<PAGE>
As filed with the Securities and Exchange Commission on June 23, 1997
Registration Statement No. _______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
AMBI INC.
(Exact name of registrant as specified in its charter)
New York 2083 11-2653613
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation) Code Number)
AMBI Inc. Fredric D. Price
771 Old Saw Mill River Road 771 Old Saw Mill River Road
Tarrytown, New York 10591 Tarrytown, New York 10591
(914) 347-5767 (914) 347-5767
(Address, including zip code, (Name, address, including
and telephone number, including zip code, and telephone number,
area code, of registrant's including area code, of agent
principal executive offices) for service)
Copies To:
Oscar D. Folger, Esq.
521 Fifth Avenue
New York, New York 10175
Approximate date of commencement of proposed sale to public: From time to time
after the effective date of this Registration Statement depending on market
conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /__/
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box.
/X
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities Being Amount Being Offering Price per Aggregate Offering Registration Fee
Registered Registered Share (1) Price
<S> <C> <C> <C> <C>
Common Stock 9,581,560 $2.29 $21,941,772 $6,649.02
</TABLE>
(1) Estimated for purposes of computing the registration fee pursuant to Rule
457(c) at $2.29 per Share based upon the average of the high and low prices of
$2.375 and $2.1875, respectively, on June 19, 1997.
-----------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
----------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 23, 1997
PROSPECTUS
AMBI INC.
9,581,560 Shares of Common Stock
--------------------------------
This Prospectus relates to an aggregate of 9,581,560 shares of Common
Stock (the "Offered Shares") of AMBI Inc. (the "Company"), par value $.005 per
share (the "Common Stock"), of which 881,560 shares of Common Stock are issuable
upon the exercise of warrants (the "Warrants"), and of which up to 8,700,000
shares of Common Stock are issuable upon the conversion of Series D Preferred
Stock (the "Preferred Stock") (the "Conversion Shares") sold in a private
placement consummated in May 1997. This Prospectus also covers, pursuant to Rule
416 promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), the offer and sale by the Selling Security Holders of any and all Common
Stock issued with respect to the Preferred Stock and Warrants as a result of
stock splits, stock dividends, and anti-dilution provisions (including by reason
of changes in the conversion price of the Preferred Stock in accordance with the
terms thereof). Subject to the Company's right to redeem the Preferred Stock at
or prior to conversion, the Preferred Stock is not convertible during the 90-day
period from May 8, 1997 until August 5, 1997. For the next 90 days until
November 4, 1997, the Preferred Stock is convertible by the holder into Common
Stock at $2.49557 per share, which is 110% of the average closing bid price of
the Common Stock for the 10 trading days prior to May 8, 1997. After November 4,
1997 the conversion price per share is the lesser of (i) $2.49557 or (ii) the
average closing bid price of the Common Stock for the ten trading days prior to
conversion less a discount which increases in stages from 13% on November 4,
1997 to 25% by August 1, 1998. On the occurrence of certain events, the
Preferred Stock is immediately convertible by the holder into Common Stock at a
per share price equal to the lesser of (i) $2.49557 or (ii) 75% of the average
closing bid price of the Common Stock for the ten (10) trading days prior to
conversion. These events include a merger or other combination in which the
Company is not the surviving entity; the acquisition by any entity or group of
more than 50% of the voting power of the Company's securities; the election or
appointment of a majority of the Board of Directors and whose election or
appointment was not approved by shareholders or the existing Board; and Fredric
D. Price ceasing to be chief executive officer of the Company prior to the
earlier of (i) May 8, 1998 or (ii) the Company's announcement of positive
operating income for a fiscal quarter. The warrants are exercisable for a period
of five years to purchase shares of Common Stock at $2.72244 per share.
This Prospectus does not relate to the sale or issuance by the Company
of any securities. Any shares of Common Stock which are offered will be offered
for the respective accounts of the Selling Security Holders, who will acquire
shares of Common Stock upon exercise of warrants which are owned by them, as
well as upon conversion of the Preferred Stock. The Company will receive the
exercise prices payable upon exercise of the Warrants. However, the Company will
not receive any proceeds from the sale of the shares of Common Stock by the
Selling Security Holders. The Company will pay substantially all of the expenses
with respect to the offering and sale of the Offered Shares to the public,
including the costs associated with registering the Offered Shares under the
Securities Act and preparing and printing this Prospectus. Normal underwriting
commissions and broker fees, however, as well as any applicable transfer taxes,
are payable individually by the Selling Security Holders. See "Selling Security
Holders."
The Company has been advised by the Selling Security Holders that the
Offered Shares may be offered for sale from time to time by or for the account
of such Selling Security Holders in the open market, on the Nasdaq National
Market, in privately negotiated transactions, in an underwritten offering, or a
combination of such methods, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Offered Shares are intended to be sold through one or more broker-dealers or
directly to purchasers. Such broker-dealers may receive compensation in the form
of commissions, discounts or concessions from the Selling Security Holders
and/or purchasers of the Offered Shares for whom such broker-dealer may act as
agent, or to whom they may sell as principal, or both (which compensation as to
a particular broker-dealer may be in excess of customary concessions). The
Selling Security Holders and any broker-dealers who act in connection with the
sale of Offered Shares hereunder may be deemed to be "underwriters" within the
meaning of the Securities Act, and any
<PAGE>
commissions received by them and proceeds of any resale of the Offered Shares
may be deemed to be underwriting discounts and commissions under the Securities
Act. See "Selling Security Holders" and "Plan of Distribution."
The Company's Common Stock is traded on the Nasdaq National Market
System under the symbol AMBI. As reported by Nasdaq for June 19, 1997, the last
sale price for the Company's Common Stock was $2.375.
---------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is June ___, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Reports, registration statements, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C., and at the Commission's Regional
Offices: Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois; 7 World Trade Center, New York, New York, and Suite 500, 5757
Wilshire Boulevard, Los Angeles, California, and with respect to registration
statements, Suite 788, 1375 Peachtree Street, Atlanta, Georgia. Copies of such
materials can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and can
also be accessed electronically through the Commission's Web site at
http://www.sec.gov.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the Offered
Shares. This Prospectus is part of the Registration Statement and does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby made to the
Registration Statement and the documents incorporated herein by reference and
attached hereto. Such additional information may be obtained from the
Commission's principal office in Washington, D.C.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL OR AN
OFFERING OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO
WHICH IT RELATES. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER
OR SALE MADE HEREUNDER AT ANY TIME SHALL IMPLY THAT THE INFORMATION
PROVIDED HEREIN OR INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
3
<PAGE>
THE COMPANY
AMBI Inc., (the "Company") is a New York corporation which was
incorporated on June 29, 1983. The Company develops and commercializes
pharmaceutical and dietary products. The executive offices of the Company are
located at 771 Old Saw Mill River Road, Tarrytown, New York 10591 and its
telephone number at that address is 914-347-5767.
RISK FACTORS
An investment in the Offered Shares offered hereby involves a high
degree of risk. Prospective investors should understand that they may sustain a
total loss of their investment and should consider carefully the following risk
factors, among others, in making their investment decision. This Prospectus
contains and incorporates by reference forward looking statements within the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the discussion under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Form 10-K for the year ended June 30, 1996, which is
incorporated in this Prospectus by reference. Such statements are based on
current expectations that involve a number of uncertainties including those set
forth in the following risk factors and actual results could differ materially
from those projected in such forward-looking statements.
Recent Sale of Subsidiary
In December 1996, the Company sold its Aplin & Barrett Limited subsidiary.
Substantially all of the Company's earnings through the date of sale had been
generated by this subsidiary. The Company has not yet reinvested the proceeds
from this sale into any business opportunity to replace the potential to
generate revenues.
Continuing Operating Losses
The Company has had net operating losses since its inception in 1983. At March
31, 1997 the Company's accumulated deficit was approximately $38.5 million. For
the first three quarters of fiscal 1997, such operating losses were
approximately $11.7 million. The Company's revenues have been generated to date
solely from sales of non-therapeutic products, development agreements, and
research grants. The Company is currently generating sales from its medical food
product, Cardia(TM) Salt Alternative, animal healthcare products, and
development agreements. While the Company is looking to expand its revenues
through, among other things, the acquisition of pharmaceutical and dietary
products, it is not certain that any acquisitions will be concluded. The Company
does not expect to generate revenues from the products currently in its R&D
pipeline for several years. The Company's ability to achieve profitability
depends, in part, on its ability to successfully penetrate the market with
Cardia(TM) Salt Alternative. Profitability will depend, in addition, upon the
Company's ability to obtain regulatory approval for products, to enter into
agreements for product development and/or commercialization, or to develop the
capacity to manufacture and/or market its products. There can be no assurance
that the Company will obtain required regulatory approvals, successfully
develop, commercialize, manufacture and market its products or achieve
profitability.
Need for Additional Funding
The Company's future capital requirements will depend on many factors, including
expenses associated with the continued marketing of existing products, expenses
associated with research and development, and funds required for the acquisition
of products and/or companies. Progress with pre-clinical and clinical trials,
the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of collaborative
arrangements, the cost of manufacturing facilities and of commercialization
activities and arrangements, the cost of product in-licensing and
4
<PAGE>
possible acquisitions may impact the Company. The Company's existing resources
are expected to be insufficient to fund the Company's foreseeable operational
and acquisition activities, and additional funds will be required. The Company
intends to seek such additional funding through arrangements with corporate
collaborators, through public or private sales of its securities, including
equity securities, or through bank financing arrangements. There can be no
assurance that additional funding will be available at all or on reasonable
terms. Moreover, any of such financings may result in substantial dilution to
the Company's existing equity holders.
Government Regulation
Products which are intended for use in the diagnosis, cure, mitigation,
treatment or prevention of disease in humans or animals are subject to extensive
governmental regulation. All such products are subject to regulation for quality
assurance, toxicology, safety, and efficacy. Products containing such agents
must undergo thorough preclinical and clinical evaluations of performance as to
safety and efficacy under approved protocols. The Company intends to pursue
regulatory approval for the pharmaceutical and related uses of its products. The
Company's proposed pharmaceutical products, for both human and animal use, will
be subject to the regulatory approval processes for new drugs. They are subject
to approval in the U.S. by the Food and Drug Administration ("FDA"), and by
other developed countries' regulatory agencies. To take a product from the
discovery stage through research and preclinical development to the point where
the Company and/or its partners can make the necessary filing (to the FDA and
governmental agencies outside the U.S.) to conduct human clinical trials may
take several years. Regulatory requirements to conduct clinical trials are
substantial, depend upon a variety of factors, vary by country, and will further
add to the time necessary to determine whether a product candidate can be
approved for human use. There can be no assurance that the Company's proposed
products will prove to be safe and effective under these regulatory procedures,
or will continue to be marketable even after approval. Certain of the Company's
products in the medical food business areas do not require FDA approval for
marketing, but are subject to monitoring by the FDA. No assurances can be given
that FDA interactions on these products will not occur at some point in the
future.
Drug Related Risks
Adverse side effects from the treatment of diseases and disorders in both human
and animal patients may occur during clinical testing of a new drug on humans
and animals. Such effects may delay FDA approval, and even cause a company to
terminate its efforts to develop a drug for commercial use. In addition, adverse
side effects that develop after the FDA has approved a drug could result in
legal action against a company. Drug developers and manufacturers, including the
Company, may face substantial liability for damages in the event of adverse side
effects or product defects identified with their products used in clinical tests
or marketed to the public. There can be no assurance that the Company will be
able to defend itself successfully in any suit that may be brought against it
and any such defense is likely to require the utilization of significant Company
resources. Further, there can be no assurance that the Company will be able to
satisfy any claim for which it may held liable resulting from the use or misuse
of products which it has developed, manufactured or sold.
Dependence on Key Executive and Skilled Personnel
The business of the Company depends heavily upon the participation of Mr.
Fredric D. Price, President and Chief Executive Officer of the Company. Loss of
his services would adversely affect the operations of the Company. In addition,
both the long-term and short-term success of the Company depend in large part
upon its continued ability to attract and retain skilled scientific and
managerial employees. There can be no assurance that the Company will at all
times be able to attract such qualified individuals as a result of the highly
competitive nature of the market for such persons.
5
<PAGE>
Competition
The Company is evaluating certain proprietary dietary food products in the areas
of cardiovascular disease, diabetes, infectious disease, and gastrointestinal
disorders. Special Dietary Foods are foods that supply particular dietary needs
or that may aid in the dietary management of disease and are sometimes known as
medical foods, functional foods, or nutraceuticaIs.
The Company was granted an exclusive license by a division of Orion Corporation
("Orion"), the largest pharmaceutical company in Finland, to make, have made,
use and sell in the United States Orion's patented salt alternative. This
product, currently being sold in Finland and Japan by Orion and its licensee,
has significantly less sodium than regular salt and contains potassium and
magnesium, essential minerals that may help in the dietary management of blood
pressure. The Company is marketing this product directly to hypertensive
patients and to medical professionals (physicians, pharmacists and dietitians)
for recommendation to hypertensive patients and to those at risk of developing
hypertension.
The Company has not previously marketed products in this manner. Other larger
food and pharmaceutical companies (with substantially greater financial
resources and/or with relevant marketing experience) could acquire or develop
products that may compete with the Company's salt alternative and with other
special dietary food products that the Company may acquire in the future. There
can be no assurance that the Company's salt alternative will be successful, or
that the Company will be able to develop or acquire other special dietary foods
that have a substantial market presence.
The Company is developing a class of bacteriocins/antimicrobial peptides known
as lanthocins as drugs for the treatment of bacterial infections such as ulcer
disease, diseases of the colon, and hospital-acquired systemic infections. The
Company understands that there are many corporate and research organizations
that are seeking to develop other bacteriocins and other antimicrobial peptides
as drugs to treat these and similar bacterial infections. Success by competitors
in work with other anti-bacterial or germicidal products may substantially and
adversely affect the Company's prospects. Many of the large corporations that
are involved in, or are expected to enter, the field of biotechnology have
substantially greater financial, marketing and human resources than the Company
and have the capability of providing significant long-term competition.
Shares Eligible for Future Sale
Sales of a substantial number of shares of Common Stock in the public
market could adversely affect the market price for the Common Stock. In addition
to 45,000 shares of Series D Preferred Stock and 528,937 Warrants, the Company
currently has outstanding 222 shares of its Series C Convertible Preferred Stock
(the "Series C Preferred Stock") which as of June 19, 1997 are convertible into
1,529,444 shares of Common Stock (subject to anti-dilution adjustments). The
Company also has registered the sale of 4,342,467 shares of Common Stock
issuable pursuant to various other warrants and stock options.
Dividends Not Likely
The Company has never paid any dividends on its Common Stock. The payment of
dividends is also restricted by provisions of the Preferred Stock. When the
Company becomes legally able to pay dividends, such payment shall be subject to
the discretion of the Board of Directors, which will take into account earnings,
financial requirements of the Company, and other factors deemed relevant by the
Board of Directors. For the foreseeable future, it is anticipated that any
earnings, which may be generated from operations of the Company, will be used to
finance the growth of the Company, and that cash dividends will not be paid to
holders of Common Stock.
6
<PAGE>
Volatility of Stock Price
The market prices for securities issued by small health care companies have been
volatile. Announcements of technological innovations for new commercial products
by the Company's competitors, adverse developments concerning regulatory review,
proprietary rights, corporate plans, the introduction of new products, and
changes in general conditions in the pharmaceutical industry may have a
significant impact on the Company's business and on the market price of the
Common Stock.
Technological Obsolescence
The fields in which the Company's products are being developed are undergoing
rapid technological advances. There is no assurance that the Company will be in
a position to take advantage of such advances. In addition, there can be no
assurance that some of the Company's products will not be rendered obsolete as a
result of the successful application of such technology by competitors.
Product Liability Claims and Uninsured Risks
To the extent that the Company is successful in developing and marketing new
products, it will be exposed to liability resulting from the use of such
products. The Company has obtained product liability insurance for the products
it currently markets and intends to obtain product liability insurance for
products it will market in the future. Although the Company may apply for
product liability insurance, there is no assurance that it will receive
insurance or that such insurance will be sufficient to cover all possible
liabilities.
Dependence on Others
In order to develop, test and market its products, it may be necessary for the
Company to obtain licenses to patents or other proprietary rights of third
parties, or enter into agreements with collaborative partners. There can be no
assurance that any such licenses or agreements would be available, if at all, on
terms acceptable to the Company. If AMBI is not able to obtain such licenses or
enter into such agreements, it could encounter delays in introducing its
products into the market, or find that development, manufacture or sale of its
products will be limited.
No Manufacturing Experience and Reliance on Third Parties for Manufacturing
The Company currently has no facilities to manufacture its products in
accordance with Good Manufacturing Practices ("GMP") prescribed by the FDA and
must rely on third parties to manufacture its products. There can be no
assurance that these manufacturers will meet the Company's requirements for
quality, quantity and timeliness, or that the Company would be able to find
substitute manufacturers, if necessary.
Dependence on Patents and Proprietary Technology
The biotechnology and pharmaceutical industries place considerable importance on
obtaining patent and trade secret protection for new technologies, products and
processes. The Company's success will depend, in part, on its ability to obtain
patent protection for its products and manufacturing processes, preserve its
trade secrets and operate without infringing the proprietary rights of third
parties. In addition to AMBI's own patents and patent applications, Orion
Corporation and the University of Maryland have exclusively licensed their
rights in certain patents and patent applications to the Company. The Company's
future performance is partly dependent upon these license agreements.
The Company is conducting research and expects to seek additional patents in the
future, but there can be no assurance as to its success or the timeliness in
obtaining any such patents or as to the breadth or degree of protection, which
any such patents will afford the Company. The patent position of biotechnology
and pharmaceutical firms is often highly uncertain and usually involves complex
legal and factual questions. There is a substantial backlog of
7
<PAGE>
biotechnology patent applications at the United States Patent and Trademark
Office. No consistent policy has emerged regarding the breadth of claims covered
in biotechnology patents. Accordingly, there can be no assurance that any
current or future patent applications relating to the Company's products or
technology will result in patents being issued or that, if issued, such patents
will afford adequate protection to the Company or not be challenged, invalidated
or infringed. Furthermore, there can be no assurance that others will not
independently develop similar products and processes, duplicate any of the
Company's products or, if patents are issued to the Company, design around such
patents. In addition, the Company could incur substantial costs in defending
itself in suits brought against it or in suits in which the Company may assert
its patents against others. If the outcome of any such litigation is adverse to
the Company, the Company's business could be adversely affected. To determine
the priority of inventions, the Company may also have to participate in
interference proceedings declared by the United States Patent and Trademark
Office, which could result in substantial cost to the Company.
In addition, the Company may be required to obtain licenses to patents or other
proprietary rights of third parties. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available on
terms acceptable to the Company, if at all. If the Company does not obtain such
licenses, it could encounter delays in product market introductions while it
attempts to design around such patents or other rights, or be unable to develop,
manufacture or sell products.
The Company also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, in part by confidentiality
agreements and, if applicable, inventors' rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, or that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise be disclosed.
Sales Dependent in Part on Third Party Reimbursement
Sales of the Company's products may depend to some extent on the availability of
reimbursement from third-party payers, such as government and private insurance
plans. No assurance can be given that such reimbursement will be available.
Dependence on Acquisitions
The Company intends to expand in part by pursuing a strategy of seeking
acquisitions. There can be no assurance that suitable acquisition candidates can
be found or effectively integrated into the Company. There can be no assurance,
that future acquisitions will not have an adverse effect upon the Company's
operating results, particularly in the fiscal quarters immediately following the
consummation of such transactions during which the operations of the acquired
businesses are being integrated into the Company's operations.
8
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Offered
Shares by the Selling Security Holders. The Company will use the proceeds of any
conversion of the Preferred Stock and exercise of the Warrants for general
corporate purposes.
SELLING SECURITY HOLDERS
The following table sets forth the names of the Selling Security
Holders, the number of shares of Common Stock beneficially owned by such Selling
Security Holder and the number of Offered Shares which may be offered for sale
pursuant to this Prospectus by each such Selling Security Holder. None of the
Selling Security Holders has held any position, office or other material
relationship with the Company or any of its affiliates within the past three
years other than as a result of his or its ownership of shares of Common Stock.
The Offered Shares may be offered from time to time by the Selling Security
Holders named below. However, such Selling Security Holders are not obligated to
sell any such Offered Shares immediately under this Prospectus. All information
with respect to share ownership has been furnished by the Selling Security
Holders. Because the Selling Security Holders are not obligated to sell any such
Offered Shares, no estimate can be given as to the number of shares of Common
Stock that will be held by any Selling Security Holder upon termination of any
offering made hereby.
Pursuant to Rule 416 promulgated under the Securities Act, Selling
Security Holders may also offer and sell shares of Common Stock issued with
respect to the Preferred Stock and the Warrants as a result of stock splits,
stock dividends and anti-dilution provisions (including by reason of changes in
the conversion price of the Preferred Stock in accordance with the terms
thereof).
<TABLE>
<CAPTION>
Securities to
Securities Owned Securities be Owned
Name and Address Before Offering to be Sold (1) after Offering
- ---------------- ----------------- -------------- --------------
<S> <C> <C> <C>
C. C. Investments, LDC (2) 4,763,230 4,763,230 -0-
Nelson Partners (2)(4) 2,850,774 1,852,415 998,359
Olympus Securities, Ltd. (2)(5) 2,182,416 1,852,415 330,001
Lakeshore International, Ltd. (2) 1,058,402 1,058,402 -0-
Frith Brothers Investments, Inc. (3) 57,098 55,098 2,000
</TABLE>
- --------------------
(1) Assumes sale of all Offered Shares.
(2) Represents the pro rata allocation among the Selling Security Holders
of 9,526,462 shares of Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants which the Company is
registering hereunder pursuant to the Registration Rights Agreement
between the Company and the Selling Security Holders, dated as of May
8, 1997. The actual number of shares of Common Stock issuable upon
conversion of the Preferred Stock will equal (i) the aggregate stated
value of the shares of Preferred Stock then being converted (i.e., $100
per share), plus a premium in the amount of 6% per annum accruing from
May 8, 1997 through the date of conversion plus any conversion default
amount (as defined in the Certificate of Amendment of the Certificate
of Incorporation of the Company which describes the designations,
preferences and rights of the Series D Preferred Stock), divided by a
Conversion Price which varies as follows. The Preferred Stock is not
convertible until August 5, 1997. For the 90 days from
9
<PAGE>
August 5, 1997 until November 4, 1997, the Preferred Stock is
convertible by the holder into Common Stock at $2.49557 per share,
which is 110% of the average closing bid price for the 10 trading days
prior to May 8, 1997. After November 4, 1997 the conversion price per
share is the lesser of (i) $2.49557 or (ii) the average closing bid
price of the Common Stock for the ten trading days prior to conversion
less a discount which increases in stages from 13% on November 4, 1997
to 25% by August 1, 1998. On the occurrence of certain events, the
Preferred Stock, together with the premium aforesaid, is immediately
convertible by the holder into Common Stock at a per share price equal
to the lesser of (i) $2.49557 or (ii) 75% of the average closing bid
price of the Common Stock for the ten (10) trading days prior to
conversion. These events include a merger or other combination in which
the Company is not the surviving entity; the acquisition by any entity
or group of more than 50% of the voting power of the Company's
securities; the election or appointment of a majority of the Board of
Directors and whose election or appointment was not approved by
shareholders or the existing Board; and Fredric D. Price ceasing to be
chief executive officer of the Company prior to the earlier of (i) May
8, 1998 or (ii) the Company's announcement of positive operating income
for a fiscal quarter. Also includes shares of Common Stock issuable
upon exercise of Warrants. The Warrants are exercisable for a period of
five years to purchase shares of Common Stock at $2.72244 per share.
Except under certain limited circumstances, no holder of the Preferred
Stock and Warrants is entitled to convert or exercise such securities
to the extent that the shares to be received by such holder upon such
conversion or exercise would cause such holder to beneficially own more
than 4.9% of the Common Stock of the Company. Therefore, the number of
shares set forth herein and which a Selling Security Holder may sell
pursuant to the Prospectus may exceed the number of shares of Common
Stock such Selling Security Holder would otherwise beneficially own as
determined pursuant to Section 13(d) of the Exchange Act. Moreover,
pursuant to the regulations of the National Association of Securities
Dealers, in the absence of shareholder approval, the aggregate number
of shares of Common Stock issuable to the Selling Security Holders at a
discount from market price upon conversion of the Preferred Stock and
exercise of the Warrants may not exceed 19.99% of the outstanding
shares of Common Stock on May 8, 1997 (i.e., 3,729,814 shares). Unless
shareholder approval is obtained to issue Common Stock to the Selling
Security Holders in excess of the maximum amount set forth above, none
of the Selling Security Holders will be entitled to acquire more than
its proportionate share of such maximum amount. Any Preferred Stock
which may not be converted and any Warrants which may not be exercised
because of such limitation must be redeemed by the Company.
(3) Includes 55,098 shares of Common Stock issuable upon exercise of
Warrants.
(4) As of June 19, 1997, includes 978,218 shares of Common Stock issuable
upon conversion of Series C Preferred Stock. After completion of the
sale of all Offered Shares, Nelson Partners would be deemed to be
beneficial owner of approximately 3.4% of the Company's outstanding
Common Stock.
(5) As of June 19, 1997, includes 330,001 shares of Common Stock issuable
upon conversion of Series C Preferred Stock. After completion of the
sale of all Offered Shares, Olympus Securities, Ltd. would be deemed to
be beneficial owner of approximately 1.2% of the Company's outstanding
Common Stock.
10
<PAGE>
PLAN OF DISTRIBUTION
The securities are being offered for the respective accounts of the
Selling Security Holders. The Company will not receive any proceeds from the
sale of any securities by the Selling Security Holders, although it would
receive proceeds from the exercise of Warrants by the Selling Security Holders.
Pursuant to this Prospectus, the shares of Common Stock of the Company issuable
(i) upon conversion of the Company's Series D Preferred Stock, (ii) upon
exercise of certain warrants to acquire shares of Common Stock and (iii) in
exchange for or otherwise with respect to any of the foregoing (collectively,
the "Offered Shares") may be sold by the Selling Security Holder from time to
time while the Registration Statement to which this Prospectus relates is
effective on the Nasdaq National Market System ("NNM") or otherwise at prices
and terms prevailing at the time of sale, at prices and terms related to such
prevailing prices and terms, in negotiated transactions or at fixed prices. The
Selling Security Holder may choose to sell all or a portion of such Offered
Shares from time to time in any manner described herein. The methods by which
the Offered Shares may be sold by the Selling Security Holder include, without
limitation: (i) ordinary brokerage transactions, which may include long or short
sales, (ii) transactions which involve cross or block trades or any other
transactions permitted by the NNM, (iii) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus, (iv) "at the market" to or through market makers or into an existing
market for the Common Stock, (v) in other ways not involving market makers or
established trading markets, including direct sales to purchasers or sales
effected through agents, (vi) through transactions in options or swaps or other
derivatives (whether exchange-listed or otherwise), or (vii) any combinations of
any such methods of sale. In addition, the Selling Security Holder may enter
into hedging transactions with broker-dealers which require the delivery to such
broker-dealers of the Offered Shares offered hereby, which Offered Shares such
broker-dealers may resell pursuant to this Prospectus.
In effecting sales, brokers and dealers engaged by the Selling Security
Holder may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from the Selling Security Holder to
sell a specified number of Offered Shares at a stipulated price per share, and,
to the extent such a broker or dealer is unable to do so acting as agent for the
Selling Security Holder, may purchase as principal any unsold Offered Shares at
the price required to fulfill such broker or dealer commitment to the Selling
Security Holder. Brokers or dealers who acquire Offered Shares as principals may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other brokers or dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise,
at market prices and terms prevailing at the time of sale, at prices and terms
related to such prevailing prices and terms, in negotiated transactions or at
fixed prices, and in connection with the methods as described above. The Offered
Shares held by the Selling Security Holder may also be sold hereunder by
brokers, dealers, banks or other persons or entities who receive such Offered
Shares as a pledgee of the Selling Security Holder. The Selling Security Holder
and brokers and dealers through whom sales of Offered Shares may be effected may
be deemed to be "underwriters," as defined under the Securities Act, and any
profits realized by them in connection with the sale of the Offered Shares may
be considered to be underwriting compensation.
The Registration Rights Agreement between the Company and the Selling
Security Holder, dated as of May 8, 1997, provides that the Company and the
Selling Security Holder will indemnify each other against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the other may be required to make in respect thereof.
EXPERTS
The consolidated financial statements of the Company as of June 30,
1996 and 1995, and for each of the years of the three-year period ended June 30,
1996, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
11
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering are being passed
upon for the Company by Oscar D. Folger, Esq., 521 Fifth Avenue, New York, New
York 10175. Mr. Folger's wife owns 5,000 shares of the Common Stock of the
Company.
MATERIAL CHANGES
Except as set forth herein, there have been no material developments
since the filing on May 14, 1997 of the Company's quarterly report on Form 10-Q
for the nine months ended March 31, 1997.
In June 1997, the Company signed a non-binding letter which sets
forth terms upon which the Company might acquire Nutrition 21, a privately-owned
company based in San Diego, California which is engaged in the development and
marketing of proprietary nutrition products and dietary supplements. These terms
include the payment by the Company of $10,000,000 and 500,000 shares of Common
Stock. In addition, the Company would make contingent payments based upon sales
levels over four years and pay royalties on new products. The transaction is
subject to the execution of a definitive agreement, approval by the Company's
Board of Directors and the partners of Nutrition 21, and other terms and
conditions.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission by
the Company are incorporated herein by reference and made a part hereof. The
Commission file number for all documents which are incorporated by reference is
0-14983.
(1) Annual Report on Form 10-K for the fiscal year ended
June 30, 1996.
(2) Quarterly Report on Form 10-Q for the nine months
ended March 31, 1997.
(3) Current Report on Form 8-K filed December 27, 1996.
(4) The section entitled "Description of Securities" in
the Company's registration statement on Form S-1
(Registration No. 33-4822), declared effective on
August 28, 1986.
In addition, any amendments to such document and all other reports,
proxy statements and other documents of the Company hereafter filed with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, prior to the termination of the offering of the securities
covered by this Prospectus, shall be deemed to be incorporated in this
Prospectus and made a part hereof by reference from the date of filing of each
such document. Any statement contained in an earlier document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge to each person to whom
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the information that has been incorporated by reference
in the Prospectus (not including exhibits to the information that is
incorporated by reference unless such
12
<PAGE>
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates). Such request should be directed to the Secretary,
AMBI Inc., 771 Old Saw Mill River Road, Tarrytown, New York 10591.
INDEMNIFICATION
The Company's by-laws provide that the Company will indemnify its
directors and officers to the fullest extent permitted by law. The New York
Business Corporation Law (the "BCL") provides that a corporation may indemnify a
director or officer, made a party to a derivative action, against reasonable
expenses actually and necessarily incurred by him in connection with the defense
of such action, except in relation to matters as to which such director or
officer is adjudged to have breached his duty to the corporation. In addition,
the BCL provides that a corporation may indemnify a director or officer, made,
or threatened to be made, a party to any action other than a derivative action
on behalf of the indemnifying corporation, whether civil or criminal, against
judgments, fines, amounts paid in settlement and reasonable expenses actually
and necessarily incurred as a result of such action, if such director or officer
acted in good faith, for a purpose which he reasonably believed to be in the
best interests of the corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
ADDITIONAL INFORMATION
This Prospectus contains certain information concerning the Company and
its securities, but does not contain all the information set forth in the
Registration Statement and the Exhibits thereto filed with the Commission under
the Securities Act, to which reference is made. Any summary from the Exhibits
contained in this Prospectus is necessarily incomplete and must not be
considered as a full statement of the provisions of such instruments.
13
<PAGE>
AMBI INC.
9,581,560 Shares of Common Stock
----------------------
PROSPECTUS
----------------------
June ___, 1997
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any
securities in any jurisdiction in which such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Available Information ....... 3
The Company ................... 4
Risk Factors ..................... 4
Use of Proceeds ............... 9
Selling Security Holders ........... 9
Plan of Distribution ............ 11
Experts ............................11
Legal Matters ................... 12
Material Changes ................ 12
Incorporation by Reference ...... 12
Indemnification ................. 13
Additional Information .......... 13
14
<PAGE>
PART II
Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution.
The expenses in connection with the issuance and distribution of the
securities being registered under this Registration Statement are estimated as
follows:
Securities and Exchange Commission fee.... $ 6,649
Nasdaq National Market listing fee........ 17,500
Legal Fees and expenses................... 10,000
Accountant's fees and expenses............ 5,000
Miscellaneous............................. 851
-------
Total................... $40,000
Item 15. Indemnification of Directors and Officers.
Section 5.04 of the Company's by-laws provides that the Company will
indemnify its directors and officers to the fullest extent permitted by law.
Section 722 of the New York Business Corporation Law provides that a
corporation may indemnify a director or officer, made a party to a derivative
action, against reasonable expenses actually and necessarily incurred by him in
connection with the defense of such action, except in relation to matters as to
which such director or officer is adjudged to have breached his duty to the
corporation. Such indemnification does not include amounts paid in settling or
otherwise disposing of a threatened or pending action which is settled or
otherwise disposed of without court approval.
Section 722 of the Business Corporation Law further provides that a
corporation may indemnify a director or officer, made, or threatened to be made,
a party to any action other than a derivative action on behalf of the
indemnifying corporation, whether civil or criminal, against judgments, fines,
amounts paid in settlement and reasonable expenses actually and necessarily
incurred as a result of such action, if such director or officer acted in good
faith, for a purpose which he reasonably believed to be in the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
Section 723 specifies the manner in which payment of such indemnification
may be authorized by the corporation. It provides that indemnification by a
corporation is mandatory in any case in which the director or officer has been
completely successful, whether on the merits or otherwise, in defending an
action referred to in Section 722. In the event that the director or officer has
not been wholly successful or the action is settled, indemnification must be
authorized by the appropriate corporate action as set forth in Section 723.
Section 724 provides that upon application by a director or officer,
indemnification may be awarded by a court to the extent authorized under
Sections 722 and 723. Section 725 provides that no indemnification agreement in
any Certificate of Incorporation or By-Laws is valid unless consistent with the
statute. In addition, Section 725 contains certain other miscellaneous
provisions affecting the indemnification of directors and officers.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or
15
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 16. Exhibits.
Exhibit No. Description
(4) Certificate of Amendment dated May 8, 1997 to Registrant's Certificate
of Incorporation
(5) Opinion of Oscar D. Folger
(23)(a) Consent of Oscar D. Folger (Included in Exhibit 5)
(23)(b) Consent of KPMG Peat Marwick LLP
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the high and low and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3, or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That for purposes of determining any liability under the Securities
Act of 1933, each filing of
16
<PAGE>
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
17
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Tarrytown, New York on
the 20th day of June 1997.
AMBI Inc.
By: /s/
-----------------------------
Fredric D. Price, President, CEO and Director
18
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Fredric D. Price as his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form S-3
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission under the
Securities Act of 1933.
--------------------
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/
- -------------------------
Sheldon G. Gilgore Chairman of the Board June 20, 1997
/s/
- -------------------------
Fredric D. Price President, CEO and Director June 20, 1997
(Principal Accounting and
Financial Officer)
/s/
- -------------------------
Robert E. Flynn Director June 16, 1997
/s/
- -------------------------
Colin Kop Director June 20, 1997
/s/
- -------------------------
Audrey T. Cross Director June 17, 1997
/s/
- -------------------------
Robert E. Pollack Director June 13, 1997
</TABLE>
19
<PAGE>
Exhibit 4
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE
OF
INCORPORATION
OF
AMBI INC.
(Pursuant to Sections 502 and 805 of the
New York Business Corporation Law)
1. The name of the corporation is AMBI Inc. The name under which
it was formed is Applied Micro Biology, Inc.
2. The date its certificate of incorporation was filed by the
Department of State is June 29, 1983.
3. The certificate of incorporation is hereby amended by the
addition of the following new Article Sixteenth, which states the number,
designation, relative rights, preferences, and limitations which have been fixed
by resolution of the corporation's board of directors for shares of the Series D
Convertible Preferred Stock:
"ARTICLE Sixteenth: There is hereby created a series of the
Preferred Stock of this corporation to consist of 100,000 of
the 5,000,000 shares of Preferred Stock, $.01 par value per
share, which this corporation now has authority to issue. All
references to Sections in this Article Sixteenth shall refer
to the Sections contained in this Article Sixteenth.
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 100,000 shares of
Preferred Stock, is the Series D Convertible Preferred Stock (the "Series D
Preferred Stock") and the face amount shall be One Hundred U.S. Dollars
($100.00) per share (the "Face Amount").
II. NO DIVIDENDS
The Series D Preferred Stock will bear no dividends, and the holders of
the Series D Preferred Stock shall not be entitled to receive dividends on the
Series D Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Article Sixteenth, the following terms shall have
the following meanings:
A. "Closing Bid Price" means, for any security as of any date,
the closing bid price
<PAGE>
of such security on the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg Financial Markets or
a comparable reporting service of national reputation selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series D Preferred Stock if Bloomberg Financial Markets is
not then reporting closing bid prices of such security (collectively,
"Bloomberg"), or if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Corporation and reasonably acceptable to
holders of a majority of the then outstanding shares of Series D Preferred
Stock, with the costs of such appraisal to be borne by the Corporation.
B. "Conversion Date" means, for any Optional Conversion, the date
specified in the notice of conversion in the form attached hereto (the "Notice
of Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before
Midnight, New York City time, on the Conversion Date indicated in the Notice of
Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation. The Conversion
Date for the Required Conversion at Maturity shall be the Maturity Date (as such
terms are defined in Paragraph D of Section IV).
C. "Conversion Percentage" shall have the following meaning and
shall be subject to adjustment as provided herein:
<TABLE>
<CAPTION>
If the Conversion Date is:
Then the Conversion Percentage is:
<S> <C>
Prior to February 2, 1998 87%
On or after February 2, 1998 83%
but prior to May 3, 1998
On or after May 3, 1998 79%
but prior to August 1, 1998
On or after August 1, 1998 75%
</TABLE>
Notwithstanding the foregoing, the Conversion Percentage at all times following
the occurrence of any Major Event shall equal seventy-five percent (75%).
D. "Conversion Price" means, (a) with respect to any Conversion
Date occurring prior to the earlier of November 4, 1997 or a Major Event, the
Fixed Conversion Price and (b) with respect to any Conversion Date occurring on
or after the earlier of November 4, 1997 or a Major Event, the lower of the
Fixed Conversion Price and the Variable Conversion Price, each
21
<PAGE>
in effect as of such date and subject to adjustment as provided herein.
E. "Fixed Conversion Price" means $2.49557 and shall be subject
to adjustment as provided herein.
F. "Major Event" means the occurrence of any of the following:
(a) the merger, consolidation or other business combination of the Corporation
with any other entity (other than a merger, consolidation or business
combination pursuant to which the Company's voting stock immediately preceding
such transaction (together with any securities received in exchange for such
voting stock in the transaction) entitle the holders thereof to at least fifty
percent (50%) of the aggregate voting power of all of the capital stock of the
entity surviving such transaction); (b) any person, entity or "group" (as such
term is used in Section 13(d) of the Securities Exchange Act of 1934, as
amended, acquires, directly or indirectly, beneficial ownership of fifty percent
(50%) or more of the voting power of the Corporation's outstanding capital
stock; (c) individuals who on May 6, 1997 constituted the Corporation's Board of
Directors (together with any new directors whose election by the stockholders of
the Corporation was approved or who were elected by a vote of at least 66_% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Corporation's
Board of Directors then in office; or (d) Fredric D. Price ceasing to be the
Chief Executive Officer of the Corporation prior to the earlier of (i) May 8,
1998 or (ii) the trading day following the Corporation's public announcement
that the Corporation achieved positive Operating Income (as defined below) for
one fiscal quarter commencing on or after July 1, 1997 (provided such
announcement is not determined to be in error). As used herein, "Operating
Income" for any fiscal quarter means the Corporation's Operating Income as
reported on the Company's quarterly report on Form 10-Q or annual report on Form
10-K for such fiscal quarter and as determined in accordance with generally
accepted accounting principles consistently applied.
G. "N" means the number of days from, but excluding, the date of
the issuance of such share of Series D Preferred Stock through and including the
Conversion Date for such share of Series D Preferred Stock.
H. "Premium" means an amount equal to (.06)x(N/365)x(100).
I. "Variable Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage then
in effect by the average of the Closing Bid Prices for the Corporation's Common
Stock, par value $.005 per share ("Common Stock") for the ten (10) consecutive
trading days ending on the trading day immediately preceding such date of
determination (subject to equitable adjustment for any stock splits, stock
dividends, reclassifications or similar events during such ten (10) trading day
period), and shall be subject to adjustment as provided herein.
IV. CONVERSION
22
<PAGE>
A. Conversion at the Option of the Holder. Subject to the
limitations on conversions contained in Paragraph C of this Section IV, each
holder of shares of Series D Preferred Stock may, at any time and from time to
time after August 5, 1997, convert (an "Optional Conversion") each of its shares
of Series D Preferred Stock into a number of fully paid and nonassessable shares
of Common Stock determined in accordance with the following formula:
100 + the Premium
-----------------
Conversion Price
B. Mechanics of Conversion. In order to effect an Optional
Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully
executed Notice of Conversion to the Corporation or the transfer agent for the
Common Stock and (y) surrender or cause to be surrendered the original
certificates representing the Series D Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice
of Conversion as soon as practicable thereafter to the Corporation or the
transfer agent. Upon receipt by the Corporation of a facsimile copy of a Notice
of Conversion from a holder, the Corporation shall immediately send, via
facsimile, a confirmation to such holder stating that the Notice of Conversion
has been received, the date upon which the Corporation expects to deliver the
Common Stock issuable upon such conversion and the name and telephone number of
a contact person at the Corporation regarding the conversion. The Corporation
shall not be obligated to issue shares of Common Stock upon a conversion unless
either the Preferred Stock Certificates are delivered to the Corporation as
provided above, or the holder notifies the Corporation or the transfer agent
that such certificates have been lost, stolen or destroyed (subject to the
requirements of Section XIV.B).
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series D Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, no later
than the second business day following the later of (a) the Conversion Date and
(b) the date of such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of indemnity pursuant to Section XIV.B) (the
"Delivery Period"), issue and deliver or cause its transfer agent to issue and
deliver to the holder (x) that number of shares of Common Stock issuable upon
conversion of such shares of Series D Preferred Stock being converted and (y) a
certificate representing the number of shares of Series D Preferred Stock not
being converted, if any.
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the shares
of Common Stock upon the conversion of the Series D Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series D
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series D Preferred Stock shall be
the next higher whole number of shares.
23
<PAGE>
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to its outside accountant via
facsimile within two (2) business days of receipt of the Notice of Conversion.
The accountant shall audit the calculations and notify the Corporation and the
holder of the results as soon as practicable after the date it receives the
disputed calculations. The accountant's calculation shall be deemed conclusive,
absent manifest error. The Corporation shall then issue the appropriate number
of shares of Common Stock in accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of
Series D Preferred Stock shall be subject to the following limitations (each of
which limitations shall be applied independently):
(i) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded (whether because the Corporation has obtained requisite
shareholder approval or otherwise), in no event shall the total number of shares
of Common Stock issued upon conversion of the Series D Preferred Stock exceed
the maximum number of shares of Common Stock that the Corporation can so issue
without the approval of its common stockholders pursuant to Rule 4460(i) of the
Nasdaq National Market ("Nasdaq") (or any successor rule) (the "Cap Amount").
The Cap Amount shall be allocated pro-rata to the holders of Series D Preferred
Stock as provided in Section XIV.C. In the event the Corporation is prohibited
from issuing shares of Common Stock as a result of the operation of this
subparagraph (i), the Corporation shall comply with Section VII.
(ii) No Five Percent Holders. Except in a Required Conversion
at Maturity pursuant to Section IV.D, in no event shall a holder of shares of
Series D Preferred Stock be entitled to receive shares of Common Stock upon a
conversion to the extent that, if converted with respect to a holder thereof,
such holder would beneficially own in excess of 4.9% of the outstanding shares
of Common Stock. To the extent the above limitation applies, the determination
of whether and which shares of Series D Preferred Stock shall be convertible
(vis-a-vis other securities owned by such holder) shall be in the sole
discretion of the holder thereof and submission of shares of Series D Preferred
Stock for conversion shall be deemed to be the holder's determination of whether
and which shares of Series D Preferred Stock are convertible (vis-a-vis other
securities owned by such holder), subject to the aggregate percentage
limitation. No prior inability to convert shares of Series D Preferred Stock
pursuant to this subparagraph (ii) shall have any effect on the applicability of
the provisions of this subparagraph (ii) with respect to any subsequent
determination of convertibility. For purposes of this subparagraph, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder. The
restriction contained in this subparagraph (ii) shall not be altered, amended,
deleted or changed in any manner whatsoever unless the holders of a majority of
the Common Stock and each holder of Series D Preferred Stock shall approve such
alteration, amendment, deletion or change.
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<PAGE>
D. Required Conversion at Maturity. Subject to the limitations
set forth in Paragraph C(i) of this Section IV and provided all shares of Common
Stock issuable upon conversion of all outstanding shares of Series D Preferred
Stock are then (i) authorized and reserved for issuance, (ii) registered under
the Securities Act of 1933, as amended (the "Securities Act") for resale by the
holders of such shares of Series D Preferred Stock and (iii) eligible to be
traded on either the Nasdaq, the Nasdaq Small Cap Market ("Small Cap"), the New
York Stock Exchange or the American Stock Exchange, each share of Series D
Preferred Stock issued and outstanding on May 8, 1999 (the "Maturity Date") (and
any accrued and unpaid Conversion Default Payments), automatically shall be
converted into shares of Common Stock on such date in accordance with the
conversion formulas set forth in Paragraph A of this Section IV (the "Required
Conversion at Maturity"). If the Required Conversion at Maturity occurs, the
Corporation and the holders of Series D Preferred Stock shall follow the
applicable conversion procedures set forth in Paragraph B of this Section IV;
provided, however, that the holders of Series D Preferred Stock are not required
to deliver a Notice of Conversion to the Corporation or its transfer agent.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of
Series D Preferred Stock, the Corporation shall reserve 8,700,000 shares of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the Series D Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the conversion of
the Series D Preferred Stock outstanding at the then current Conversion Price.
The Reserved Amount shall be allocated to the holders of Series D Preferred
Stock as provided in Section XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any
three (3) consecutive trading days (the last of such three (3) trading days
being the "Authorization Trigger Date") shall be less than 135% of the number of
shares of Common Stock issuable upon conversion of the Series D Preferred Stock
on such trading days, the Corporation shall promptly notify the holders of
Series D Preferred Stock of such occurrence and shall use its best efforts
(including, if necessary, seeking shareholder approval to authorize the issuance
of additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series D Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within ninety (90) days after an Authorization
Trigger Date, each holder of Series D Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice (as defined in Section VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Redemption Amount (as defined in Section VIII.B), a portion
of the holder's Series D Preferred Stock such that, after giving effect to such
purchase, the holder's allocated portion of the Reserved Amount exceeds 135% of
the total number of shares of Common Stock issuable to such holder upon
conversion of its Series
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<PAGE>
D Preferred Stock. If the Corporation fails to redeem any of such shares within
five (5) business days after its receipt of a Redemption Notice, then such
holder shall be entitled to the remedies provided in Section VIII.C.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of
shares of Series D Preferred Stock submits a Notice of Conversion and the
Corporation fails for any reason (other than because such issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount, for which
failures the holders shall have the remedies set forth in Sections V and VII) to
deliver, on or prior to the fourth business day following the expiration of the
Delivery Period for such conversion, such number of freely tradeable shares of
Common Stock to which such holder is entitled upon such conversion, or (y) the
Corporation provides notice to any holder of Series D Preferred Stock at any
time of its intention not to issue freely tradeable shares of Common Stock upon
exercise by any holder of its conversion rights in accordance with the terms of
this Article Sixteenth (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount) (each of (x)
and (y) being a "Conversion Default"), then the Corporation shall pay to the
affected holder, in the case of a Conversion Default described in clause (x)
above, and to all holders, in the case of a Conversion Default described in
clause (y) above, payments for the first ten (10) business days following the
expiration of the Delivery Period, in the case of a Conversion Default described
in clause (x), and for the first ten (10) business days following a Conversion
Default described in clause (y), an amount equal to $500 per day. In the event
any Conversion Default continues beyond such ten (10) business day period, the
Corporation shall pay to the holder an additional amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the ten (10)
business day period described above through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all shares of
Series D Preferred Stock held by such holder plus (ii) the total accrued Premium
as of the first day of the Conversion Default on all shares of Series D
Preferred Stock included in clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series D Preferred Stock and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable Common Stock in
satisfaction of all conversions of Series D Preferred Stock in accordance with
Section IV.A.
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<PAGE>
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "Conversion Default Payments." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Default Payments, at any time,
into Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date for
such conversion. In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing. Such payment
shall be made in accordance with and be subject to the provisions of Section
XIV.E. In the event a holder elects to convert all or any portion of the
Conversion Default Payments into Common Stock, the holder shall indicate on a
Notice of Conversion such portion of the Conversion Default Payments which such
holder elects to so convert and such conversion shall otherwise be effected in
accordance with the provisions of Section IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series D Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for
which failures the holders shall have the remedies set forth in Sections V and
VII), then the Fixed Conversion Price in respect of any shares of Series D
Preferred Stock held by such holder shall thereafter be the lesser of (i) the
Fixed Conversion Price on the Conversion Date specified in the Notice of
Conversion which resulted in the Conversion Default and (ii) the lowest
Conversion Price in effect during the period beginning on, and including, such
Conversion Date through and including the day such shares of Common Stock are
delivered to the holder. If there shall occur a Conversion Default of the type
described in clause (y) of Section VI.A., then the Fixed Conversion Price with
respect to any conversion thereafter shall be the lowest Conversion Price in
effect at any time during the period beginning on, and including, the date of
the occurrence of such Conversion Default through and including the Default Cure
Date. The Fixed Conversion Price shall thereafter be subject to further
adjustment for any events described in Section XI.
C. Buy-In Cure. Unless the Corporation has notified the
applicable holder in writing prior to the delivery by such holder of a Notice of
Conversion that the Corporation is unable to honor conversions, if (i) the
Corporation fails for any reason to deliver during the Delivery Period shares of
Common Stock to a holder upon a conversion of shares of Series D Preferred Stock
and (ii) after the applicable Delivery Period with respect to such conversion,
such holder purchases (in an open market transaction or otherwise) shares of
Common Stock to make delivery in satisfaction of a sale by such holder of the
shares of Common Stock (the "Sold Shares") which such holder anticipated
receiving upon such conversion (a "Buy-In"), the Corporation shall pay such
holder (in addition to any other remedies available to the holder) the amount by
which (x) such holder's total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased exceeds (y) the net proceeds
received by such holder from the sale of the Sold Shares. For example, if a
holder purchases shares of Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to shares of Common Stock it sold for $10,000,
the Corporation will be required to pay the holder $1,000. A holder shall
provide
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<PAGE>
the Corporation written notification indicating any amounts payable to such
holder pursuant to this Paragraph C. The Corporation shall make any payments
required pursuant to this Paragraph C in accordance with and subject to the
provisions of Section XIV.E.
D. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Sections V and VII) to issue shares of Common Stock within ten (10)
business days after the expiration of the Delivery Period with respect to any
conversion of Series D Preferred Stock, then the holder may elect at any time
and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Redemption Notice (as defined in Section VIII.C) to
the Corporation, to have all or any portion of such holder's outstanding shares
of Series D Preferred Stock purchased by the Corporation for cash, at an amount
per share equal to the Redemption Amount (as defined in Section VIII.B). If the
Corporation fails to redeem any of such shares within five (5) business days
after its receipt of a Redemption Notice, then such holder shall be entitled to
the remedies provided in Section VIII.C.
VII. INABILITY TO CONVERT SHARES OF SERIES D PREFERRED STOCK DUE
TO CAP AMOUNT
A. Redemption Right. At any time and from time to time during any
period (if any) that the then unissued portion of any holder's Cap Amount is
less than the number of shares of Common Stock then issuable upon conversion of
such holder's shares of Series D Preferred Stock, such holder of Series D
Preferred Stock shall have the option, exercisable in whole or in part by
delivery of a Redemption Notice (as defined in Section VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Redemption Amount (as defined in Section VIII.B), a portion
of the holder's Series D Preferred Stock such that, after giving effect to such
purchase, the then unissued portion of such holder's Cap Amount on the date of
such Redemption Notice equals 100% of the total number of shares of Common Stock
then issuable to such holder upon conversion of its Series D Preferred Stock. If
the Corporation fails to redeem any of such shares within five (5) business days
after its receipt of a Redemption Notice, then such holder shall be entitled to
the remedies provided in Section VIII.C.
B. Remedies. If the Corporation is prohibited, at any time, from
issuing shares of Common Stock upon conversion of Series D Preferred Stock to
any holder because such issuance would exceed the then unissued portion of such
holder's Cap Amount because of applicable law or the rules or regulations of any
stock exchange, interdealer quotation system or other self- regulatory
organization with jurisdiction over the Corporation or its securities, any
holder who is so prohibited from converting its Series D Preferred Stock may
elect to require, with the consent of holders of at least fifty percent (50%) of
the outstanding shares of Series D Preferred Stock (including any shares of
Series D Preferred Stock held by the requesting holder), the
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<PAGE>
Corporation to terminate the listing of its Common Stock on the Nasdaq National
Market ("Nasdaq") (or any other stock exchange, interdealer quotation system or
trading market) and to cause its Common Stock to be eligible for trading on
SmallCap or on the over-the-counter electronic bulletin board (but only if such
action will permit the issuance of the shares of Common Stock issuable upon
conversion of all of the then outstanding Series D Preferred Stock without
violating any of the rules of such trading market (i.e., Small Cap or the
over-the-counter electronic bulletin board)), at the option of the requesting
holder.
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events
described in clauses (i)- (v) below after expiration of the applicable cure
period (if any) being a "Redemption Event"):
(i) the Common Stock (including any of the shares of Common
Stock issuable upon conversion of the Series D Preferred Stock) is suspended
from trading on any of, or is not listed (and authorized) for trading on at
least one of, the New York Stock Exchange ("NYSE"), the American Stock Exchange
("AMEX"), Nasdaq or SmallCap for an aggregate of ten (10) trading days in any
nine (9) month period;
(ii) the Registration Statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement, dated
as of May 8, 1997, by and among the Corporation and the other signatories
thereto (the "Registration Rights Agreement"), has not been declared effective
by November 15, 1997 or such Registration Statement, after being declared
effective, cannot be utilized by the holders of Series D Preferred Stock for the
resale of all of their Registrable Securities (as defined in the Registration
Rights Agreement) for an aggregate of more than thirty (30) days;
(iii) the Corporation fails, and any such failure continues
uncured for five (5) business days after the Corporation has been notified
thereof in writing by the holder, to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series D
Preferred Stock upon conversion of the Series D Preferred Stock as and when
required by this Article Sixteenth, the Securities Purchase Agreement (the
"Securities Purchase Agreement") dated as of May 8, 1997 by and among the
Corporation and the Purchasers of the Corporation's Series D Preferred Stock or
the Registration Rights Agreement;
(iv) the Corporation provides notice to any holder of Series D
Preferred Stock, including by way of public announcement, at any time, of its
intention not to, or otherwise refuses to, issue shares of Common Stock to any
holder of Series D Preferred Stock upon conversion in accordance with the terms
of this Article Sixteenth (other than due to the circumstances contemplated by
Sections V or VII for which the holders shall have the remedies set forth in
such Sections);
(v) the Corporation shall engage in any merger, consolidation,
exchange offer
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<PAGE>
or sale of all or substantially of its assets or any other business combination
pursuant to which the surviving or successor entity is not a publicly traded
corporation whose common stock is listed for trading on the Nasdaq, NYSE or AMEX
(or SmallCap if the Corporation's Common Stock was listed on SmallCap at the
time of such merger, consolidation, exchange offer, sale or business
combination); then, upon the occurrence of any such Redemption Event, each
holder of shares of Series D Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a Redemption Notice (as defined in Paragraph C below) to the Corporation while
such Redemption Event continues, to require the Corporation to purchase for cash
any or all of the then outstanding shares of Series D Preferred Stock held by
such holder for an amount per share, in the case of a Redemption Event described
in clauses (i)-(iv) above equal to the Redemption Amount (as defined in
Paragraph B below), or in the case of a Redemption Event described in clause (v)
above, equal to the Benefit of the Bargain (as defined in Paragraph D below), in
each case as in effect at the time of the redemption hereunder. For the
avoidance of doubt, the occurrence of any event described in clauses (i), (ii),
(iv) or (v) above shall immediately constitute a Redemption Event and there
shall be no cure period.
B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a share of Series D Preferred Stock means an amount equal to:
V
-------------- X M
C P
where:
"V" means the face amount thereof plus the accrued Premium thereon and
all Conversion Default Payments (if any) with respect thereto through the date
of redemption;
"CP" means the Conversion Price in effect on the date of the Redemption
Notice; and
"M" means the highest Closing Bid Price of the Corporation's Common
Stock during the period beginning on the date of the Redemption Notice and
ending on the date of the redemption.
C. Redemption Defaults. If the Corporation fails to pay any
holder the Redemption Amount with respect to any share of Series D Preferred
Stock within five (5) business days of its receipt of a notice requiring such
redemption (a "Redemption Notice"), then the holder of Series D Preferred Stock
delivering such Redemption Notice (i) shall be entitled to interest on the
Redemption Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law from the date of
the Redemption Notice until the date of redemption hereunder, and (ii) shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Section IV) all or any portion of the Redemption Amount, plus
interest as aforesaid, into shares of Common Stock at the lowest Conversion
Price in effect during the period beginning on the date of the Redemption Notice
and ending on the Conversion Date with respect to the conversion of such
Redemption Amount. In the event the Corporation is not able
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<PAGE>
to redeem all of the shares of Series D Preferred Stock subject to Redemption
Notices, the Corporation shall redeem shares of Series D Preferred Stock from
each holder pro rata, based on the total number of shares of Series D Preferred
Stock included by such holder in the Redemption Notice relative to the total
number of shares of Series D Preferred Stock in all of the Redemption Notices.
D. Redemption by Corporation.
(i) The Corporation shall have the right, at any time
following the first anniversary of the date of the First Closing under the
Securities Purchase Agreement (the "First Closing Date"), and provided the
Corporation is not in material violation of any of its obligations under this
Article Sixteenth, the Securities Purchase Agreement or the Registration Rights
Agreement, to redeem (an "Optional Redemption") all or any portion of the then
outstanding Series D Preferred Stock (other than Series D Preferred Stock which
is the subject of a Notice of Conversion delivered prior to the delivery date of
the Optional Redemption Notice (as defined in subparagraph (iii) below)) for the
Optional Redemption Amount (as defined below), which right shall be exercisable
one time while any Series D Preferred Stock is outstanding by the Corporation in
its sole discretion by delivery of an Optional Redemption Notice in accordance
with the redemption procedures set forth below. Any Optional Redemption pursuant
to this Paragraph D shall be made ratably among the holders of Series D
Preferred Stock in proportion to the number of shares of Series D Preferred
Stock then outstanding. Holders of Series D Preferred Stock may convert all or
any part of their shares of Series D Preferred Stock selected for redemption
hereunder into Common Stock in accordance with the provisions of Section IV at
any time prior to the Effective Date of Redemption as defined in subparagraph
(iii). The "Optional Redemption Amount" with respect to each share of Series D
Preferred Stock means the greater of (a) 130% multiplied by the sum of (I) the
Face Amount thereof plus (II) the accrued Premium thereon and all Conversion
Default Payments (if any) with respect thereto through the date of redemption,
and (b) the Benefit of the Bargain (as defined below).
(ii) The "Benefit of the Bargain" with respect to a share of
Series D Preferred Stock means an amount equal to:
V
-------------- X M
C P
where:
"V" means the face amount thereof plus the accrued Premium thereon and
all Conversion Default Payments (if any) with respect thereto through the date
of redemption;
"CP" means the Conversion Price in effect on the date of the Redemption
Notice; and
"M" means the last reported sale price of the Corporation's Common
Stock on the trading day immediately preceding the date of the Optional
Redemption Notice as reported by Bloomberg.
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<PAGE>
(iii) The Corporation may not deliver an Optional Redemption
Notice to a holder of Series D Preferred Stock unless on or prior to the date of
delivery of such Optional Redemption Notice, the Corporation shall have
deposited with its transfer agent in the United States or another escrow agent
reasonably acceptable to holders of a majority of the outstanding shares of
Series D Preferred Stock, as a trust fund, cash sufficient in amount to pay all
amounts to which the holders of Series D Preferred Stock are entitled upon such
redemption pursuant to subparagraph (i) of this Paragraph D, with irrevocable
instructions and authority to such transfer agent or escrow agent to complete
the redemption thereof in accordance with this Paragraph D. Any Optional
Redemption Notice delivered in accordance with the immediately preceding
sentence shall be accompanied by a statement executed by a duly authorized
officer of its transfer agent or escrow agent, certifying the amount of funds
which have been deposited with such transfer agent or escrow agent and that the
transfer agent or escrow agent has been instructed and agrees to act as
redemption agent hereunder.
(iv) The Corporation shall effect each redemption under this
Section VIII.D by giving at least twenty (20) business days but not more than
thirty (30) business days prior written notice (the "Optional Redemption
Notice") of the date which such redemption is to become effective (the
"Effective Date of Redemption"), the shares of Series D Preferred Stock selected
for redemption and the Optional Redemption Amount to (i) the holders of Series D
Preferred Stock selected for redemption at the address and facsimile number of
such holder appearing in the Corporation's register for the Series D Preferred
Stock and (ii) the transfer agent for the Common Stock, which Optional
Redemption Notice shall be deemed to have been delivered on the business day
after the Corporation's fax (with a copy sent by overnight courier to the
holders of Series D Preferred Stock) of such notice to the holders of Series D
Preferred Stock.
(v) The Optional Redemption Amount shall be paid to the holder
of the Series D Preferred Stock being redeemed within three (3) business days of
the Effective Date of Redemption; provided, however, that the Corporation shall
not be obligated to deliver any portion of the Optional Redemption Amount until
either the certificates evidencing the Series D Preferred Stock being redeemed
are delivered to the office of the Corporation or the transfer agent, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation in accordance
with Section XIV.B hereof. Notwithstanding anything herein to the contrary, in
the event that the certificates evidencing the Series D Preferred Stock being
redeemed are not delivered to the Corporation or the transfer agent prior to the
third business day following the Effective Date of Redemption, the redemption of
the Series D Preferred Stock pursuant to this Section VIII.D shall still be
deemed effective as of the Effective Date of Redemption and the Optional
Redemption Amount shall be paid to the holder of Series D Preferred Stock being
redeemed within five (5) business days of the date the certificates evidencing
the Series D Preferred Stock being redeemed are actually delivered to the
Corporation or the transfer agent.
(vi) Notwithstanding the provisions of Section IV hereof, if
on the Conversion Date for any Optional Conversion, the Closing Bid Price of the
Corporation's Common Stock is less than $1.13435 (subject to equitable
adjustments for stock splits, stock dividends,
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<PAGE>
reclassifications or similar events), then the Corporation may, at its option,
by the delivery of written notice to such holder within one (1) business day of
its receipt of the Conversion Notice for such Optional Conversion, elect to
redeem the shares of Series D Preferred Stock which are the subject of such
Conversion Notice at a price per share equal to the Optional Redemption Amount
in lieu of converting such shares to Common Stock. Each holder of Series D
Preferred Stock shall have the right, by sending a written request to the
Corporation, to require the Corporation to provide advance written notice to
such holder stating whether the Corporation will elect to exercise its
redemption rights pursuant to this paragraph (vi) in respect of all or any
portion of any conversions which would otherwise be made within the next thirty
(30) day period. The Corporation shall have two (2) business days from receipt
of such request to reply in writing to such holder. In the event the Corporation
either fails to so reply or replies that it will not elect to exercise such
redemption rights, the Corporation shall forfeit its rights to redeem shares of
Series D Preferred Stock pursuant to this paragraph (vi) during the thirty (30)
day period immediately following the expiration of the Corporation's reply
period or receipt of such election not to redeem, as the case may be. In the
event the Corporation notifies a holder of its intention to redeem shares of
Series D Preferred Stock pursuant to this paragraph (vi) and such holder
delivers a Conversion Notice at any time during which the Corporation has
redemption rights pursuant to this paragraph (vi) and the Corporation, prior to
the date of such Conversion Notice, has not provided such holder with written
notice that it no longer intends to exercise its redemption rights pursuant to
this paragraph (vi), the Corporation shall, no later than five (5) business days
from the date of such Conversion Notice, pay to such holder the Optional
Redemption Amount for each share of Series D Preferred Stock which is covered by
such Conversion Notice.
(vii) If the Corporation fails to pay, when due and owing, any
Optional Redemption Amount, then the holder of Series D Preferred Stock entitled
to receive such Optional Redemption Amount shall have the right, at any time and
from time to time, to require the Corporation, upon written notice, to
immediately convert (in accordance with the terms of paragraph A of Section IV)
any or all of the shares of Series D Preferred Stock which are the subject of
such redemption, into shares of Common Stock at the lowest Conversion Price in
effect during the period beginning on the date the Corporation elected to redeem
such shares of Series D Preferred Stock and ending on the twentieth trading day
following either the Conversion Date which gave rise to the right of redemption
(in the case of a redemption pursuant to subparagraph (vi) of this Paragraph D)
or the Effective Date of Redemption (in the case of an Optional Redemption), as
the case may be. In addition, if the Corporation fails to pay an Optional
Redemption Amount when due and owing, the Corporation shall thereafter forfeit
its rights under this Paragraph D to effect any redemption with respect to any
or all issued and outstanding shares of Series D Preferred Stock, and shall pay
the holder interest on such Optional Redemption Amount at a per annum rate equal
to the lower of twenty-four percent (24%) and the highest interest rate
permitted by applicable law from the date the Corporation elected to redeem such
shares of Series D Preferred Stock until the date on which such Series D
Preferred Stock is redeemed by the Corporation.
IX. RANK
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Subject to the provisions of Section XIII.(g) hereof, all shares of the
Series D Preferred Stock shall rank (i) prior to the Corporation's Common Stock,
1992 Redeemable Preferred Stock, par value $.01 per share (the "1992 Preferred
Stock"), and Series C Preferred Stock, par value $.01 per share ("Series C
Preferred Stock"); (ii) prior to any class or series of capital stock of the
Corporation hereafter created other than Permitted Pari Passu Securities (as
defined below) (unless, with the consent of the holders of Series D Preferred
Stock obtained in accordance with Section XIII hereof, such class or series of
capital stock specifically, by its terms, ranks senior to or pari passu with the
Series D Preferred Stock) (collectively, with the Common Stock, 1992 Preferred
Stock and Series C Preferred Stock, "Junior Securities"); (iii) pari passu with
any class or series of capital stock of the Corporation hereafter created
specifically ranking, by its terms, on parity with the Series D Preferred Stock
and issued exclusively to a strategic partner in connection with the
consummation by the Corporation and such strategic partner of a transaction the
primary purpose of which is not to raise capital and which is material to the
Corporation ("Permitted Pari Passu Securities"); (iv) pari passu with any class
or series of capital stock of the Corporation hereafter created (with the
consent of the holders of Series D Preferred Stock obtained in accordance with
Section XIII hereof) specifically ranking, by its terms, on parity with the
Series D Preferred Stock (collectively, with the Permitted Pari Passu
Securities, the "Pari Passu Securities"); and (v) junior to any class or series
of capital stock of the Corporation hereafter created (with the consent of the
holders of Series D Preferred Stock obtained in accordance with Section XIII
hereof) specifically ranking, by its terms, senior to the Series D Preferred
Stock (the "Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the
U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (a "Liquidation Event"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation, dissolution or winding up unless prior thereto the holders of
shares of Series D Preferred Stock shall have received the Liquidation
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Preference with respect to each share. If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of the
Series D Preferred Stock and holders of Pari Passu Securities shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the Corporation legally
available for distribution to the Series D Preferred Stock and the Pari Passu
Securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Corporation. Neither
the consolidation or merger of the Corporation with or into any other entity nor
the sale or transfer by the Corporation of less than substantially all of its
assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series
D Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
this Certificate of Incorporation.
IX. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after
the First Closing Date, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately increased. In
such event, the Corporation shall notify the Corporation's transfer agent of
such change on or before the effective date thereof.
B. Adjustment Due to Major Announcement. In the event the
Corporation at any time after the First Closing Date (i) makes a public
announcement that it intends to consolidate or merge with any other entity
(other than a merger in which the Corporation is the surviving or continuing
entity and its capital stock is unchanged) or to sell or transfer all or
substantially all of the assets of the Corporation or (ii) any person, group or
entity (including the Corporation) publicly announces a tender offer, exchange
offer or another transaction to purchase 50% or more of the Corporation's Common
Stock (the date of the announcement referred to in clause (i) or (ii) of this
Paragraph B is hereinafter referred to as the "Announcement Date"), then the
Conversion Price shall, effective upon the Announcement Date and continuing
through the eleventh trading day following the earlier of the consummation of
the proposed transaction or tender offer,
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exchange offer or another transaction or the Abandonment Date (as defined
below), be equal to the lower of (x) the Conversion Price which would have been
applicable for an Optional Conversion occurring on the Announcement Date and (y)
the Conversion Price determined in accordance with Section III.D on the
Conversion Date set forth in the Notice of Conversion for the Optional
Conversion. From and after the eleventh trading day following the Abandonment
Date, the Conversion Price shall be determined as set forth in Section III.D.
"Abandonment Date" means with respect to any proposed transaction or tender
offer, exchange offer or another transaction for which a public announcement as
contemplated by this Paragraph B has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) publicly announces the termination or abandonment
of the proposed transaction or tender offer, exchange offer or another
transaction which caused this Paragraph B to become operative.
C. Adjustment Due to Merger, Consolidation, Etc. If, at any time
after the First Closing Date, there shall be (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, then the
holders of Series D Preferred Stock shall thereafter have the right to receive
upon conversion, in lieu of the shares of Common Stock immediately theretofore
issuable, such shares of stock, securities and/or other property as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore issuable upon conversion (without giving
effect to the limitations contained in Section IV.C) had such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event 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 Price and of the
number of shares of Common Stock 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 Corporation shall not effect any transaction described
in this Paragraph C unless (i) each holder of Series D Preferred Stock has
received written notice of such transaction at least thirty (30) days prior
thereto, but in no event later than ten (10) days prior to the record date for
the determination of shareholders entitled to vote with respect thereto, and
(ii) the resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligations of this Paragraph C. The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series D Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
D. Adjustment Due to Distribution. If at any time after the
First Closing Date the
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Corporation shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution
to the Corporation's shareholders in cash or shares (or rights to acquire
shares) of capital stock of a subsidiary (i.e. a spin-off)) (a "Distribution"),
then effective upon the date of record for determining shareholders entitled to
such Distribution, the Fixed Conversion Price then in effect shall be reduced by
the fair market value of the assets distributable or distributed in such
Distribution with respect to each share of Common Stock then outstanding. For
purposes of determining the fair market value of any assets to be so
distributed, the fair market value of any cash to be distributed shall be the
amount of such cash and the fair market value of any other assets to be so
distributed shall be determined by an expert of national reputation in
appraising the value of assets of the type so distributed, which expert shall be
selected by the Company and be reasonably acceptable to holders holding a
majority of the shares of Series D Preferred Stock then outstanding, with the
costs of such expert to be borne by the Company.
E. Purchase Rights. If at any time after the First Closing Date,
the Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series D
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series D Preferred Stock (without giving effect
to the limitations contained in Section IV.C) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
F. Notice of Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Section XI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series D Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
D Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series D Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series D Preferred Stock have no voting power
whatsoever, except as otherwise provided by the New York Business Corporation
Law (the "Business Corporation Law"), in this Section XII and in Section XIII
below.
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Notwithstanding the above, the Corporation shall provide each holder of
Series D Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its shareholders for the
purpose of determining shareholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such vote, dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Law the vote of the
holders of the Series D Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series D Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series D
Preferred Stock (except as otherwise may be required under the Business
Corporation Law) shall constitute the approval of such action by the class. To
the extent that under the Business Corporation Law holders of the Series D
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series D Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible (without giving effect to the limitations contained
in Section IV.C) using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series D Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Law) of the holders of at least
a majority of the then outstanding shares of Series D Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series D Preferred Stock;
(b) alter or change the rights, preferences or privileges of
any capital stock of the Corporation so as to affect adversely the Series D
Preferred Stock;
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(c) create any new class or series of capital stock having a
preference over the Series D Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Section IX hereof, "Senior Securities");
(d) create any new class or series of capital stock ranking
pari passu with the Series D Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Section IX hereof, "Pari Passu Securities") other than Permitted Pari Passu
Securities;
(e) increase the authorized number of shares of Series D
Preferred Stock;
(f) issue any shares of Series D Preferred Stock other than
pursuant to the Securities Purchase Agreement; or
(g) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities other than (i) redemptions of 1992
Preferred Stock at the liquidation value thereof, (ii) redemptions of
convertible Junior Securities which may not be converted because of limitations
imposed by the principal securities exchange or interdealer quotation system on
which the Corporation's Common Stock is listed or traded; (iii) redemptions of
any convertible Junior Security if such Junior Security becomes convertible at a
price less than or equal to fifty percent (50%) of the Closing Bid Price of the
Corporation's Common Stock on the date of issuance of such security; (iv)
dividends on the 1992 Preferred Stock and Series C Preferred Stock in accordance
with the terms of such preferred stock as in effect on May 8, 1997 and (v)
dividends on preferred stock of the Corporation hereafter created at an annual
rate on the purchase price paid to the Corporation therefor not to exceed six
percent (6%).
If holders of at least a majority of the then outstanding shares of
Series D Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series D Preferred Stock
pursuant to subsection (a) above, then the Corporation shall deliver notice of
such approved change to the holders of the Series D Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the Dissenting
Holders shall have the right, for a period of thirty (30) days, to convert
pursuant to the terms of this Article Sixteenth as they existed prior to such
alteration or change or to continue to hold their shares of Series D Preferred
Stock.
XIV. MISCELLANEOUS
A. Cancellation of Series D Preferred Stock. If any shares of
Series D Preferred Stock are converted pursuant to Section IV, 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 Corporation as Series D Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation
of (i) evidence of the
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loss, theft, destruction or mutilation of any Preferred Stock Certificate(s) and
(ii) (y) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Corporation, or (z) in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the
Corporation shall execute and deliver new Preferred Stock Certificate(s) of like
tenor and date. However, the Corporation shall not be obligated to reissue such
lost or stolen Preferred Stock Certificate(s) if the holder contemporaneously
requests the Corporation to convert such Series D Preferred Stock.
C. Allocations of Cap Amount and Reserved Amount. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the holders of
Series D Preferred Stock based on the number of shares of Series D Preferred
Stock issued to each holder. Each increase to the Cap Amount and Reserved Amount
shall be allocated pro rata among the holders of Series D Preferred Stock based
on the number of shares of Series D Preferred Stock held by each holder at the
time of the increase in the Cap Amount or Reserved Amount, as the case may be.
In the event a holder shall sell or otherwise transfer any of such holder's
shares of Series D Preferred Stock, each transferee shall be allocated a pro
rata portion of such transferor's Cap Amount and Reserved Amount. Any portion of
the Cap Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Series D Preferred Stock shall be allocated to
the remaining holders of shares of Series D Preferred Stock, pro rata based on
the number of shares of Series D Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar
quarter beginning in the quarter in which the registration statement required to
be filed pursuant to Section 2(a) of the Registration Rights Agreement is
declared effective and thereafter so long as any shares of Series D Preferred
Stock are outstanding, the Corporation shall deliver (or cause its transfer
agent to deliver) to each holder a written report notifying the holders of any
occurrence which prohibits the Corporation from issuing Common Stock upon any
such conversion. The report shall also specify (i) the total number of shares of
Series D Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series D
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series D Preferred Stock as of the end of such quarter, and (iv) the total
number of shares of Common Stock which may thereafter be issued by the
Corporation upon conversion of the Series D Preferred Stock before the
Corporation would exceed the Cap Amount and the Reserved Amount. The Corporation
(or its transfer agent) shall deliver the report for each quarter to each holder
prior to the tenth day of the calendar month following the quarter to which such
report relates. In addition, the Corporation (or its transfer agent) shall
provide, within fifteen (15) days after delivery to the Corporation of a written
request by any holder, any of the information enumerated in clauses (i) (iv) of
this Paragraph D as of the date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is
required to make any cash payment to a holder under this Article Sixteenth (as a
Conversion Default Payment, upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such
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payment in cash and the method (e.g., by check, wire transfer) in which such
payment should be made. If such payment is not delivered within such five (5)
business day period, such holder shall thereafter be entitled to interest on the
unpaid amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law until such
amount is paid in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of
Conversion by a holder of Series D Preferred Stock, the shares covered thereby
shall be deemed converted into shares of Common Stock and the holder's rights as
a holder of such converted shares of Series D Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Article Sixteenth. Notwithstanding the foregoing, if a
holder has not received certificates for all shares of Common Stock prior to the
tenth (10th) business day after the expiration of the Delivery Period with
respect to a conversion of Series D Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock)
the holder shall regain the rights of a holder of Series D Preferred Stock with
respect to such unconverted shares of Series D Preferred Stock and the
Corporation shall, as soon as practicable, return such unconverted shares to the
holder. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Conversion Default
Payments pursuant to Section VI.A to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Section VI.B) for the Corporation's failure to convert Series D
Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Article
Sixteenth shall be cumulative and in addition to all other remedies available
under this Article Sixteenth, at law or in equity (including a decree of
specific performance and/or other injunctive relief), and nothing herein shall
limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Article Sixteenth. The Corporation
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holders of Series D Preferred Stock and that the remedy
at law for any such breach may be inadequate. The Corporation therefore agrees,
in the event of any such breach or threatened breach, the holders of Series D
Preferred Stock shall be entitled, in addition to all other available remedies,
(i) to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required and (ii)
reimbursement for all cost and expenses (including legal fees) related to
enforcing their rights hereunder.
4. This amendment was adopted by the Board of Directors under the
authority of Section 502 of the Business Corporation law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under penalties of perjury this 8th day of May,
1997.
By:
-------------------------------
Name: Benjamin T. Sporn
Title: Vice President
By:
-------------------------------
Name: Oscar D. Folger
Title: Assistant Secretary
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Exhibit 5
LAW OFFICES OF OSCAR D. FOLGER
521 Fifth Avenue
New York, New York 10175
June 20, 1997
AMBI Inc.
771 Old Saw Mill River Road
Tarrytown, New York 10591
Re: Form S-3 Registration Statement
-------------------------------
Gentlemen:
We have acted as counsel for AMBI Inc., a New York corporation (the
"Company"), in connection with the registration by the Company of 9,581,560
shares of Common Stock, par value $0.005 per share (the "Securities"), which are
the subject of a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Act"). As counsel to the Company we have examined and
relied upon the original or copies, certified or otherwise identified to our
satisfaction, of such documents, corporate records and other instruments as we
have deemed necessary in order to render the following opinion.
On the basis of and subject to the foregoing, it is our opinion that
the Securities to be issued and sold by the Company have been duly authorized
and, when issued and sold, will be duly issued and fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Registration Statement. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the Rules
and Regulations of the Securities and Exchange Commission thereunder.
This opinion is to be used only in connection with the offer and sale
of the Securities as variously referred to herein while the Registration
Statement is in effect.
Very truly yours,
/s/
Oscar D. Folger
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Exhibit 23(b)
Independent Auditors' Consent
The Board of Directors
AMBI Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
New York, New York
June 23, 1997
44
