<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMBI INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
AMBI INC.
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders of AMBI
Inc. (the "Company") will be held at the offices of the Company, 771 Old Saw
Mill River Road, Tarrytown, New York 10591 on July 15, 1997 at 2 P.M. for the
following purposes as set forth in the accompanying Proxy Statement:
1. To approve the issuance of certain shares of Common Stock upon
conversion of Series D Convertible Preferred Stock, and
2. To amend the Company's Certificate of Incorporation to
increase the authorized number of shares of Common Stock, par
value $.005 per share, from 40,000,000 to 65,000,000 shares,
and
3. To transact such other related business as may properly come
before the meeting or any adjournments thereof.
Holders of record of the Company's Common Stock at the close of
business on May 28, 1997 will be entitled to vote at the meeting.
By Order of the Board of Directors
BENJAMIN T. SPORN,
Secretary
Dated: May 29, 1997
Whether or not you plan to attend the meeting, please date and sign the
enclosed proxy and return it in the envelope provided. Any person giving a proxy
has the power to revoke it at any time prior to its exercise and if present at
the meeting may withdraw it and vote in person. Attendance at the meeting is
limited to shareholders, their proxies and invited guests of the Company.
<PAGE>
AMBI INC.
771 Old Saw Mill River Road
Tarrytown, New York 10591
--------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 15, 1997
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of proxies to be voted at a Special Meeting of
Shareholders of the Company to be held at the offices of the Company, 771 Old
Saw Mill River Road, Tarrytown, New York 10591 on July 15, 1997 at 2 P.M. and at
any adjournments thereof. The shares represented by proxies that are received in
the enclosed form and properly filled out will be voted in accordance with the
specifications made thereon. In the absence of specific instructions, proxies
will be voted in accordance with the recommendations made herein with respect to
the proposals described in this Proxy Statement. Proxies may be revoked by
shareholders by written notice received by the Secretary of the Company at the
address set forth above, at any time prior to the exercise thereof. Shareholders
of record at the close of business on May 28, 1997 are entitled to notice of and
to vote at the Special Meeting or any adjournments thereof. As of May 28, 1997
the Company's voting securities outstanding totaled _____________ shares of
Common Stock.
ITEM I. PROPOSAL TO APPROVE THE ISSUANCE OF CERTAIN SHARES
OF COMMON STOCK ON CONVERSION OF SERIES D PREFERRED STOCK
Background
Creation of D Preferred and Warrants
The Board of Directors on May 8, 1997 created a new series of 100,000
shares of Series D Preferred Stock (the "D Preferred"). A copy of the amendment
to the Company's certificate of incorporation (the "Preferred Amendment") which
created the D Preferred is attached hereto as Exhibit A. The summary of the
terms of the D Preferred in this Proxy Statement is qualified in its entirety by
the terms set forth in the Preferred Amendment.
<PAGE>
Each share of D Preferred has a face value of $100 per share, and
accrues a premium at 6% per annum for conversion purposes. The D Preferred 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 D Preferred 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 24,
1997 to 25% by August 1, 1998. On the occurrence of certain events, the D
Preferred 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 D Preferred automatically converts
into Common Stock on May 8, 1999 if the Registration Statement (as defined
below) is then effective and the Company is then listed on the Nasdaq National
Market System or the Nasdaq Small Cap Market ("Nasdaq"). The Preferred
Amendment also provides for terms on which the Company may redeem the D
Preferred after May 8, 1998 or if the D Preferred is proposed to be converted
when the closing bid price of a share of Common Stock is less than $1.13435.
The face value of the D Preferred is preferred in liquidation against
the holders of Company's Common Stock and other Junior Stock (as defined). With
certain exceptions, the consent of the holders of the D Preferred is required
before the Company can issue senior or pari passu stock, and for the declaration
of dividends on any junior stock. The D Preferred generally has no voting
rights.
The Preferred Amendment provides for certain penalties (including the
accrual of certain payment obligations at 24% per annum, and mandatory
redemption at prices set forth in the Preferred Amendment) if, among other
things, the Company fails timely to effectuate conversion of the D Preferred, if
the Company is not listed on Nasdaq, if the registration statement is not
effective by November 15, 1997, or if the Company is sold to an entity whose
securities are not traded publicly.
In order to effectuate the transaction referred to below, the Board
also authorized the issuance of five-year warrants in the form of Exhibit B to
purchase shares of Common Stock at $2.72244 per share (the "Warrants"). The
Warrants provide for anti-dilution adjustments in certain events, including
the sale by the Company of Common Stock at less than 75% of the market price
f the Common Stock at the time of sale. The Company may redeem the Warrants in
certain circumstances. The summary of the terms of the Warrants set forth
<PAGE>
herein is qualified in its entirety by reference to the actual form of the
Warrants set forth in Exhibit B.
Nasdaq Rule 4460(i) and Certain Required Redemptions
NASDAQ Rule 4460(i) (the "Rule") provides (with certain exceptions not
relevant here) that, without shareholder approval, a National Market System
company may not in any transaction issue a number of shares equal to more than
20% of the number of shares of Common Stock then outstanding. As of May 8, 1997,
there were outstanding 18,649,073 shares of Common Stock of the Company, so that
the Company on that date could issue 3,729,814 shares under the Rule.
Accordingly, the D Preferred provides that, unless the Company obtains the
approval of its stockholders to issue more than 3,729,814 shares under the Rule,
the Company is to redeem, and is not to permit conversion of, any shares of D
Preferred whose conversion would otherwise cause the Company to issue a total
number of shares of Common Stock in excess of that permitted by the Rule. The
Company is required to give to each holder notice of redemption (a "notice of
redemption") of the shares which are to be redeemed and not converted. The
redemption price for each such attempted conversion is a cash amount equal to
the product of the number of shares of Common Stock which would otherwise then
be issued on conversion, times the highest bid price of the Common Stock during
the period from the date of the notice of redemption and ending on the date of
redemption. The Company cannot at this time determine the number of shares of D
Preferred which it may be required to redeem, because the number of shares of
Common Stock issuable on conversion of the D Preferred depends in part on the
market price of the Common Stock at the time of conversion. Redemptions under
this paragraph are referred to in this Proxy Statement as Rule 4460(i)
Redemptions.
The Company has agreed in favor of the holders of the D Preferred to
call this special meeting to seek shareholder approval for the issuance of all
shares issuable on conversion of the D Preferred in order that the Company not
be required to make the redemptions referred to in the preceding paragraph.
Proxies for such approval are being solicited hereby.
Issuance of D Preferred and Warrants
On May 8, 1997, the Company issued 45,000 units of securities to four
purchasers (the "Purchasers"). Each unit consisted of one share of D Preferred
and one Warrant to purchase 11.019533 shares of Common Stock. The units were
sold at a purchase price of $100 per unit, and the aggregate purchase price for
all units was $4,500,000. The Company paid a placement fee of $270,000 and a
warrant to purchase 33,058 shares in connection with this placement. A copy of
the Purchase Agreement is attached hereto as Exhibit C.
The Purchasers agreed to purchase an aggregate of 35,000 additional
units (the "Second Tranch") on or prior to the later of (i) November 4, 1997, or
(ii) the 30th day following the effectiveness of the Registration Statement, if,
among other things, during any 10-day period after the effectiveness of the
Registration Statement the average daily market capitalization of the Company's
Common Stock is at least $74,590,00 and the average daily trading volume of the
<PAGE>
Company's Common Stock on Nasdaq is at least 75,000 shares. The Company will be
required to pay $210,000 and to issue warrants to purchase 22,712 shares as an
additional placement fee should the Second Tranch be closed.
The Company agreed to promptly file a registration statement (the
"Registration Statement") at its expense to register the sale of shares of
Common Stock issuable on conversion of the D Preferred and on exercise of the
Warrants. The Company must use its best efforts to cause the Registration
Statement to become effective no later than August 6, 1997. The Purchasers were
also granted piggyback registration rights. The Company agreed that without
approval by the Purchasers it will not prior to November 4, 1997 make any
private placement of equity securities for cash, except that no such approval
is required for placements which are proposed to raise funds for acquisitions
and as to which the Purchasers have first offer rights.
Proposal and Considerations
The Company proposes that the shareholders approve the issuance of all
shares of Common Stock which are issuable on conversion of the D Preferred in
order that the Company not be required to make Rule 4460(i) Redemptions. Such
redemptions would require the expenditure of cash which could otherwise be
applied by the Company for corporate purposes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THIS PROPOSAL.
ITEM II. PROPOSAL CONCERNING INCREASE IN NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK
At the Meeting, shareholders will be asked to adopt an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of the Company from 40,000,000 to 65,000,000 shares of Common Stock, with
a par value of $.005 per share (the "Proposed Stock Amendment"). The Company's
Board of Directors has approved the Proposed Stock Amendment subject to
shareholder authorization.
At May __, 1997, the authorized capital of the Company consisted of
40,000,000 shares of Common Stock, par value $.005, and 5,000,000 shares of
Preferred Stock, par value $.01. As of May __, 1997, 18,649,073 shares of Common
Stock and 46,738 shares of Preferred Stock were outstanding. In addition, as of
May __, 1997, an aggregate of 15,481,723 shares of Common Stock were reserved
for issuance upon: (i) exercise of options granted or which may be granted under
the Company's Stock Option Plans (2,780,612 shares), (ii) conversion of the
Company's currently outstanding Series C and D Preferred Stock (9,943,288
shares), (iii) exercise of the Company's outstanding public Warrants (1,000,000
shares), and (iv) exercise of various other outstanding warrants and options
(1,757,823 shares). Therefore, the Company will have only 5,869,204 more shares
of Common Stock authorized than it has reserved for issuance. The Company
wishes to increase the number of its authorized shares of Common Stock in
order to be able to have adequate Common Stock to be assured of being able to
continue to meet its
<PAGE>
current obligations to issue Common Stock and in order to utilize equity
issuances in future financings and acquisitions.
If the Proposed Stock Amendment is adopted by the Company's
shareholders, the additional shares of Common Stock would be issuable at any
time and from time to time, by action of the Board of Directors without further
authorization from the Company's shareholders, except as otherwise required by
applicable law or rules and regulations to which the Company may be subject, to
such persons and for such consideration (but not less than the par value
thereof) as the Board of Directors determines. Holders of Common Stock of the
Company have no preemptive rights to acquire or subscribe to any of the
additional shares of Common Stock.
Issuance of additional Common Stock, directly or upon conversion of
Preferred Stock or exercise of warrants or options, would have a dilutive effect
on the voting power of the outstanding Common Stock of the Company. Depending
upon the number of shares of the Company's Common Stock issued and the amount of
any additional consideration to be paid upon the conversion of any of the shares
of Preferred Stock into shares of Common Stock (if the Board of Directors
affords conversion privileges to Preferred Stock) and the relationship thereof
to the book value of the Common Stock, it is possible that issuance of any of
the Common Stock, either directly or upon conversion of any of the Preferred
Stock, could have a dilutive effect on stockholders' equity in the Company.
Considerations
If the Proposed Stock Amendment is not approved, the Company will have
a limited number of authorized shares of Common Stock available for future use
by the Company. The Company's management believes that the authorization of the
additional shares of Common Stock are in the best interests of the Company and
its shareholders so that sufficient shares will be readily available for use, if
feasible, in acquisitions, in raising additional capital and for grants as
incentives to employees, officers, directors and consultants of the Company.
From time to time the Company may consider acquisitions or other
transactions which may require the issuance of shares of Common Stock. The
Company's management believes that the increase in the number of authorized
shares of Common Stock is in the best interests of the Company and its
shareholders since additional shares of Common Stock will be available for use,
if feasible, in acquisitions and in raising additional capital and will provide
the Company with the flexibility of having a broader choice in the type and
number of equity securities available to it for the above and other corporate
purposes. Although the Company continually considers acquisitions of
businesses, products and licenses, there are no definitive agreements at this
time respecting any merger or consolidation or acquisition of another business,
product or license, or the sale or liquidation of the Company or its business.
Due to the Board of Directors' discretion in connection with the
issuance of additional shares of Common Stock and in connection with the
issuance and the relative rights and
<PAGE>
references of the Preferred Stock, such as its ability to cause the Common Stock
or the Preferred Stock to be issued in a private placement or to determine the
convertibility of the Preferred Stock, it may, under certain circumstances,
possess timing and other advantages in responding to a tender offer or other
attempt to gain control of the Company, which may make such attempts more
difficult and less attractive. For example, issuance of additional shares would
increase the number of shares outstanding and could necessitate the acquisition
of a greater number of shares by a person making a tender offer and could make
such acquisition more difficult since the recipient of such additional shares
may favor the incumbent management. Moreover, these advantages, including the
right to grant voting powers to the holders of the Preferred Stock, gives the
Board of Directors the ability to provide any such holders with a veto power
over actions proposed to be taken by the holders of the Company's Common Stock.
This could have the effect of insulating existing management from removal even
if it is in the best interest of the common shareholders. Management of the
Company is not aware of any existing or threatened efforts to obtain control of
the Company.
The foregoing is only a summary of the Proposed Stock Amendment and is
not intended to be complete. Shareholders are urged to read carefully the
provisions of the Proposed Stock Amendment, the complete text of which is
attached as part of Exhibit D to this Proxy Statement. The foregoing summary is
qualified in its entirety by reference to such complete text.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE
FOR THE PROPOSED STOCK AMENDMENT
Vote Required
The affirmative vote of a majority of the votes cast at the Special
Meeting is required to approve the issuance, on conversion of the D Preferred,
of such shares for which approval is required under NASDAQ Rule 4460(i). The
affirmative vote of a majority of the total outstanding shares of Common Stock
is required to adopt the Proposed Stock Amendment.
Expense Of Solicitation
The cost of soliciting proxies, which also includes the preparation,
printing and mailing of this Proxy Statement, will be borne by the Company.
Solicitation will be made by the Company primarily through the mail, but regular
employees of the Company may solicit proxies personally, by telephone or
telegram. The Company will request brokers and nominees to obtain voting
instructions of beneficial owners of stock registered in their names and will
reimburse them for any expenses incurred in connection therewith.
Other Matters
The Board of Directors knows of no matters that are expected to be
presented for consideration at the Special Meeting which are not described
herein. However, if other matters
<PAGE>
properly come before the meeting, it is intended that the person named in the
accompanying proxy will vote thereon in accordance with his best judgment.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED AS IT WILL SAVE THE
EXPENSE OF FURTHER MAILINGS.
Dated: Tarrytown, New York
May __, 1997
By Order of the Board of Directors
BENJAMIN T. SPORN,
Secretary
<PAGE>
LIST OF EXHIBITS
EXHIBIT A Certificate of Amendment of the Certificate of Incorporation creating
the Series D Convertible Preferred Stock
EXHIBIT B Form of Stock Purchase Warrant
EXHIBIT C Securities Purchase Agreement, dated as of May 8, 1997, between the
Company and the Purchasers
EXHIBIT D Certificate of Amendment of the Certificate of Incorporation
increasing the amount of authorized Common Stock
<PAGE>
AMBI INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
___________, 1997 2 p.m.
The undersigned hereby appoints Fredric D. Price proxy, with full power
of substitution and revocation, to vote on behalf of the undersigned all shares
of Common Stock of AMBI Inc. which the undersigned is entitled to vote at the
Special Meeting of Shareholders to be held July 15, 1997 or any adjournments
thereof.
The Board of Directors recommends a vote FOR the following:
I. PROPOSAL TO APPROVE THE ISSUANCE OF CERTAIN SHARES OF COMMON
STOCK ON CONVERSION OF SERIES D PREFERRED STOCK
FOR /X/ AGAINST /X/ ABSTAIN /X/
II. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK FROM 40,000,000 TO 65,000,000 SHARES.
FOR /X/ AGAINST /X/ ABSTAIN /X/
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournment(s) thereof.
(Continued and to be signed on reverse side)
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED TO APPROVE THE ISSUANCE OF SHARES ON CONVERSION OF THE SERIES D
CONVERTIBLE PREFERRED STOCK AND THE APPROVAL OF THE PROPOSED STOCK AMENDMENT.
Dated: ________________________
-------------------------------
Signature
-------------------------------
Signature if held jointly
(Please sign exactly as ownership appears on
this proxy. Where stock is held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.)
Please mark, date, sign and
return this Proxy in the enclosed envelope.
<PAGE>
EXHIBIT A
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.
<PAGE>
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 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).
-12-
<PAGE>
C. "Conversion Percentage" shall have the following meaning and shall
be subject to adjustment as provided herein:
If the Conversion Date is: Then the Conversion Percentage is:
-------------------------- ----------------------------------
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%
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 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
-13-
<PAGE>
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
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
-14-
<PAGE>
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.
(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
-15-
<PAGE>
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.
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
-16-
<PAGE>
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 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
-17-
<PAGE>
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.
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
-18-
<PAGE>
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
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
-19-
<PAGE>
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 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"):
-20-
<PAGE>
(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 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
-21-
<PAGE>
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
-----
CP
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 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
-22-
<PAGE>
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
-----
CP
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.
(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
-23-
<PAGE>
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, 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
-24-
<PAGE>
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
-25-
<PAGE>
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
-26-
<PAGE>
holders of shares of Series D Preferred Stock shall have received the
Liquidation 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.
XI. 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
-27-
<PAGE>
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, 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
-28-
<PAGE>
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 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
-29-
<PAGE>
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.
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:
-30-
<PAGE>
(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;
(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.
-31-
<PAGE>
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 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
-32-
<PAGE>
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 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
-33-
<PAGE>
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]
-34-
<PAGE>
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: /s/ Benjamin T. Sporn
----------------------------
Name: Benjamin T. Sporn
Title: Vice President
By: /s/ Oscar D. Folger
----------------------------
Name: Oscar D. Folger
Title: Assistant Secretary
-35-
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series D Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series D Preferred Stock (the "Conversion"), represented by stock certificate
Nos(s). ___________ (the "Preferred Stock Certificates") into shares of common
stock ("Common Stock") of AMBI Inc. (the "Corporation") according to the
conditions of Article Sixteenth of the Corporation's Certificate of
Incorporation, as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series D Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to
an exemption from registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Amount of Conversion Default Payments
to be Converted, if any:______________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
* The Corporation is not required to issue shares of Common Stock until the
original Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received
<PAGE>
by the Corporation or its transfer agent. The Corporation shall issue and
deliver shares of Common Stock to an overnight courier not later than the later
of (a) two (2) business days following receipt of this Notice of Conversion and
(b) delivery of the original Preferred Stock Certificates (or evidence of loss,
theft or destruction thereof) and shall make payments pursuant to Article
Sixteenth of the Corporation's Certificate of Incorporation for the failure to
make timely delivery.
<PAGE>
Exhibit B
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON MAY 7, 2002
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER
IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase_____ Shares of
Common Stock, par value $.005 per share
Date: May 8, 1997
AMBI INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, ________________, or its
registered assigns, is entitled to purchase from AMBI Inc., a New York
corporation (the "Company"), at any time or from time to time during the period
specified in Section 2 hereof, __________ fully paid and nonassessable shares of
the Company's common stock, par value $.005 per share (the "Common Stock"), at
an exercise price per share (the "Exercise Price") equal to $2.72244. The number
of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the
Exercise Price are subject to adjustment as provided in Section 4 hereof. The
term "Warrants" means this Warrant and the other warrants of the Company issued
pursuant to the terms of the Securities Purchase Agreement dated May 8, 1997 by
and between the Company and the purchasers listed on the execution pages thereof
(the "Securities Purchase Agreement") and to Frith Brothers Investments, Inc.
pursuant to the term of that certain letter agreement dated January 7, 1997 by
and between the Company and Frith Brothers Investments, Inc.
<PAGE>
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the holder is permitted to
effect a Cashless Exercise (as defined in Section 11(c) below) pursuant to
Section 11(c) hereof, delivery to the Company of a written notice of an election
to effect a Cashless Exercise for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above. Certificates
for the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding two (2) business days, after this
Warrant shall have been so exercised (the "Delivery Period"). The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement, and the Company fails
for any reason to deliver, on or prior to the fourth business day following the
expiration of the Delivery Period for such exercise, the number of shares of
Common Stock to which the holder is entitled upon such exercise (an "Exercise
Default"), then the Company shall pay to the holder payments ("Exercise Default
Payments") for an Exercise Default in the amount of (a) (N/365), multiplied by
(b) the difference between the Market Price (as defined in Section 4(1) below)
on the date the Exercise Agreement giving rise to the Exercise Default is
transmitted in accordance with Section 1 (the "Exercise Default Date ") less the
Exercise Price, multiplied by (c) the number of shares of Common Stock the
Company failed to so deliver in such Exercise Default multiplied by (d) .24,
where N = the number of days
-2-
<PAGE>
from the Exercise Default Date to the date that the Company effects the full
exercise of this Warrant which gave rise to the Exercise Default. The accrued
Exercise Default Payment for each calendar month shall be paid in cash or shall
be convertible into Common Stock at the Exercise Price, at the holder's option,
as follows:
(a) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth (5th) day of the month following
the month in which it has accrued; and
(b) In the event holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Exercise Price (as in effect at the time of conversion) at any time after the
fifth (5th) day of the month following the month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock as required pursuant to the terms of Section 3(b) hereof,
or to otherwise issue shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof, and each holder shall have the right to pursue
all remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 p.m., New York City
time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or
-3-
<PAGE>
become listed (subject to official notice of issuance upon exercise of this
Warrant) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall so list on
each national securities exchange or automated quotation system, as the case may
be, and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant if and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Sections 4(c) and 4(e)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the greater of (i) the Exercise Price then in
effect and (ii) seventy-five percent (75%) of the Market Price (as hereinafter
defined) on the date of issuance (a "Dilutive Issuance"), then effective
immediately upon the Dilutive Issuance, the
-4-
<PAGE>
Exercise Price will be adjusted in accordance with the following formula:
E' = E x O + P/M
------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined
in Section 4(1));
O = the number of shares of Common Stock
outstanding immediately prior to the
Dilutive Issuance;
P = the aggregate consideration, calculated
as set forth in Section 4(b) hereof,
received by the Company upon such Dilutive
Issuance; and
CSDO = the total number of shares of Common Stock
Deemed Outstanding (as defined in Section
4(l)) immediately after the Dilutive
Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in
any manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "Options") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Market Price on the date of issuance ("Below Market
Options"), then the maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Market Options (assuming full exercise,
conversion or exchange of Convertible Securities, if applicable) will, as of the
date of the issuance or grant of such Below Market Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Below Market Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Below
Market Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the
-5-
<PAGE>
exercise of all such Below Market Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or
sells any Convertible Securities, whether or not immediately convertible (other
than where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange (as determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon such
exercise, conversion or exchange" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or
sells any Convertible Securities with a fluctuating conversion or exercise price
or exchange ratio (a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price on the date
of issuance of such Convertible Security was 75% of the Market Price on such
date (the "Assumed Variable Market Price"). Further, if the Market Price at any
time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 4 with respect to
any Variable Rate Convertible Security, the Exercise Price in effect at such
time shall be readjusted to equal the Exercise Price which would have resulted
if the
-6-
<PAGE>
Assumed Variable Market Price at the time of issuance of the Variable Rate
Convertible Security had been 75% of the Market Price existing at the time of
the adjustment required by this sentence.
(iii) Change in Option Price or Conversion
Rate. If there is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any Options; (ii) the
amount of additional consideration, if any, payable to the Company upon the
exercise, conversion or exchange of any Convertible Securities; or (iii) the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock (other than under or by reason of provisions designed to
protect against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and
Unexercised Convertible Securities. If, in any case, the total number of shares
of Common Stock issuable upon exercise of any Option or upon exercise,
conversion or exchange of any Convertible Securities is not, in fact, issued and
the rights to exercise such Option or to exercise, convert or exchange such
Convertible Securities shall have expired or terminated, the Exercise Price then
in effect will be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received.
If any Common Stock, Options or Convertible Securities are issued, granted or
sold for cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with such issuance, grant
or sale. In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company will be the
fair market value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the Market Price thereof as of the date of receipt. In case
any Common Stock, Options or Convertible Securities are issued in connection
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
market value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or
-7-
<PAGE>
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in good faith by
an investment banker or other appropriate expert of national reputation selected
by the Company and reasonably acceptable to the holder hereof, with the costs of
such appraisal to be borne by the Company.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee benefit plan of the Company now existing
or to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
Preferred Stock or Warrants in accordance with terms of the Securities Purchase
Agreement; or (iv) upon the exercise of the Warrants or conversion of the
Preferred Stock.
(c) Subdivision or Combination of Common Stock. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial issuance
of this Warrant, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time after the initial issuance of this
Warrant, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and
-8-
<PAGE>
receive upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of this Warrant had such
consolidation, merger or sale or conveyance not taken place. In any such case,
the Company will make appropriate provision to insure that the provisions of
this Section 4 hereof will thereafter be applicable as nearly as may be in
relation to any shares of stock or securities thereafter deliverable upon the
exercise of this Warrant. The Company will not effect any consolidation, merger
or sale or conveyance unless prior to the consummation thereof, the successor
corporation (if other than the Company) assumes by written instrument the
obligations under this Section 4 and the obligations to deliver to the holder of
this Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company 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 Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets (or rights) which would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled to such
Distribution.
(g) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
-9-
<PAGE>
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
-10-
<PAGE>
(k) Certain Events. If, at any time after the initial issuance
of this Warrant, any event occurs of the type contemplated by the adjustment
provisions of this Section 4 but not expressly provided for by such provisions,
the Company will give notice of such event as provided in Section 4(g) hereof,
and the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock acquirable upon exercise
of this Warrant so that the rights of the holder shall be neither enhanced nor
diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in the case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the
average of the closing bid prices for the shares of Common Stock as reported on
the Nasdaq National Market by Bloomberg Financial Markets ("Bloomberg") for the
five (5) trading days immediately preceding such date, or (ii) if the Nasdaq
National Market is not the principal trading market for the shares of Common
Stock, the average of the last bid prices reported by Bloomberg on the principal
trading market for the Common Stock during the same period, or, if there is no
bid price for such period, the last sales price reported by Bloomberg for such
period, or (iii) if the foregoing do not apply, the last closing bid price of
such security in the over-the-counter market on the pink sheets or bulletin
board for such security as reported by Bloomberg, or if no closing bid price is
so reported for such security, the last closing trade price of such security as
reported by Bloomberg, or (iv) if market value cannot be calculated as of such
date on any of the foregoing bases, the Market Price shall be the average fair
market value as reasonably determined by an investment banking firm selected by
the Company and reasonably acceptable to the holder, with the costs of the
appraisal to be borne by the Company. The manner of determining the Market Price
of the Common Stock set forth in the foregoing definition shall apply with
respect to any other security in respect of which a determination as to market
value must be made hereunder.
-11-
<PAGE>
(iii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock, par value $.05 per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Section 4(e)
hereof, the stock or other securities or property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Section 7(f) and (g) hereof and to the
provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until
due presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated as of May 8, 1997, by and among the Company and the other signatories
thereto (the "Registration Rights Agreement").
-12-
<PAGE>
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 7. The Company
shall indemnify and reimburse the holder of this Warrant for all costs and
expenses (including legal fees) incurred by such holder in connection with the
enforcement of its rights hereunder.
(e) Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or
-13-
<PAGE>
blue sky laws, the Company may require, as a condition of allowing such
exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that such exercise, transfer,
or exchange may be made without registration under the Securities Act and under
applicable state securities or blue sky laws (the cost of which shall be borne
by the Company if the Company's counsel renders such opinion and up to $250 of
such cost shall be borne by the Company if the holder's counsel renders such
opinion), (ii) that the holder or transferee execute and deliver to the Company
an investment letter in form and substance acceptable to the Company and (iii)
that the transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; provided that no such opinion, letter,
status as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act. With respect to any
opinion to be provided pursuant to clause (i) above, the holder shall be
entitled to request that the Company's counsel render such opinion and the
Company shall cause its counsel to render such opinion if requested by the
holder.
(g) Additional Restrictions on Exercise or Transfer.
Notwithstanding anything contained herein to the contrary, this Warrant shall
not be exercisable by a holder hereof to the extent (but only to the extent)
that, if exercisable by such holder, 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 to what extent this
Warrant shall be exercisable vis-a-vis other securities owned by such holder
shall be in the sole discretion of the holder and submission of this Warrant for
full or partial exercise shall be deemed to be the holder's determination of
whether and the extent to which this Warrant is exercisable, in each case
subject to such aggregate percentage limitation. No prior inability to exercise
the Warrant pursuant to this Section shall have any effect on the applicability
of the provisions of this Section with respect to any subsequent determination
of exerciseability. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.
The restrictions contained in this Section 7(g) may not be amended without the
consent of the holder of this Warrant and the holders of a majority of the
Company's then outstanding Common Stock. The first holder of this Warrant, by
taking and holding the same, represents to the Company that such holder is
acquiring this Warrant for investment only and not with a view to the
distribution thereof, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
-14-
<PAGE>
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
AMBI Inc.
771 Old Saw Mill Road
Tarrytown, New York 10592
Attn: President
with a copy to the Company's Secretary at the same
address and to:
Oscar Folger, Esquire
521 Fifth Avenue
24th Floor
New York, New York 10175
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in New York, New York, in any suit or proceeding based on or arising
under this Warrant and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company agrees that service of process upon the Company mailed
by first class mail shall be deemed in every respect effective service of
process upon the Company in any such suit or proceeding. Nothing herein shall
affect the holder's right to serve process in any other manner permitted by law.
The Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
11. Miscellaneous.
-15-
<PAGE>
(a) Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised at any time after the
first date that the holder could sell the Warrant Shares pursuant to Rule 144
under the Securities Act and until the end of the Exercise Period, by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
(d) Redemption. If, at any time after the issuance hereof, the
closing bid price for the shares of Common Stock as reported on the Nasdaq
National Market (or the then principal trading market for the Common Stock if
not the Nasdaq National Market) by Bloomberg (the "Reported Price") shall, for a
period of twenty (20) consecutive trading days (the "Determination Period"), be
greater than or equal to the Redemption Trigger Price (as defined below), then
the Company shall have the right, exercisable on the first trading day after the
Determination Period, by written notice to the holders of this Warrant (a
"Redemption Notice") of such exercise at least twenty (20) trading days prior to
the date of redemption (the "Redemption Date"), to redeem this Warrant and all,
but not less than all, of the other Warrants then outstanding in full at a
redemption price per Warrant equal to the product of (i) the number of shares of
Common Stock issuable upon the exercise of such Warrant, multiplied by (ii)
$.01. Notwithstanding the foregoing and for the avoidance of doubt, the Company
shall not have the right to redeem this Warrant pursuant to this Section 11(d)
unless, on the fifteenth (15th) day of the Determination Period, the Company
notifies the holder of this
-16-
<PAGE>
Warrant in writing of the Company's potential ability to deliver a Redemption
Notice in five (5) days and the potential redemption price hereof and the
Company delivers a Redemption Notice to the holder of this Warrant on the first
trading day after the expiration of the Determination Period. Nothing herein
shall prevent the exercise of, and the holder shall have the right to exercise
this Warrant at any time during the period after the Redemption Notice and on or
prior to the Redemption Date. As used herein, the "Redemption Trigger Price"
shall have the following meanings and shall be subject to equitable adjustment
for the events described in Sections 4(c) and 4(e):
If the trading day is: Then the Redemption Trigger Price is:
---------------------- -------------------------------------
Before May 8, 1998 $4.08366
On or after May 8, 1998 $4.355904
and before May 8, 1999
On or after May 8, 1999 $4.628148
and before May 8, 2000
On or after May 8, 2000 $4.900392
and before May 8, 2001
On or after May 8, 2001 $5.172636
(e) Forfeiture of Redemption Rights. Notwithstanding any
provision of this Warrant to the contrary, the Company shall forfeit all of its
rights pursuant to Section 11(d) above upon the exercise by the Company of its
rights pursuant to Section VIII.D.(i) of Article Sixteenth of the Company's
Certificate of Incorporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-17-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
AMBI INC.
By: ________________________
Name:___________________
Title:____________________
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
_____________ of the shares of common stock of AMBI Inc., a New York corporation
(the "Company"), evidenced by the attached Warrant, and herewith makes payment
of the Exercise Price with respect to such shares in full, all in accordance
with the conditions and provisions of said Warrant.
i. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR
AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
ii. The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:
------------------------------- --------------------------------------
Signature of Holder
-------------------------------------
Name of Holder (Print)
Address:
<PAGE>
-------------------------------------
-------------------------------------
-------------------------------------
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
- ------------------
Name:
-------------------------------------
Signature:
--------------------------
Title of Signing Officer or Agent (if any):
--------------------------
Address:
--------------------------
--------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
<PAGE>
Exhibit C
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 8,
1997, by and among AMBI Inc., a corporation organized under the laws of the
State of New York (the "Company"), with headquarters located at 771 Old Saw Mill
Road, Tarrytown, New York 10592 and each of the purchasers (the "Purchasers")
set forth on the execution pages hereof (the "Execution Pages").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
B. Each Purchaser desires to purchase, upon the terms and conditions
stated in this Agreement, units (the "Units") consisting of (i) one share of the
Company's Series D Convertible Preferred Stock, par value $.01 per share (the
"Preferred Shares"), convertible into its common stock, par value $.005 per
share, of the Company (the "Common Stock") and (ii) warrants (the "Warrants"),
in the form attached hereto as Exhibit B, to acquire twenty-five percent (25%)
of the number of shares of Common Stock which would be received upon conversion
of one Preferred Share at a conversion price equal to the average of the Closing
Bid Prices (as defined in the Certificate of Designation (as defined below)) of
the Common Stock for the ten (10) consecutive trading days immediately preceding
the date of the First Closing (as defined herein). The rights, preferences and
privileges of the Preferred Shares, including the terms upon which such
Preferred Shares are convertible into shares of Common Stock are set forth in
the form of Certificate of Amendment attached hereto as Exhibit A (the
"Certificate of Designation"). The shares of Common Stock issuable upon
conversion of the Preferred Shares or otherwise pursuant to the Certificate of
Designation are referred to herein as the "Conversion Shares" and the shares of
Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are
referred to as the "Warrant Shares". The Units, the Preferred Shares, the
Conversion Shares and the Warrant Shares are collectively referred to herein as
the "Securities."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has
<PAGE>
agreed to provide certain registration rights under the Securities Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws;
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF UNITS.
a. Purchase of Units. The issuance, sale and purchase of the Units
shall take place in two (2) separate closings, the first of which is hereinafter
referred to as the "First Closing" and the second of which is hereinafter
referred to as the "Second Closing." The purchase price (the "Purchase Price")
per Unit shall be equal to One Hundred Dollars ($100.00). Each Purchaser's
obligation to purchase Units hereunder is distinct and separate from each other
Purchaser's obligation to purchase Units and no Purchaser shall be required to
purchase hereunder more than the number of Units set forth on such Purchaser's
Execution Page hereto notwithstanding any failure by any other Purchaser to
purchase Units hereunder.
(i) On the date of the First Closing, subject to the
satisfaction (or waiver) of the conditions set forth in Section 6(a) and Section
7(a) below, the Company shall issue and sell to each Purchaser and each
Purchaser severally agrees to purchase from the Company, such number of Units as
is set forth on such Purchaser's Execution Page as being purchasable by such
Purchaser at the First Closing.
(ii) On the date of the Second Closing, subject to the
satisfaction (or waiver) of the conditions set forth in Section 6(b) and Section
7(b) below, the Company shall issue and sell to each Purchaser and each
Purchaser severally agrees to purchase from the Company such number of Units as
is equal to 35,000 multiplied by a fraction, the numerator of which is the
number of Units purchased by the Purchaser at the First Closing and the
denominator of which is 45,000.
b. Form of Payment. At each of the First Closing and the Second
Closing, each Purchaser shall pay the aggregate Purchase Price for the Units
being purchased by such Purchaser at such closing hereunder by wire transfer to
the Company, in accordance with the Company's written wiring instructions,
against delivery of duly executed certificates representing the Preferred Shares
and Warrants being purchased by such Purchaser at such closing hereunder and the
Company shall deliver such certificates against delivery of such aggregate
Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Units
<PAGE>
pursuant to this Agreement shall be (i) in the case of the First Closing, 12:00
noon Eastern Daylight Savings Time on May 8, 1997 and (ii) in the case of the
Second Closing, 12:00 noon Eastern Daylight Savings Time on the fifth (5th)
trading day following satisfaction (or waiver) of the conditions to such closing
set forth in Section 7(b)(vii) and (ix) hereof (subject, in the case of both the
First Closing and the Second Closing, to a two (2) business day grace period at
either party's option, but in any event not later than May 15, 1997 in the case
of the First Closing), or in the case of both the First Closing and the Second
Closing such other time as may be mutually agreed upon by the Company and the
Purchasers Purchasing Units in such closing. The closings shall occur at the
offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street,
Philadelphia, Pennsylvania 19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Units for
Purchaser's own account for investment only and not with a present view towards
the public sale or distribution thereof, except pursuant to sales that are
exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is available,
and that the Company has no present intention of registering any such Securities
other than as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the representations
herein, the Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the Securities Act.
b. Accredited Investor Status. Purchaser is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Purchaser understands that the Units are
being offered and sold to Purchaser in reliance upon specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Units.
d. Information. Purchaser and its counsel, if any, have been furnished
all materials
-24-
<PAGE>
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Units which have been specifically
requested by Purchaser or its counsel. Purchaser and its counsel, if any, have
been afforded the opportunity to ask questions of the Company and have received
what Purchaser believes to be satisfactory answers to any such inquiries.
Neither such inquiries nor any other due diligence investigation conducted by
Purchaser or its counsel or any of its representatives shall modify, amend or
affect Purchaser's right to rely on the Company's representations and warranties
contained in Section 3 below. Purchaser understands that Purchaser's investment
in the Securities involves a high degree of risk.
e. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions, the cost of which shall be borne by the Company if
the Company's counsel renders such opinion and up to $250 of such cost shall be
borne by the Company if the Purchaser's counsel renders such opinion) to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration or (c) sold pursuant to Rule 144
promulgated under the Securities Act (or a successor rule) ("Rule 144"); (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Purchaser shall be entitled to request the opinion of the
Company's counsel with respect to the resale of the Securities and the Company
shall cause its counsel to render such opinion if requested by Purchaser.
g. Legends. Purchaser understands that the Preferred Shares and
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the Securities Act as contemplated by the Registration
Rights Agreement or otherwise may be sold by Purchaser pursuant to Rule 144, the
certificates for the Conversion Shares and the Warrant
-25-
<PAGE>
Shares may bear a restrictive legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act, or
an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the
Security is registered for sale under the Securities Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the cost of which
shall be borne by the Company if the Company's counsel renders such opinion and
up to $250 of such cost shall be borne by the Company if the Purchaser's counsel
renders such opinion), to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act or (c) such
holder provides the Company with reasonable assurances that such Security can be
sold pursuant to Rule 144. Purchaser agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed,
pursuant to an effective registration statement or in compliance with an
exemption from the registration requirements of the Securities Act. In the event
the above legend is removed from any Security and thereafter the effectiveness
of a registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance notice to Purchaser the Company
may require that the above legend be placed on any such Security that cannot
then be sold pursuant to an effective registration statement or Rule 144 and
Purchaser shall cooperate in the prompt replacement of such legend. Such legend
shall be removed when such Security may be sold pursuant to an effective
registration statement or Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
i. Residency. Purchaser is a resident of the jurisdiction set forth
under such Purchaser's name on the Execution Page hereto executed by such
Purchaser.
j. Acknowledgments Regarding Placement Agent. Purchaser acknowledges
that
-26-
<PAGE>
Frith Brothers Investments, Inc. is acting as placement agent (the
"Placement Agent") for the Securities being offered hereby and will be
compensated by the Company for acting in such capacity. Purchaser further
acknowledges that the Placement Agent has acted solely as placement agent in
connection with the offering of the Securities by the Company, that the
information and data provided to Purchaser and referred to in subsection (d)
above or otherwise in connection with the transactions contemplated hereby have
not been subjected to independent verification by the Placement Agent, and that
the Placement Agent makes no representation or warranty with respect to the
accuracy or completeness of such information, data or other related disclosure
material. Purchaser further acknowledges that in making its decision to enter
into this Agreement and purchase the Securities it has relied on its own
examination of the Company and the terms of, and consequences, of holding, the
Securities. Purchaser further acknowledges that the provisions of this Section
2(j) are for the benefit of, and may be enforced by, the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i) the
Securities; (ii) the ability of the Company to perform its obligations
hereunder, the Certificate of Designation, the Warrants or the Registration
Rights Agreement or (iii) the business, operations, properties or financial
condition of the Company and its subsidiaries, taken as a whole. The Company
does not have any subsidiaries.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and the Registration Rights Agreement, to issue and sell the Units,
Preferred Shares and Warrants in accordance with the terms hereof, and to issue
the Conversion Shares upon conversion of the Preferred Shares and the Warrant
Shares upon exercise of the Warrants in accordance with the terms of the
Certificate of Designation and the Warrants; (ii) the execution, delivery and
performance of this Agreement, the Warrants and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the issuance of
the Preferred Shares and the issuance and reservation for issuance of the
Conversion Shares
-27-
<PAGE>
and Warrant Shares) have been duly authorized by the Company's Board of
Directors and, no further consent or authorization of the Company, its Board or
Directors, or its stockholders is required (under Rule 4460(i) promulgated by
the National Association of Securities Dealers or otherwise); (iii) this
Agreement has been duly executed and delivered by the Company; and (iv) this
Agreement constitutes, and, upon execution and delivery by the Company of the
Registration Rights Agreement and Warrants, such agreements will constitute,
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Shares and Warrants)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants is set forth on Schedule 3(c).
All of such outstanding shares of capital stock have been, or upon issuance will
be, validly issued, fully paid and nonassessable. No shares of capital stock of
the Company (including the Preferred Shares, the Conversion Shares and the
Warrant Shares) are subject to preemptive rights or any other similar rights of
the stockholders of the Company or any liens or encumbrances. Except pursuant to
this Agreement or as set forth on Schedule 3(c), as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
its or their securities under the Securities Act (except the Registration Rights
Agreement). Except as set forth on Schedule 3(c), there are no securities or
instruments containing antidilution or similar provisions that will be triggered
by the issuance of the Preferred Shares, the Warrants, the Conversion Shares or
the Warrant Shares in accordance with terms of this Agreement, the Certificate
of Designation or the Warrants. The Company has furnished to each Purchaser true
and correct copies of the Company's Certificate of Incorporation as in effect on
the date hereof ("Certificate of Incorporation"), the Company's By-laws as in
effect on the date hereof (the "By-laws"), and all other instruments and
agreements governing securities convertible into or exercisable or exchangeable
for Common Stock of the Company. The Certificate of Designation, in the form
attached hereto, has been duly filed with the Secretary of State of the State of
New York and, upon the issuance of the Preferred Shares in accordance with the
terms hereof, each Purchaser shall be entitled to the rights set forth therein.
The Company shall provide each Purchaser with a written update of this
representation signed by the Company's Chief
-28-
<PAGE>
Executive Officer on behalf of the Company as of the date of each closing
hereunder.
d. Issuance of Shares. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company. The Conversion Shares and Warrant Shares
are duly authorized and reserved for issuance, and, upon conversion of the
Preferred Shares and exercise of the Warrants in accordance with the terms
thereof, will be validly issued, fully paid and non-assessable, and free from
all taxes, liens, claims and encumbrances and will not be subject to preemptive
rights or other similar rights of stockholders of the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
the performance by the Company of its obligations under the Certificate of
Designation, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Preferred Shares, Warrants,
Conversion Shares and Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its subsidiaries is in default (and no event
has occurred which, with notice or lapse of time or both, would put the Company
or any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for possible defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted, and shall not be conducted so long as a
Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity (including, without limitation, all
environmental, labor, tax and ERISA laws and regulations), except for possible
violations the sanctions for which either singly or in the aggregate would not
have a
-29-
<PAGE>
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the Securities Act and any applicable state securities
laws, the Company is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency or
any regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Warrants or the
Registration Rights Agreement or to perform its obligations under the
Certificate of Designation, in each case in accordance with the terms hereof or
thereof. The Company is not in violation of the listing requirements of the
Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that the
Common Stock will be delisted by NASDAQ for the foreseeable future.
f. SEC Documents, Financial Statements. Since December 31, 1993, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the foregoing, filed prior to the date hereof and after December
31, 1993, and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits) incorporated by reference
therein, being hereinafter referred to herein as the "SEC Documents"). The
Company has delivered to each Purchaser true and complete copies of the SEC
Documents, except for such exhibits, schedules and incorporated documents. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
U.S. generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present the consolidated financial position of
the Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents filed prior to the date hereof, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of such financial statements
and (ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in
-30-
<PAGE>
such financial statements, which liabilities and obligations referred to in
clauses (i) and (ii) individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
g. Absence of Certain Changes. Since December 31, 1996, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations of the
Company, except that the Company has experienced continuing losses and has sold
its Aplin & Barrett subsidiary and except further as disclosed in Schedule 3(g)
or in the SEC Documents filed prior to the date hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, claim, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company,
any of its subsidiaries, or any of their respective directors or officers in
their capacities as such.
i. Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now being conducted and as
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. To the best knowledge of the Company, neither the Company nor
any subsidiary of the Company infringes or is in conflict with any right of any
other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Neither the Company nor any of its subsidiaries
has received written notice of any pending conflict with or infringement upon
such third party Intangibles. Neither the Company nor any of its subsidiaries
has entered into any consent, indemnification, forbearance to sue or settlement
agreements with respect to the validity of the Company's or its subsidiaries'
ownership or right to use its Intangibles and, to the best knowledge of the
Company, there is no reasonable basis for any such claim to be successful. The
Intangibles are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or cancelled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
are in good standing. The Company and its subsidiaries have complied, in all
material respects, with its respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the
-31-
<PAGE>
Company or its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to the Purchasers pursuant to Section
2(d) hereof and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to Company or its subsidiaries or their respective businesses,
properties, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed by the Company under
the Securities Act with respect to the primary issuance of the Company's
securities.
l. Acknowledgment Regarding Purchasers' Purchase of the Units. The
Company acknowledges and agrees that none of the Purchasers are acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, and any
advice given by any Purchaser, or any of their representatives or agents, in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to each Purchaser's purchase of Units and has not been relied
upon the Company in any way. The Company further represents to each Purchaser
that the Company's decision to enter into this Agreement has been based solely
on an independent evaluation by the Company and its representatives.
m. Current Public Information. The Company is eligible to register the
resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act.
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term
-32-
<PAGE>
is defined in Regulation D, with respect to any of the Securities being offered
hereby.
o. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with prior offerings by the Company for purposes
of the Securities Act or any applicable stockholder approval provisions.
p. No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with the Placement Agent whose
commissions and fees will be paid for by the Company.
q. Acknowledgment of Dilution. The number of Conversion Shares issuable
upon conversion of the Preferred Shares may increase in certain circumstances,
including the circumstance wherein the trading price of the Common Stock
declines. The Company acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with the
Certificate of Designation is absolute and unconditional, regardless of the
dilution that such issuance may have on the ownership interests of other
stockholders. Taking the foregoing into account, the Company's Board of
Directors has determined that the issuance of the Units hereunder and the
consummation of the other transactions contemplated hereby are in the best
interests of the Company and its stockholders.
r. Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(r) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
s. Tax Status. Except as set forth on Schedule 3(s), the Company and
each of its subsidiaries has made or filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its subsidiaries has set aside on its books provisions reasonably
-33-
<PAGE>
adequate for the payment of all unpaid and unreported taxes) and has paid all
taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D: Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
before the date of the First Closing take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Purchasers pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States or obtain exemption therefrom, and shall
provide evidence of any such action so taken to the Purchasers on or prior to
the date of the First Closing.
c. Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Units as set forth in Schedule 4(d).
e. Additional Equity Capital; Right of First Offer. The Company agrees
that during the period beginning on the date hereof and ending one hundred and
eighty (180) days following the date of the First Closing (the "Lock-Up
Period"), the Company will not, without the prior written consent of Purchasers
holding two-thirds of the Preferred Shares then outstanding, contract with any
party to obtain additional equity financing (including debt financing with an
equity component) in any form ("Future Offerings") except for a Qualified Future
Offering (as defined below). In addition, the Company will not conduct any
Qualified Future Offering during the Lock-Up Period unless it shall have first
delivered to each Purchaser at least five (5) business days prior to the closing
of such Qualified Future Offering, written notice describing the
-34-
<PAGE>
proposed Qualified Future Offering, including the terms and conditions thereof,
and providing each Purchaser and its affiliates, an option during the five (5)
business day period following delivery of such notice to purchase up to the
Applicable Portion (as defined below) of the securities being offered in the
Qualified Future Offering on terms which are not materially less attractive to
the Purchasers than the terms contemplated by such Qualified Future Offering
(the limitations referred to in this and the immediately preceding sentence are
collectively referred to as the "Capital Raising Limitations"). The Capital
Raising Limitations shall not apply to any transaction involving issuances of
securities in connection with a merger, consolidation, acquisition or sale of
assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company
or exercise of options by employees, consultants or directors. The Capital
Raising Limitations also shall not apply to (i) the issuance of securities
pursuant to a firm commitment underwritten public offering, (ii) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or (iii) the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees or directors consistent with past practices.
The "Applicable Portion" for any Purchaser shall mean a fraction, the numerator
of which is the total number of Preferred Shares which such Purchaser has agreed
to purchase hereunder (whether at the First Closing or the Second Closing) and
the denominator of which is the total number of Preferred Shares which all of
the Purchasers have agreed to purchase hereunder. A "Qualified Future Offering"
is a Future Offering, all of the net proceeds of which are proposed to be
utilized to acquire (or used to pay expenses incidental to the acquisition of)
capital assets, a business, a product or a license to manufacture, sell or
distribute a product.
f. Expenses. Except as otherwise provided in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for its
own expenses incurred in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith.
g. Financial Information. The Company agrees to send the following
reports to each Purchaser until such Purchaser transfers, assigns or sells all
of its Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its
proxy statements and any Current Reports on Form 8-K; and (ii) within one (1)
day after release, copies of all press releases issued by the Company or any of
its subsidiaries.
h. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide
-35-
<PAGE>
for the full conversion of the outstanding Preferred Shares and issuance of the
Conversion Shares in connection therewith and the full exercise of the Warrants
and the issuance of the Warrant Shares in connection therewith and as otherwise
required by the Certificate of Designation and the Warrants. The Company shall
not reduce the number of shares reserved for issuance upon conversion of the
Preferred Shares and the full exercise of the Warrants without the consent of
Purchasers holding a majority of the Preferred Shares then held by all
Purchasers.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of the Preferred
Shares and Warrant Shares from time to time issuable upon exercise of the
Warrants. The Company will use its best efforts to continue the listing and
trading of its Common Stock on the NASDAQ, the Nasdaq Small Cap Market
("SmallCap"), the New York Stock Exchange ("NYSE") or the American Stock
Exchange ("AMEX") and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
If, despite the Company's best efforts the satisfy the provisions of the
preceding sentence, the Company is unsuccessful in maintaining the listing and
trading of its Common Stock on one of the NASDAQ, SmallCap, the NYSE or AMEX,
the Company shall (i) maintain the inclusion of shares of the Common Stock for
quotation on the over-the-counter market and (ii) secure the inclusion of such
Registrable Securities for quotation on the over-the-counter market. The Company
shall promptly provide to each holder of Preferred Shares copies of any notices
it receives regarding the continued eligibility of the Common Stock for trading
in the over-the-counter market or, if applicable, any securities exchange
(including the NASDAQ or the SmallCap) on which securities of the same class or
series issued by the Company are then listed or quoted, if any.
j. Corporate Existence. So long as a Purchaser beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such transaction assumes the Company's obligations hereunder and under
the agreements and instruments entered into in connection herewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of all Preferred Shares and exercise in full of all Warrants
outstanding as of the date of such transaction.
k. Shareholder Approval. The Company shall, on or before October 31,
1997, hold a meeting of its stockholders and use its best efforts to obtain at
such meeting such approvals of
-36-
<PAGE>
the Company's shareholders as may be required to issue all of the shares of
Common Stock issuable upon conversion of, or otherwise with respect to, the
Preferred Shares and the shares of Common Stock issuable upon exercise of, or
otherwise with respect to, the Warrants without violating NASD Rule 4460(i) (or
any successor rule thereto which may then be in effect). No Purchaser shall vote
any Conversion Shares or Warrant Shares at such meeting. The Company shall
comply with the filing and disclosure requirements of Section 14 promulgated
under the Exchange Act in connection with the solicitation, acquisition and
disclosure of such shareholder approval. The Company represents and warrants
that its Board of Directors has unanimously recommended that the Company's
stockholders approve the proposals contemplated by this Section 4(k) and shall
so indicate such recommendation in the proxy statement used to solicit such
stockholder approval.
l. The Company shall not, at any time while the Preferred Shares are
outstanding, offer or grant any rights or benefits to any Purchaser with respect
to its Preferred Shares or in connection with its rights as a holder of
Preferred Shares without offering or granting the same rights to the other
Purchasers, it being understood that any such rights that may be so offered or
granted by the Company shall be offered or granted pro rata to all such
Purchasers based upon the relative number of Units purchased by each Purchaser
at the First Closing. For the avoidance of doubt, the foregoing shall not affect
the Company's ability to engage in any transaction with any Purchaser not
related to the Preferred Shares (including, without limitation, in connection
with a Purchaser's rights as a holder of any other capital stock of the
Company).
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares and Warrant Shares in such amounts as specified from time to time by such
Purchaser to the Company upon conversion of the Preferred Shares or exercise of
the Warrants. To the extent and during the periods provided in Section 2(f) and
2(g) of this Agreement, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of the Conversion Shares and
Warrant Shares prior to registration of the Conversion Shares and Warrant Shares
under the Securities Act, will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
each Purchaser's obligations and agreement set forth in Section 2(g) hereof to
resell the Securities pursuant to an effective
-37-
<PAGE>
registration statement or in compliance with an exemption from the registration
requirements of applicable securities law.
c. If a Purchaser provides the Company with an opinion of counsel,
which opinion of counsel shall be in form, substance and scope customary for
opinions of counsel in comparable transactions (the cost of which shall be borne
by the Company if the Company's counsel renders such opinion and up to $250 of
such cost shall be borne by the Company if the Purchaser's counsel renders such
opinion), to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from registration, or Purchaser
provides the Company with reasonable assurances that such Securities may be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by a Purchaser.
d. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to
a Purchaser at a closing hereunder is subject to the satisfaction, at or before
the applicable closing, of each of the following conditions thereto, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion. The obligation of the Company to
issue and sell the Units to any Purchaser hereunder is distinct and separate
from its obligation to issue and sell Units to any other Purchaser hereunder and
any failure by one or more Purchasers to fulfill the conditions set forth herein
or to consummate the purchase of Units hereunder will not relieve the Company of
its obligations with respect to any other Purchaser.
a. With respect to the First Closing:
(i) The applicable Purchaser shall have executed the signature
page to this Agreement and the Registration Rights Agreement, and delivered the
same to the Company.
-38-
<PAGE>
(ii) The applicable Purchaser shall have delivered the
Purchase Price for the Units purchased at the First Closing in accordance with
Section 1(b) above.
(iii) The representations and warranties of the applicable
Purchaser shall be true and correct as of the date when made and as of the date
and time of such closing as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable
Purchaser shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Purchaser at or prior to
the date of the First Closing.
(iv) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
(v) The aggregate number of Units being purchased hereunder by
all Purchasers at the First Closing shall be 45,000.
b. With respect to the Second Closing:
(i) The applicable Purchaser shall have executed the signature
page to this Agreement and the Registration Rights Agreement, and delivered the
same to the Company.
(ii) The applicable Purchaser shall have paid the Purchase
Price for the Units purchased at the Second Closing in accordance with Section
1(b) above.
(iii) The representations and warranties of the applicable
Purchaser shall be true and correct as of the date when made and as of the date
and time of such closing as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable
Purchaser shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Purchaser at or prior to
the date of the Second Closing.
(iv) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
-39-
<PAGE>
contemplated by this Agreement.
(v) The Second Closing shall have occurred on or prior to the
later of (i) the 180th day following the date of the First Closing and (ii) the
30th calendar day following the effectiveness of the Registration Statement
required to be filed by the Company pursuant to Section 2(a) of the Registration
Rights Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Units to be
purchased by it at the closings is subject to the satisfaction, at or before the
applicable closing date, of each of the following conditions, provided that
these conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:
a. With respect to the First Closing:
(i) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to such
Purchaser.
(ii) The Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of New York and a copy
thereof certified by the Secretary of State of New York shall have been
delivered to such Purchaser.
(iii) The Company shall have delivered to such Purchaser duly
executed certificates and Warrant agreements (each in such denominations as such
Purchaser shall request) representing the Preferred Shares and Warrants being so
purchased by such Purchaser at the First Closing in accordance with Section 1(b)
above.
(iv) The Common Stock shall be authorized for quotation on
NASDAQ and trading in the Common Stock (or NASDAQ generally) shall not have been
suspended by the SEC or NASDAQ.
(v) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the date of the First
Closing as though made at that time (except for representations and warranties
that speak as of a specific date, which representations and warranties shall be
true and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the date of the First Closing. Such Purchaser
shall have received a
-40-
<PAGE>
certificate, executed by the Chief Executive Officer of the Company, dated as of
the date of the First Closing to the foregoing effect and as to such other
matters as may be reasonably requested by such Purchaser.
(vi) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
(vii) Such Purchaser shall have received an opinion of the
Company's counsel, dated as of the date of the First Closing, in form, scope and
substance reasonably satisfactory to the Purchaser and in substantially the form
of Exhibit D attached hereto.
(viii) The Company shall have delivered evidence reasonably
satisfactory to the Purchasers that the Company's transfer agent has agreed to
act in accordance with irrevocable instructions in the form attached hereto as
Exhibit E.
(ix) The aggregate number of Units being purchased hereunder
by all Purchasers at the First Closing shall be 45,000.
b. With respect to the Second Closing:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to such Purchaser.
(ii) The Company shall have delivered to such Purchaser duly
executed certificates and Warrant agreements (each in such denominations as such
Purchaser shall request) representing the Preferred Shares and Warrants being so
purchased by such Purchaser at the Second Closing in accordance with Section
1(b) above.
(iii) The Common Stock shall be authorized for quotation on
NASDAQ and trading in the Common Stock (or NASDAQ generally) shall not have been
suspended by the SEC or NASDAQ.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the date of the Second
Closing as though made at that time (except for representations and warranties
that speak as of a specific date, which representations and warranties shall be
true and correct as of such date) and the Company shall
-41-
<PAGE>
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the date of the Second
Closing. Such Purchaser shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the date of the Second Closing, to
the foregoing effect and as to such other matters as may be reasonably requested
by such Purchaser.
(v) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
(vi) Such Purchaser shall have received an opinion of the
Company's counsel, dated as of the date of the Second Closing, in form, scope
and substance reasonably satisfactory to such Purchaser and in substantially the
form of Exhibit D attached hereto.
(vii) The Registration Statement required to be filed by the
Company pursuant to Section 2(a) of the Registration Rights Agreement shall have
been declared effective by the SEC no later than the one hundred and eightieth
(180th) day after the First Closing and shall be effective and available for use
by such Purchaser as of the date of the Second Closing.
(viii) No material adverse change or development in the
business, operations, properties, or financial condition, or results of
operations of the Company shall have occurred since the First Closing.
(ix) The average daily Market Capitalization for any ten (10)
consecutive trading day period beginning on or after the date the Registration
Statement filed by the Company pursuant to Section 2(a) of the Registration
Rights Agreement is declared effective shall be at least equal to $74,590,000
and the average daily trading volume of shares of Common Stock on NASDAQ (as
reported by Bloomberg Financial Markets) during the same ten (10) consecutive
trading day period shall be equal to at least 75,000 shares, where "Market
Capitalization" on any trading day means the product of (x) the actual number of
shares of the Company's Common Stock outstanding on such trading day as reported
by Bloomberg Financial Markets multiplied by (y) the average of the Closing Bid
Prices (as defined in the Certificate of Designation) for the ten (10)
consecutive trading days ending on such trading day.
(x) The Second Closing shall have occurred on or prior to the
later of (i) the 180th day following the date of the First Closing and (ii) the
30th calendar day following the effectiveness of the Registration Statement
required to be filed by the Company pursuant to
-42-
<PAGE>
Section 2(a) of the Registration Rights Agreement.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company and the
Purchasers irrevocably consent to the exclusive jurisdiction of the United
States federal courts located in New York, New York in any suit or proceeding
based on or arising under this Agreement and irrevocably agrees that all claims
in respect of such suit or proceeding may be determined in such courts. The
Company and the Purchasers irrevocably waive the defense of an inconvenient
forum to the maintenance of such suit or proceeding. Service of process mailed
by first class mail shall be deemed in every respect effective service of
process upon the recipient in any such suit or proceeding. Nothing herein shall
affect the right of the Company or Purchaser to serve process in any other
manner permitted by law. The Company and each Purchaser agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature is delivered by
facsimile transmission, the party using such means of delivery shall cause the
manually executed Execution Page(s) to be physically delivered to the other
party within five (5) days of the execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be
-43-
<PAGE>
amended other than by an instrument in writing signed by the Company and the
Purchasers.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
AMBI Inc.
771 Old Saw Mill Road
Tarrytown, New York 10592
Attn: President
with a copy to:
Oscar D. Folger, Esquire
521 Fifth Avenue
24th Floor
New York, New York 10175
If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, any Purchaser may assign its rights hereunder to
any of its "affiliates," as that term is defined under the Exchange Act, without
the consent of the Company. This provision shall not limit a Purchaser's right
to transfer the Securities pursuant to the terms of the Certificate of
Designation, the Warrants and this Agreement or to assign such Purchaser's
rights hereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person, except for the provisions of Section 2(j) which are for
the benefit of, and may be enforced by, the Placement Agent.
-44-
<PAGE>
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closings hereunder notwithstanding any due diligence investigation conducted by
or on behalf of any Purchasers. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies a Purchaser may have under applicable federal or state securities laws.
The Company agrees to indemnify and hold harmless each Purchaser and each of
such Purchaser's officers, directors, employees, partners, members, agents and
affiliates for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations or covenants set
forth herein, including advancement of expenses as they are incurred, provided
that the Company may, at its option, defend against indemnified claims of third
parties with counsel selected by it and reasonably acceptable to the indemnified
party unless, in the reasonable opinion of counsel to the indemnified party, the
representation by such counsel of the indemnified party would be inappropriate
due to actual or potential conflicts of interest between the indemnified party
and the Company or any other party represented by such counsel.
j. Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the First Closing shall not have
occurred on or before May 15, 1997, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-45-
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
AMBI INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
PURCHASER:
- --------------------------------
By:
-----------------------------
By:
-------------------------
Name:
-----------------------
Title:
----------------------
RESIDENCE:
ADDRESS:
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units(1) to be Purchased at First Closing:
Purchase Price ($100 per Unit):
- --------
(1) Each Unit consists of one (1) Preferred Share and a Warrant to
purchase twenty-five percent (25%) of the number of shares of
Common Stock which would be received upon conversion of one
Preferred Share at a conversion price equal to the average of
the Closing Bid Prices of the Common Stock for the ten (10)
consecutive trading days immediately preceding the date of the
First Closing.
-46-
<PAGE>
Number of Units(1) to be Purchased at Second Closing:
Purchase Price ($100 per Unit):
- ----------
47
<PAGE>
EXHIBIT D
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. (a) The certificate of incorporation is amended to increase the
aggregate number of shares of Common Stock, which the corporation shall have the
authority to issue from 40,000,000 to 65,000,000.
(b) To effect the foregoing, paragraph (a) of Article FOURTH,
relating to the number of shares the corporation shall have the authority to
issue shall be amended to read in its entirety as follows:
"(a) The aggregate number of shares which the Corporation
shall have the authority to issue is 70,000,000, which are
divided into 65,000,000 shares of Common Stock of a par value
of $.005 per share and 5,000,000 shares of Preferred Stock of
a par value of $.01 per share."
4. This amendment was adopted by the Board of Directors under the
authority of Section 502 of the Business Corporation law.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under penalties of perjury this ___th day of
July, 1997.
By:
--------------------------------
Name: Benjamin T. Sporn
Title: Vice President
By:
--------------------------------
48
<PAGE>
Name: __________________________
Title: Assistant Secretary
49
