed a Conversion Date. The
Subsidiary will reissue and transmit the certificates in the name of the Holder,
or any other name as instructed by the Holder, representing the CXI Common Stock
transferable upon conversion of all or any part of the Series D Preferred Stock
(and the Company will transmit any certificates for replacement Series D
Preferred Stock not previously converted but included in the original
certificate presented for conversion) to the Holder via express courier within
three (3) business days after counsel for the Company has received the original
Notice of Conversion and the certificate representing the Series D Preferred
Stock being so converted. The Notice of Conversion and certificate representing
the portion of the Series D converted shall be delivered as follows:
To counsel of the Company:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, NY 10022
Attn: Stephen A. Weiss, Esq.
Telephone: 212-801-9200
Facsimile: 212-223-7161
To the Company:
Commodore Environmental Services, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
To the Subsidiary:
Commodore Applied Technologies, Inc.
150 East 58th Street
New York, NY 10155
Attn.: Bentley J. Blum
Telephone: 212-935-5400
Facsimile: 212-753-0731
or to such other person at such other place as the Company shall designate to
the Holder in writing.
In the event that the Series D Preferred Stock are not converted within
three (3) business days of the Conversion Date, the Company shall be liable to
Holder for actual damages incurred from the fourth business day following the
Conversion Date through the
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<PAGE>
ninth business day following the Conversion Date for such failure (provided that
Holder has delivered the original valid Notice of Conversion and the original
certificate(s) representing the Series D Preferred Stock to be converted, or an
affidavit and indemnity agreement as to lost certificates reasonably
satisfactory to the Company). In the event the Series D Preferred Stock are not
converted by the tenth (10th) business day following the Conversion Date, the
Company shall pay to the Holder, by wire transfer, as liquidated damages for
such failure and not as a penalty, an amount in cash equal to one (1%) percent
per day of the Liquidation Preference for the Series D Preferred Stock to be
converted which shall run from the tenth (10th) business day following the
Conversion Date; provided, however, that actual damages and liquidated damages
for a failure to deliver certificates of CXI Common Stock shall be determined in
accordance with Section 5(g), if both of the following conditions are satisfied
by the Company: (i) the failure to deliver certificates of CXI Common Stock is
the result of a lack of available shares of CXI Common Stock and (ii) the
Company commences, within ten (10) business days after the initial Conversion
Date to purchase or otherwise acquire the number of shares of CXI Common Stock
which is sufficient to permit conversion of all Series D Preferred Stock then
outstanding at the Hypothetical Conversion Price (as hereinafter defined) then
in effect.
(ii) No Fractional Shares. If any conversion of the Series D
Preferred Stock would create a fractional share of CXI Common Stock or a right
to acquire a fractional share of CXI Common Stock, such fractional share shall
be disregarded and the number of shares of CXI Common Stock issuable upon
conversion, shall be the next higher number of shares.
(c) Restrictions on Conversion of the Series D Preferred Stock.
Notwithstanding anything to the contrary contained herein, no shares of Series D
Preferred Stock may be converted by a Holder to the extent that, after giving
effect to the shares of CXI Common Stock issuable pursuant to a Notice of
Conversion, the total number of shares of CXI Common Stock deemed beneficially
owned by such Holder (other than by virtue of the ownership of the Series D
Preferred Stock or the warrants issued to Holder in connection with the issuance
of the Series D Preferred Stock or ownership of other securities that have
limitations on a Holder's rights to convert or exercise similar to those
limitations set forth herein), together with all shares of CXI Common Stock
deemed beneficially owned by Holder's "affiliates" (as defined in Rule 144 under
the Securities Act) that would be aggregated for purposes of determining whether
a group under Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") exists, would exceed 4.99% of the total issued and outstanding
shares of CXI Common Stock, provided that each Holder shall have the right to
waive this restriction, in whole or in part, immediately in case of a pending
Change in Control Transaction (as defined herein) and in any other case upon 61
days prior notice to the Company. The delivery of a Notice of Conversion by any
Holder shall be deemed a representation by such Holder it is in compliance with
this Section 5(b). A transferee of the Series D Preferred Stock shall not be
bound by this provision unless it expressly agrees to be so bound. The term
"deemed beneficially owned" as used in this Section 5(c) shall exclude shares
that might otherwise be deemed beneficially owned by reason of the
convertibility of the Series D Preferred Stock.
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<PAGE>
"Change in Control Transaction" means the date the Company or the
Subsidiary (I) sells or otherwise conveys all or substantially all of its assets
or (II) effects a transaction (by merger or otherwise) in which more than 50% of
the voting power of the Company or the Subsidiary is disposed of, directly or
indirectly, or if within any 12 month period there is a change of more than 50%
of the members of the Company's or the Subsidiary's Board of Directors, of if
any other person, entity or group (as defined in Section 13(d) of the Exchange
Act) and/or any of their affiliates or associates acquires in excess of 50% of
the CXI Common Stock.
(d) Mandatory Conversion. The Series D Preferred Stock is subject to
mandatory conversion after five (5) years from the date of the closing of the
sale of shares of Series D Preferred Stock (the "Closing Date"), at which time
all Series D Preferred Stock will automatically be converted at the Conversion
Price, upon the terms set forth in this section. Such five year period will be
extended by the number of days during such period that (i) the Subsidiary's
Common Stock has been Delisted (as defined herein); and/or (ii) a Suspension (as
defined herein) has been in effect and by the number of days after the 90th day
(if the Subsidiary is registering the Conversion Shares on Form S-3) or the
120th day (if the Subsidiary is registering the Conversion Shares on Form S-1),
which date is applicable as provided from the date hereof that the Registration
Statement (as defined herein) was not declared effective. Any particular day in
which more than one of the foregoing condition events shall have been in effect
shall only be counted once in determining the number of days by which to extend
the five year period prior to mandatory conversion. Mandatory conversion shall
not occur in the event of the occurrence of one or both of the following at the
time of such mandatory conversion: (x) the Company or the Subsidiary is unable,
or admits in writing its inability, to pay its debts, or is not paying its debts
generally as they come due, or has made any assignment for the benefit of
creditors; or (y) the Company or the Subsidiary has commenced, or there has been
commenced against the Company or the Subsidiary, any case, proceeding, or other
action seeking to have an order for relief entered with respect to the Company
or the Subsidiary, or to adjudicate the Company or the Subsidiary as a bankrupt
or insolvent.
"Delisting" means the date the CXI Common Stock is delisted from the
AMEX and is not otherwise listed on the Nasdaq Stock Market or other national
securities exchange.
"Suspension" means the date of a suspension of the use of the
prospectus forming part of the registration statement (the "Registration
Statement") filed under the Securities Act of 1933, as amended (the "Securities
Act") registering the shares of CXI Common Stock issuable upon the conversions
of the Series D Preferred Stock.
(e) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its holdings of shares of CXI Common
Stock, such number of shares of CXI Common Stock as shall from time to time be
sufficient to effect the conversion of all then outstanding Series D Preferred
Stock, the sufficiency of which shall be determined by using a Conversion Price
(the "Hypothetical Conversion Price") derived from a hypothetical closing market
price that is 75% of either (i) the actual Average Closing Bid Price on the
Closing Date or (ii) the actual Average Closing Bid Price from time to time,
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<PAGE>
whichever is lower. The Company hereby covenants and agrees that if at any time
the Hypothetical Conversion Price falls to a level that would not enable all
outstanding Series D Preferred Stock to be fully converted, the Company will
promptly purchase or otherwise acquire the number of shares of CXI Common Stock
sufficient to permit the conversion of all Series D Preferred Stock then
outstanding at the Hypothetical Conversion Price then in effect.
(g) Liquidated Damages. In the event of a Delisting, a Cumulative
Suspension (as defined herein) or Insufficient CXI Common Stock (as defined
herein) (each a "Damage Event"), the Company will pay to Holder (and to all
other holders of the Shares), by wire transfer, as liquidated damages for such
non-availability and not as a penalty, an amount in cash equal to 2% per month
of the Liquidation Preference of only those Series D Preferred Stock then
eligible for conversion, without regard to Section 5(c), for the first two
months after the occurrence of a Damage Event, and 3% per month for each month
thereafter. Similar liquidated damages shall be paid with respect to any Series
D Preferred Stock not initially eligible for conversion when the Damage Event
first occurred but which subsequently become eligible for conversion, without
regard to Section 5(c), commencing in the first month that such Series D
Preferred Stock become eligible for such conversion. Such liquidated damages
shall continue to accrue and shall be payable until the Damage Event has been
cured, and, if not paid, interest thereon shall accrue at a rate of 2% per
month. At the Holder's election, such liquidated damages may be paid in cash or
may be added to the principal of the Series D Preferred Stock for subsequent
conversion purposes. Notwithstanding the foregoing, in the case of a Delisting,
after six months from the date of such Delisting, the Company shall have the
option to force Holder to as promptly as possible convert (in increments of no
less than $50,000) all or part of its Series D Preferred Stock, subject to
Holder being able to sell the underlying Conversion Shares, and simultaneously
sell such Conversion Shares (where the conversion price therefor shall not be
the Conversion Price but instead shall equal 85% of the Holder's sale price of
the Conversion Shares, all as determined by Holder's actual trading records (to
be provided to the Company). In no event may the Company force Holder to convert
less than $50,000 of Series D Preferred Stock at any one time.
"Cumulative Suspension" means the date a Suspension has occurred and is
continuing or the date that is the 15th day in the aggregate that more than one
Suspension has occurred since the effective date of the Registration Statement.
"Insufficient CXI Common Stock" means the date the number of shares of
CXI Common Stock held by the Company is not sufficient to effect the conversion
of all outstanding Series D Preferred Stock then eligible for conversion
(whether or not the Holders have duly delivered Notices of Conversion).
(h) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If at any time when the Series D Preferred Stock is issued
and outstanding, the number of outstanding shares of CXI Common Stock is
increased by a stock split, stock dividend, or
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<PAGE>
other similar event, the Conversion Price shall be proportionately reduced, or
if the number of outstanding shares of CXI Common Stock is decreased by a
reverse stock split, combination or reclassification of shares, or other similar
event, the Conversion Price shall be proportionately increased. In such event
the Company and the Subsidiary shall notify the Company's and the Subsidiary's
transfer agent of such change on or before the effective date thereof.
(ii) Adjustment Due to Merger, Consolidation, Etc. If, prior
to the conversion of all Series D Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of CXI Common Stock of the Company or
the Subsidiary shall be changed into the same or a different number of shares of
the same or another class or classes of stock or securities of the Company or
the Subsidiary or another entity, or other property, then the Holders of Series
D Preferred Stock shall, upon being given at least 30 days advance written
notice of such transaction, thereafter have the right to purchase and receive
upon conversion of Series D Preferred Stock, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of CXI Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as may be issued or payable with respect to or in
exchange for the number of shares of CXI Common Stock immediately theretofore
purchasable and receivable upon the conversion of Series D Preferred Stock held
by such Holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series D Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Rate and of the number of shares issuable upon conversion of the
Series D Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Company or the Subsidiary shall not
effect any transaction described in this subsection 5(h) unless (1) Holder has
been given at least 30 days advance written notice of such transaction, and (2)
the resulting successor or acquiring entity (if not the Company or the
Subsidiary) assumes by written instrument the obligation to deliver to the
Holders of the Series D Preferred Stock such shares of stock and/or securities
or other property as, in accordance with the foregoing provisions, the Holders
of the Series D Preferred Stock may be entitled to receive upon conversion of
the Series D Preferred Stock.
(iii) No Fractional Shares. If any adjustment under this
Section 5(h) would create a fractional share of CXI Common Stock or a right to
acquire a fractional share of CXI Common Stock, such fractional share shall be
disregarded and the number of shares of CXI Common Stock issuable upon
conversion shall be the next higher number of shares.
Section 6. Redemption By Parent Company.
(a) The Company's Right to Redeem. The Company shall have the
right, at any time and from time to time, in its sole discretion, to redeem in
whole or in part the Series D Preferred Stock then outstanding, except that if
the Holder or any Holder of the Series D Preferred Stock has submitted a Notice
of Conversion, the Company shall not have
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<PAGE>
the right to redeem the shares of Series D Preferred Stock which were submitted
for conversion and the certificates representing Conversion Shares should be
delivered promptly according to Section 5(b) herein. If the Company elects to
redeem some, but not all, of the Series D Preferred Stock, the Company shall
redeem the Series D Preferred Stock pro rata among the Holders of all the Series
D Preferred Stock then outstanding. The date of the Company's redemption of
Series D Preferred Stock shall be referred to as the "Redemption Date."
(b) Redemption Price. The redemption price per Series D
Preferred Stock shall equal $125.
(c) Mechanics of Redemption; Holder's Conversion Rights. The
Company shall effect each such redemption by giving notice of its election to
redeem ("Redemption Notice"), by facsimile, by 5 P.M. New York City time on the
Redemption Date and shall provide a copy of such redemption notice by overnight
or 2-day courier, to Holder, all other Holders of Series D Preferred Stock and
the Company's Transfer Agent. Such redemption notice shall indicate whether the
Company will redeem all or part of the Series D Preferred Stock. Upon the giving
of any such Redemption Notice, and until the earlier of either payment of the
applicable redemption price or fifteen (15) business days after the Redemption
Date (or later as provided in Section 6(d) below), the conversion rights in
respect of the Series D Preferred Stock called for redemptions shall be
suspended. Subject to the Company's payment of the applicable redemption price,
the accrual of dividends in connection with the shares of Series D Preferred
Stock called for redemption will suspend on the Redemption Date.
(d) Payment of Redemption Price. Upon receipt of a Redemption
Notice, Holder shall send its shares of Series D Preferred Stock being redeemed
to the Company or its Transfer Agent within three business (3) days of the
receipt of such Redemption Notice, and the Company shall pay the applicable
redemption price within fifteen (15) business days of the Redemption Date (such
fifteen business (15) day period shall be extended for each day the Series D
Preferred Stock being redeemed have not been delivered to the Company or its
Transfer Agent beyond the third (3rd) business day after receipt of the
Redemption Notice). The Company shall not be obligated to deliver the redemption
price unless the shares of Series D Preferred Stock so redeemed are delivered to
the Company or its Transfer Agent, or, in the event one or more certificates
have been lost, stolen, mutilated or destroyed, Holder delivers to the Company a
lost certificate affidavit reasonably satisfactory to Company and its Transfer
Agent.
(e) Default of Company's Redemption. If the Company fails to
pay the applicable redemption price to the Holder and/or other Holders of the
Series D Preferred Stock being redeemed by the Company within fifteen (15)
business days of the Redemption Date (such fifteen business (15) day period
shall be extended for each day the Series D Preferred Stock being redeemed have
not been delivered to the Company or its Transfer Agent beyond the third
business (3rd) day after receipt of the Redemption Notice), the Company shall be
deemed to have defaulted on their right to redeem such shares of Series D
Preferred Stock. Such shares of Series D Preferred Stock shall thereafter become
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<PAGE>
immediately convertible and the Conversion Price for such shares of Series D
Preferred Stock shall be equal to 75% of the Average Closing Bid Price. The
Conversion Price for such Series D Preferred Stock shall not be subject to a
floor.
(f) Blackout Period. Notwithstanding the foregoing, the
Company may not either send out a redemption notice or effect a redemption
during a Blackout Period (defined as a period during which the Company's or the
Subsidiary's officers or directors would not be entitled to buy or sell stock
because of their holding of material non-public information). In the event the
Company initiates a redemption during a Blackout Period without having first
made public material non-public information, the Company or the Subsidiary shall
disclose the non-public information that resulted in the Blackout Period, and no
redemption shall be effected until at least 10 days after the Company or the
Subsidiary shall have given the Holder written notice that the Blackout Period
has been lifted.
Section 7. Voting Rights. The Holders of the Series D Preferred Stock
shall have no voting power whatsoever, except with respect to any amendment to
the Company's or the Subsidiary's Certificate of Incorporation which would have
an adverse effect on the Series D Preferred Stock or as otherwise provided by
the General Corporation Law of the State of Delaware.
Section 8. Status of Converted Stock. In the event any shares of Series
D Preferred Stock shall be converted pursuant to Section 5 hereof, the shares so
converted shall be canceled, shall return to the status of authorized but
unissued Preferred Stock of no designated series, and shall not be issuable by
the Company as Series D Preferred Stock.
Section 9. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one or
more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series D Preferred
Stock.
10
<PAGE>
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series D issue of Preferred Stock
and fixing the number, powers, preferences and relative, optional,
participating, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics thereof shall, upon the
effective date of said series, be deemed to be included in and be a part of the
certificate of incorporation of the corporation pursuant to the provisions of
Section 104 and 151 of the General Corporation Law of the State of Delaware.
Signed on May 15, 1997 /s/ Paul E. Hannesson
--------------------------
Name: Paul E. Hannesson
Title: President
Attest
/s/ Michael D. Fullwood
- ----------------------------
Name: Michael D. Fullwood
Title: Secretary
11
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order
to Convert the 7% Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of COES
Preferred Stock represented by above Certificate No. into shares of common
stock of COMMODORE APPLIED TECHNOLOGIES, INC. (the "Subsidiary") according to
the conditions hereof, as of the date written below.
The undersigned represents and warrants that:
All offers and sales by the undersigned of the shares of Common Stock
issuable to the undersigned upon conversion of the COES Preferred
Shares shall be made pursuant to an exemption from registration under
the Act, or pursuant to registration of the Common Stock under the
Securities Act of 1933, as amended.
________________________________ ___________________________
Date of Conversion Applicable Conversion Price
________________________________ ___________________________
Number of Shares of Common Stock $ Amount of Conversion
upon Conversion
________________________________ ___________________________
Signature Name
Address: Delivery of Shares to:
12
<PAGE>
FINDER'S AGREEMENT
AGREEMENT made on 22nd day of April, 1997, by and between AVALON RESEARCH
GROUP INC. ("AVALON") and COMMODORE ENVIRONMENTAL SERVICES, INC. ("COES").
1. THE PARTIES
1.1 COES, a corporation, with its principal office at 150 East 58th
Street, Suite 3400, New York, New York 10155.
1.2 AVALON, a corporation, with its principal office at 1900 Glades Road,
Suite 201, Boca Raton, Florida 33431.
1.3 The persons executing this Agreement represent to each other that they
have full and complete authority to do so and has been designated to do so by
their respective Board of Directors.
2. THE AGREEMENT
2.1 COES seeks a purchaser of all or part of a private placement offering
("Offering"). The Offering shall be for any combination of debt and equity on
terms and conditions satisfactory to COES. As a result of the introduction made
through AVALON to an investor (either a single investor or several investors
referred to herein as "INVESTORS") or any related entity under INVESTORS'
control, should the Offering be placed with INVESTORS, COES shall owe AVALON the
fees described herein. Should COES close on any introduced transactions under
this Agreement, that in itself shall serve as proof that the Offering met the
terms and conditions that were satisfactory to COES.
2.2 It is acknowledged by COES that: AVALON has acted solely as a finder
and not in any other capacity; AVALON has not advised COES in any manner
regarding the merits of this or any other financing arrangement; COES has
consulted its own counsel on all aspects of this Offering and has done its own
due diligence to its satisfaction; AVALON has not made any representations to
COES to induce it into this Agreement.
<PAGE>
Finder's Agreement April 23, 1997
2.3 COES shall be under no obligation to pay any fee or other monies
whatsoever to AVALON on account of this Agreement unless (a) the purchase of the
Offering contemplated by this Agreement has closed with INVESTORS and (b) the
purchase of the Offering has resulted from the introduction by AVALON to COES of
INVESTORS. For purposes of this Agreement, the total amount of the fee due
AVALON shall be due and payable on the date of the closing.
2.4 Prior to introduction to any particular investor, AVALON will first
disclose the identity of that proposed investor to COES. COES, at its sole
discretion, can approve or decline whether such introduction can be made to that
investor. If COES does not approve or decline whether such introduction can be
made to that investor within 24 hours of the disclosure of the identity of that
investor by AVALON to COES, then such inaction shall be deemed an approval.
2.5 AVALON shall obtain an executed non-disclosure agreement, in the form
submitted by COES, from all investors prior to presenting the Offering to them
for their review.
2.6 This Agreement will expire one year from the date first above at which
time neither party will have any obligations towards the other party unless
introduced INVESTORS are actively negotiating with COES at expiration time, then
this Agreement will survive until such time as the active dealings either
terminate or a Offering is closed.
3. THE FEE
3.1 The fee for introduction by AVALON to COES of INVESTORS, to be paid to
AVALON by COES pursuant to this Agreement, shall be a sum computed on the total
purchase of or the total investment made in the Offering as follows:
Ten Percent (10%) of all funds raised shall be paid to AVALON
in cash upon the closing of the transaction. The term "funds
raised" shall include all funds due to COES under the
Agreement between COES and INVESTORS regardless of when those
funds may be payable to COES.
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<PAGE>
Finder's Agreement April 23, 1997
3.2. In addition to the cash fee in paragraph 3.1, AVALON shall be granted
Common Stock purchase warrants ("Warrants"), in consideration of its services
rendered, in an amount of 10% of the number of Warrants granted to INVESTORS at
an exercise price equal to the exercise price of the Warrants issued to
INVESTORS. Such Warrants granted to AVALON shall expire five years from the
closing date of the Offering. (Should the closing take place in more than one
part, the Warrants shall be granted at the first such closing part and shall
expire five years from that date.)
3.3 The fee due to AVALON shall be payable to AVALON through the closing
escrow. The escrow agent shall release the fee to AVALON at the same time as the
balance of escrowed funds are released to COES and the certificates and warrants
are released to INVESTORS.
4. OTHER
4.1 Any arrangements made by AVALON with any broker or other persons with
whom AVALON is or may be involved are the total responsibility of AVALON. Upon
payment made by COES to AVALON of the AVALON's fee, AVALON will hold COES free
and harmless from any and all claims, liabilities, commissions, fees or expenses
in connection with the transaction from any party who alleges a relationship
with or through AVALON and the INVESTORS.
4.2 In the event of any dispute between COES and AVALON arising under or
pursuant to the terms of this Agreement, or any matters arising under the terms
of this Agreement, the same shall be settled only by arbitration in the Borough
of Manhattan, City of New York, State of New York, in accordance with the rules
and regulations of the American Arbitration Association. The determination of
the arbitrators shall be final and binding upon COES and AVALON and may be
enforced in any court of appropriate jurisdiction.
4.3 This Agreement shall be construed by and governed under the laws of
the State of New York.
4.4 This Agreement contains the entire agreement between AVALON and COES
concerning the introduction of INVESTORS to COES and correctly sets forth the
rights and duties of each of the parties to each other concerning that
page 3 of 4
<PAGE>
Finder's Agreement April 23, 1997
matter as of this date. Any agreement or representation concerning the subject
matter of this Agreement or the duties of AVALON to COES in relation thereto,
not set forth in this Agreement, is null and void.
IN WITNESS WHEREOF, the parties have signed this Agreement on the date
first written above.
AVALON RESEARCH GROUP INC.
by: /s/ Michael Margolies
----------------------------------
Michael Margolies, Pres.
COMMODORE ENVIRONMENTAL SERVICES, INC.
by: /s/ Bentley Blum
----------------------------------
Bentley Blum, Chairman
page 4 of 4
