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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 10, 1998
AMBI Inc.
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(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
New York 1-12106 11-2653613
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification Number)
incorporation or organization)
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4 Manhattanville Road, Purchase, New York 10577
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including Area Code: (914) 701-4500
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Item 5. Other Information
On December 10, 1998, AMBI Inc. (the "Company") issued 1,500 shares
of new Series E Preferred Stock in exchange for $1,500,000 face amount of the
Company's outstanding Series C Preferred Stock. All remaining shares of Series
C Preferred Stock were redeemed for $1,000,000 in cash and the issuance of
324,689 shares of the Company's Common Stock. The Company has also entered
into an agreement with the holders of its Series D Preferred Stock to exchange
all of the Series D Preferred Stock, which currently has a face value of
$575,000, for 575 shares of the Company's new Series F Preferred Stock also
with a face value of $575,000. The Series D Preferred Stock will be issued
upon effectiveness of a registration statement for the underlying Common
Stock. The Series C Preferred Stock was originally issued in October 1995 with
an initial face value of $8,950,000 and the Series D Preferred Stock was
originally issued in May 1997 with an initial face value of $4,500,000.
Both the Series E and Series F Preferred Stock have a fixed
conversion price of $1.25 per share in contrast to the variable conversion
rates of the Series C and Series D Preferred Stock. The fixed conversion rate
is subject to adjustment in certain circumstances. The Series E and Series F
Preferred Stock bear dividends at a rate of 10% per annum payable in cash or,
at the option of the Company, in shares of Common Stock. Both new series of
Preferred Stock are subject to conversion at any time at the option of the
holder and are subject to mandatory conversion after three years.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Not Applicable.
(b) Pro Forma Financial Information
Not Applicable.
(c) Exhibits
1. Exchange and Redemption Agreement dated as of November
24, 1998, by and among the Company and certain investors.
2. Certificate of Amendment of the Certificate of
Incorporation of the Company creating Series E Convertible
Preferred Stock.
3. Exchange Agreement dated as of November 24, 1998, by and
among the Company and certain investors.
4. Certificate of Amendment of the Certificate of
Incorporation of the Company creating Series F Convertible
Preferred Stock.
5. Registration Rights Agreement dated as of November 24,
1998, by and among the Company and certain investors.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMBI Inc.
By: /s/ Fredric D. Price
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Fredric D. Price
President and Chief Executive Officer
Date: December 11, 1998
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EXCHANGE AND REDEMPTION AGREEMENT
EXCHANGE AND REDEMPTION AGREEMENT (the "Agreement"), dated as of
November 24, 1998, by and among AMBI Inc., a New York corporation, with
headquarters located at 4 Manhattanville Road, Purchase, New York 10577 (the
"Company"), and the investors listed on the Schedule of Investors attached
hereto (individually, an "Investor" and collectively, the "Investors").
WHEREAS:
A. Each of the Investors owns the number of shares of Series C
Preferred Stock, par value $.01 per share (the "Series C Preferred Stock") of
the Company as is set forth on the Schedule of Investors attached hereto.
B. This Agreement is being entered into by the Company and the
Investors pursuant to that certain letter agreement, dated November 6, 1998
(the "Letter Agreement"), between the Company and the Investors, which Letter
Agreement described the principal terms set forth in this Agreement. The
Company has agreed and each of the Investors, severally and not jointly, has
agreed that each Investor will tender all outstanding shares of Series C
Preferred Stock (the "Preferred Shares") to the Company and the Company will
(i) redeem a portion of the Preferred Shares for a cash payment in an
aggregate amount of $1 million (the "Redemption Amount"), (ii) exchange a
portion of the Preferred Shares for shares of a newly created series of
preferred stock designated Series E Convertible Preferred Stock (the "Series E
Preferred Stock"), which shall be convertible into shares of the Company's
Common Stock, par value $.005 per share (the "Common Stock") (as converted,
the "Conversion Shares") in accordance with the terms of the Company's Amended
Certificate of Incorporation (the "Amended Certificate") substantially in the
form attached hereto as Exhibit A, and (iii) convert the remaining Preferred
Shares into 324,689 shares of the Company's Common Stock (the "Restructuring
Shares"), subject in each case to reduction pursuant to Section 9(q) (the
preceding transactions are sometimes collectively referred to as the
"Restructuring"). The Redemption Amount, Series E Preferred Stock and
Restructuring Shares shall be allocated among the Investors pro rata based on
the number of shares of Series C Preferred Stock set forth on the Schedule of
Investors attached hereto (the "Pro Rata Allocation"). The rights and
preferences of the Series E Preferred Stock, including the terms on which the
Series E Preferred Stock may be converted into Common Stock, are set forth in
the Amended Certificate, which shall have been executed, acknowledged, filed,
recorded and become effective in accordance with the Business Corporation Law
of the State of New York (the "NYBCL").
C. The solicitation of this Agreement and, if accepted by the
Company, the issuance of Series E Preferred Stock is being made in reliance
upon the provisions of Section 3(a)(9) of the Securities Act of 1933, as
amended (the "1933 Act"). The shares of
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Series E Preferred Stock and the Conversion Shares issuable upon conversion
thereof are sometimes collectively referred to in this Agreement as the
"Securities."
NOW THEREFORE, the Company and the Investors hereby agree as follows:
1. AGREEMENT; EXCHANGE, REDEMPTION AND CONVERSION.
1.1 Agreement. Each Investor, severally and not jointly, hereby
agrees that at the Closing (as defined below) it will (i) redeem Preferred
Shares for the Redemption Amount, (ii) exchange Preferred Shares for shares of
Series E Preferred Stock, and (iii) convert Preferred Shares into the
Restructuring Shares, all in the amounts determined by such Investor's Pro
Rata Allocation as set forth in the Schedule of Investors and on the terms and
conditions set forth herein, including, without limitation, the provisions of
Section 9(q).
1.2 Closing Date. The closing of the transactions contemplated hereby
(the "Closing") shall occur on November 30, 1998 at the offices of Katten
Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693 or such other date and place as the Company and the Investors shall
agree (the "Closing Date") and shall occur when all of the conditions to the
Company's and the Investors' obligations under Sections 6 and 7, respectively,
have been satisfied or waived by the appropriate party.
1.3 Exchange, Redemption and Conversion Consideration. On the Closing
Date, the Company shall (i) pay to each Investor its Pro Rata Allocation of
the Redemption Amount by wire transfer of immediately available funds in
accordance with each Investor's written wire instructions as set forth on the
Schedule of Investors, (ii) issue to each Investor its Pro Rata Allocation of
the Series E Preferred Stock (in the name of such Investor or its designee),
and (iii) deliver to each Investor its Pro Rata Allocation of the
Restructuring Shares (in the certificate denominations as such Investor shall
request and in the name of such Investor or its designee) as set forth in the
Schedule of Investors and on the terms and conditions set forth herein,
including, without limitation, the provisions of Section 9(q).
1.4 Success Fee. Within five (5) business days after the second
anniversary of the Closing Date, the Company shall pay to each Investor its
Pro Rata Allocation of an amount equal to the greater of (i) $250,000 and (ii)
the product of (a) .03 and (b) the positive difference, if any, between the
Future Enterprise Value (as defined herein) and $31,948,592 (the "Success
Fee"). In no event shall the Success Fee exceed $1,000,000. The Success Fee
may be paid in (i) cash or (ii) shares of Common Stock (the "Success Shares"),
subject to the conditions set forth in the following sentence. In order to pay
the Success Fee by issuing the Success Shares: the Company shall (i) provide
the Investors with 90 days prior written notice of its intent to issue the
Success Shares; (ii) issue a number of Success Shares equal to the quotient
obtained by dividing the Success Fee by 85% of the average closing bid price
as reported on the Principal Market over the 90-day notice period provided in
clause (i); and (iii) the parties hereto shall have entered into a mutually
acceptable
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registration rights agreement covering the resale of the Success Shares and on
terms substantially identical, including but not limited to indemnification,
to the terms contained in the registration rights agreement which relates to
the Company's Series D Convertible Preferred Stock; and (iv) file a
registration statement under the 1933 Act on or prior to the date of delivery
of the notice referred to in clause (i) covering the resale of the Success
Shares by the Investors. Notwithstanding the foregoing, the Company shall be
obligated to pay the Success Fee in cash if the registration statement
referred to in clause (iii) of the preceding sentence is not effective on the
date such Success Fee is due and payable. For purposes of this Agreement,
"Future Enterprise Value" shall mean the sum of (i) the average market value
of the Company's publicly-traded securities during the twenty trading day
period ending on the second anniversary of the Closing Date, and (ii) the
principal amount of any outstanding debt securities and face amount of any
outstanding preferred stock of the Company (as reported in the Company's
Quarterly Report on Form 10-Q (or any successor report) for the period ended
September 30, 2000), less (iii) the amount of the Company's unrestricted cash
as reported in the Company's Quarterly Report on Form 10-Q (or any successor
report) for the period ended September 30, 2000.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
Each Investor represents and warrants with respect to only
itself that:
a. Holding Period. Such Investor (i) purchased the Preferred
Shares directly from the Company and (ii) has held the Preferred Shares for
more than two years, which period has been calculated as described in Rule
144(d) under the 1933 Act.
b. Not an Affiliate. Such Investor is not an "affiliate" (as
that term is defined in Rule 405 of the 1933 Act) of the Company.
c. Reliance on Exemptions. Such Investor understands that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying in part upon the truth
and accuracy of, and such Investor's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Investor
set forth herein in order to determine the availability of such exemptions and
the eligibility of such Investor to acquire such securities.
d. Information. Such Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Investor. Such Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives
shall modify, amend or affect such Investor's right to rely on the Company's
representations and warranties
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contained in Section 3 below. Such Investor understands that its investment in
the Securities involves a high degree of risk. Such Investor has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the
Securities.
e. No Governmental Review. Such Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of the investment in the Securities
nor have such authorities passed upon or endorsed the merits of the offering
of the Securities.
f. Validity; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Investor and is a
valid and binding agreement of such Investor enforceable against such Investor
in accordance with its terms, subject as to enforceability to general
principles of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
g. Residency. Such Investor is a resident of that country
specified in its address on the Schedule of Investors.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Investors
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated,
and have the requisite corporate power and authorization to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results or operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries
except as set forth on Schedule 3(a), and all such Subsidiaries are 100%
wholly-owned by the Company.
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b. Authorization; Enforcement; Validity. (i) The Company has
the requisite corporate power and authority to enter into and perform this
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5) and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with
the terms hereof and thereof, (ii) the execution and delivery of the
Transaction Documents and the Amended Certificate by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Series E Preferred Stock and
the reservation for issuance and the issuance of the Conversion Shares
issuable upon conversion thereof, have been duly authorized by the Company's
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders, (iii) the Transaction
Documents have been duly executed and delivered by the Company, (iv) the
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of
creditors' rights and remedies, and (v) prior to the Closing Date, the Amended
Certificate has been filed with the Secretary of State of the State of New
York and will be in full force and effect, enforceable against the Company in
accordance with its terms.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 65,000,000 shares of Common
Stock, of which as of the date hereof, 26,549,062 shares are issued and
outstanding, 3,000,000 shares are reserved for issuance pursuant to the
Company's stock option and purchase plans and 2,500,000 shares are issuable
and reserved for issuance pursuant to securities (other than the Preferred
Shares and the shares of Series E Preferred Stock) exercisable or exchangeable
for, or convertible into, shares of Common Stock, (ii) 1,000 shares of Series
C Preferred Stock, of which as of the date hereof, 222 shares are issued and
outstanding and (iii) 100,000 shares of Series D Preferred Stock, of which as
of the date hereof 5,750 shares are issued and outstanding; (iv) 1,500 shares
of Series E Preferred Stock, none of which are issued and outstanding as of
the date hereof; and (v) 575 shares of Series F Preferred Stock, none of which
are issued and outstanding as of the date hereof. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) 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,
any shares of capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings 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 or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character
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whatsoever relating to, or securities or rights convertible into, any shares
of capital stock of the Company or any of its Subsidiaries, (iv) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933
Act, (v) there are no outstanding securities or instruments of the Company or
any of its Subsidiaries which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to redeem
a security of the Company or any of its Subsidiaries, (vi) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities as described in this
Agreement, and (vii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Investor true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as amended
and as in effect on the date hereof (the "By-laws"), and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
d. Issuance of Securities. The shares of Series E Preferred
Stock are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights and preferences set forth in the Amended Certificate.
At least 1,200,000 shares of Common Stock (subject to adjustment pursuant to
the Company's covenant set forth in Section 4(e) below) have been duly
authorized and reserved for issuance upon conversion of the Series E Preferred
Stock. Upon conversion in accordance with the Amended Certificate, the
Conversion Shares will be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
The issuance by the Company of the Securities is exempt from registration
under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the
Company, the performance by the Company of its obligations under the Amended
Certificate and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Conversion Shares) will not (i)
result in a violation of the Amended Certificate, including, but not limited
to, the rights of any outstanding series of preferred stock of the Company or
the 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 federal and state securities
laws and regulations and the rules and regulations of the Principal Market (as
defined below)) applicable to the Company or any of its Subsidiaries or by
which any property or asset of
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the Company or any of its Subsidiaries is bound or affected. Except as
disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is in
violation of any term of or in default under its Amended Certificate,
including, but not limited to, the rights of any outstanding series of
preferred stock of the Company or By-laws or their organizational charter or
by-laws, respectively. Except as disclosed in Schedule 3(e), neither the
Company or any of its Subsidiaries is in violation or any term of or in
default under any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order or any statute, rule or regulation
applicable to the Company or its Subsidiaries, except for such violation or
default which, individually or in the aggregate, would not have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance, or
regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the 1933 Act, 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 or contemplated by the Transaction Documents or to
perform its obligations under the Amended Certificate, in each case in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), all consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company is not in violation of the listing
requirements of the Principal Market (as defined below), including, without
limitation, the requirements set forth in Rule 4460 of the Principal Market.
f. SEC Documents; Financial Statements. Since June 30, 1997,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange
Commission ("SEC") pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the "SEC Documents"). The Company has
delivered to the Investors or their respective representatives a true and
complete list of the SEC Documents, including the filing dates thereof. As of
their respective dates, or as subsequently amended, the SEC Documents complied
in all material respects with the requirements of the 1934 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 generally
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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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investors which is
not included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstance under which they
are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Investors with any material, nonpublic information.
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g), since June 30, 1998 there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law
nor does the Company or any of its Subsidiaries have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings. Except as disclosed in Schedule 3(g), since June 30, 1998, the
Company has not declared or paid any dividends, sold any assets in excess of
$500,000 outside of the ordinary course of business or had capital
expenditures in excess of $500,000.
h. Absence of Litigation. There is no action, 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, the Common Stock or any of the Company's Subsidiaries
or any of the Company's or the Company's Subsidiaries' officers or directors
in their capacities as such, except as set forth in Schedule 3(h).
i. Acknowledgment Regarding Investors' Purchase of
Securities. The Company acknowledges and agrees that each of the Investors is
acting solely in the capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.
The Company further acknowledges that each Investor is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby and any advice given by any of the Investors or any of
their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Investor's purchase of the Securities. The Company further
represents to each Investor that the Company's decision
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to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on
a registration statement filed with the SEC relating to an issuance and sale
by the Company of its Common Stock and which has not been publicly announced
(each a "Disclosable Event") and no Disclosable Event is contemplated to
occur, except where such Disclosable Event, individually or in the aggregate
is not likely to have a Material Adverse Effect.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. 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 offers
to buy any security, under circumstances that would require registration of
any of the Securities under the 1933 Act or cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the Company are
listed or designated, nor will the Company or any of its Subsidiaries take any
action or steps that would require registration of any of the Securities under
the 1933 Act or cause the offering of the Securities to be integrated with
other offerings.
m. Intentionally Omitted.
n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its Subsidiaries, is any such dispute threatened. None
of the Company's or its Subsidiaries' employees is a member of a union,
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relations with their employees are good. No executive officer (as defined in
Rule 501(f) of the 1933 Act) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company. No executive officer, to the best knowledge of the Company
and its Subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued
employment of each
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such executive officer does not subject the Company or any of its Subsidiaries
to any liability with respect to any of the foregoing matters.
o. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. Except as set forth on Schedule
3(o), none of the Company's trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademark, trade name rights, patents,
patent rights, copyrights, inventions, licenses, service names, service marks,
service mark registrations, trade secret or other similar rights of others, or
of any such development of similar or identical trade secrets or technical
information by others and, except as set forth on Schedule 3(o), there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its Subsidiaries regarding
trademark, trade name, patents, patent rights, copyrights, inventions,
license, service names, service marks, service mark registrations, trade
secret or other infringement; and the Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing.
The Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their intellectual
properties.
p. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval except in
each of the three foregoing cases, the failure to so comply would have,
individually or in the aggregate, a Material Adverse Effect.
q. 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(q) or such
as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
any of its Subsidiaries. Any real property and facilities held under lease by
the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases
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with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the Company and
its Subsidiaries.
r. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company
nor any such Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole.
s. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.
t. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
u. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation which in
the reasonable judgment of the Company's officers has or is currently expected
in the future to have a Material Adverse Effect. Neither the Company nor any
of its Subsidiaries is a party to any contract or agreement which in the
reasonable judgment of the Company's officers has or is currently expected to
have a Material Adverse Effect.
v. Tax Status. 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 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
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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.
w. Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the
date hereof and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the
Investors as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and
the Investor's ownership of the Securities.
y. Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
z. 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 of its Subsidiaries has, in the
course of its 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, as amended; or made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
aa. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Investors relating to the terms or
conditions of the transactions contemplated by the Transaction Documents
except as set forth in the Transaction Documents.
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4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Blue Sky. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary
in order to obtain an exemption for or to qualify the Securities for sale to
the Investors at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States, and shall
provide evidence of any such action so taken to the Investors on or prior to
the Closing Date. The Company shall make all filings and reports relating to
the offer and sale of the Securities required under applicable securities or
"Blue Sky" laws of the states of the United States following the Closing Date.
c. Reporting Status. Until the date on which (i) the
Investors shall have sold all the Conversion Shares and (ii) none of the
shares of Series E Preferred Stock are outstanding (the "Reporting Period"),
the Company shall file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
d. Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period: (i) within two (2)
days after the filing thereof with the SEC, a copy of its Annual Reports on
Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) including amendments
to any of the foregoing filed pursuant to the 1933 Act, provided that if any
such report or registration statement is not filed with the SEC through EDGAR
then the Company shall deliver a copy of such report or registration statement
to each Investor by facsimile on the same day it is filed with the SEC; (ii)
on the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii) copies of any
notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving
thereof to the stockholders.
e. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 100% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares.
f. Additional Financing; Right of First Refusal. Subject to
the exceptions described below, the Company and its Subsidiaries shall not
negotiate or contract with any party for any equity financing (including any
debt financing with an equity component) or issue any equity securities of the
Company or any Subsidiary or securities convertible or exchangeable into or
for equity securities of the Company or any Subsidiary (including debt
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securities with an equity component) in any form ("Future Offerings") during
the period beginning on the date hereof and ending on, and including, the
first anniversary of the date hereof, unless it shall have first delivered to
each Investor or a designee appointed by such Investor written notice (the
"Future Offering Notice") describing the proposed Future Offering, including
the terms and conditions thereof, and providing each Investor an option to
purchase up to its Aggregate Percentage (as defined below) of the securities
to be issued in such Future Offering, as of the date of delivery of the Future
Offering Notice, in the Future Offering (the limitations referred to in this
and the preceding sentence are collectively referred to as the "Capital
Raising Limitations"). For purposes of this Section 4(f), "Aggregate
Percentage" at any time with respect to any Investor shall mean the percentage
obtained by dividing (i) the aggregate number of the Preferred Shares owned by
such Investor as set forth on the Schedule of Investors by (ii) the aggregate
number of the Preferred Shares owned by all the Investors as set forth on the
Schedule of Investors. An Investor can exercise its option to participate in a
Future Offering by delivering written notice thereof to participate to the
Company within five (5) business days after receipt of a Future Offering
Notice, which notice shall state the quantity of securities being offered in
the Future Offering that such Investor will purchase, up to its Aggregate
Percentage, and that number of securities it is willing to purchase in excess
of its Aggregate Percentage. In the event that one or more Investors fail to
elect to purchase up to each such Investor's Aggregate Percentage, then each
Investor which has indicated that it is willing to purchase a number of
securities in such Future Offering in excess of its Aggregate Percentage shall
be entitled to purchase its pro rata portion (determined in the same manner as
described in the preceding sentence) of the securities in the Future Offering
which one or more of the Investors have not elected to purchase. In the event
the Investors fail to elect to fully participate in the Future Offering within
the periods described in this Section 4(f), the Company shall have 60 days
thereafter to sell the securities of the Future Offering that the Investors
did not elect to purchase, upon terms and conditions, no more favorable to the
purchasers thereof than specified in the Future Offering Notice. In the event
the Company has not sold such securities of the Future Offering within such
60-day period, the Company shall not thereafter issue or sell such securities
without first offering such securities to the Investors in the manner provided
in this Section 4(f). The Capital Raising Limitations shall not apply to (i) a
loan from a commercial bank which does not have any equity feature (other than
warrants to acquire that number of shares of Common Stock at an aggregate
exercise price which is less than 10% of the amount of such loan), (ii) any
transaction involving the Company's issuances of securities (A) as
consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or (C) as consideration for the acquisition of a
business, product, license or other assets by the Company, (iii) the issuance
of Common Stock in a firm commitment, underwritten public offering, (iv) 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
hereafter issued pursuant to clause (v) below, (v) the grant of additional
options or warrants, or the issuance of additional securities, (A) under any
Company stock option plan, restricted stock plan or stock purchase plan for
the benefit of the Company's employees or directors or (B) in connection with
services rendered
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to the Company by accountants, attorneys or consultants. The Investors shall
not be required to participate or exercise their right of first refusal with
respect to a particular Future Offering in order to exercise their right of
first refusal with respect to later Future Offerings.
g. Listing. The Company shall promptly secure the listing of
all of the Conversion Shares upon each national securities exchange and
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 under the terms of the
Transaction Documents and the Amended Certificate. The Company shall maintain
the Common Stock's authorization for quotation on the Nasdaq National Market,
The New York Stock Exchange, Inc. or The American Stock Exchange, Inc.
(collectively, the "Principal Market"). Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall promptly, and in no event later than the following
business day, provide to each Investor copies of any notices it receives from
the Principal Market regarding the continued eligibility of the Common Stock
for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(g).
h. Expenses. Subject to Section 9(l) below, at the Closing,
the Company shall pay a nonaccountable expense allowance of $20,000 to the
Investors or their designee(s).
i. Filing of Form 8-K. On or before the first (1st) business
day following the Closing Date, the Company shall file a Form 8-K with the SEC
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act.
j. Transactions With Affiliates. So long as (i) any shares
of Series E Preferred Stock are outstanding or (ii) any Investor owns
Conversion Shares with a market value equal to or greater than $500,000, the
Company shall not, and shall cause each of its Subsidiaries not to, enter
into, amend, modify or supplement, or permit any Subsidiary to enter into,
amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any Subsidiary's officers, directors, persons
who were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or
affiliates or with any individual related by blood, marriage or adoption to
any such individual or with any entity in which any such entity or individual
owns a 5% or more beneficial interest (each a "Related Party"), except for (a)
customary employment arrangements and benefit programs on reasonable terms,
(b) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested
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directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity,
(ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. "Control" or "controls" for purposes hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
k. Capital and Surplus; Special Reserves. The Company agrees
that the stated capital of the Company (as such term is used in Section 506 of
the NYBCL) in respect of the Series E Preferred Stock shall be equal to the
aggregate par value of such shares of Series E Preferred Stock. Except in
connection with the initial issuance of securities after the date hereof, the
Company shall not increase its stated capital with respect to any shares of
the Company's capital stock at anytime on or after the date of this Agreement.
The amount to be represented in the capital account for the Series E Preferred
Stock at all times for each outstanding share of Series E Preferred Stock
shall be an amount equal to the product of (i) the Liquidation Preference (as
defined in the Amended Certificate) and (ii) 125%.
l. Stockholder Approval. The Company has provided each
stockholder entitled to vote at the next meeting of stockholders of the
Company, to be held December 17, 1999, a proxy statement, soliciting each such
stockholder's affirmative vote at such annual stockholder meeting for approval
of the Company's issuance of all of the Common Stock issuable upon conversion
of the Series C Preferred Stock, including the Restructuring Shares (the
"December Proposal"), and the Company shall use its best efforts to solicit
its stockholders' approval of the December Proposal and cause the Board of
Directors of the Company to recommend to the stockholders that they approve
the December Proposal. The Company represents that as of the closing date
which related to the issuance of the Preferred Shares, (i) 18,215,683 shares
of Common Stock were outstanding, (ii) the maximum aggregate numbers of shares
of Common Stock issuable upon conversion of the Series E Preferred Stock is
1,200,000, (iii) as of the date hereof, 1,974,961 shares have been issued in
respect of the Preferred Shares since the date of issuance of the Preferred
Shares and (iv) Nasdaq Rule 4460 permits issuers to issue securities having
voting power of up to 19.99% of its common stock prior to such issuance
without stockholder approval. The Company further represents that no further
stockholder approval is required, pursuant to Nasdaq Rule 4460 or otherwise,
for the issuance of all of the Securities as described in this Agreement;
provided, however, that in the event the parties hereto subsequently determine
that further stockholder approval is required to effect the transactions
contemplated herein, the Company's obligation to obtain such stockholder
approval would be satisfied by the approval of the December Proposal.
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<PAGE>
m. Rule 144. The Company shall not, directly or indirectly,
dispute or otherwise interfere with any claim by a holder of Series E
Preferred Stock that such holder's holding period of any Security for purposes
of Rule 144 promulgated under the 1933 Act (or a successor rule thereto)
("Rule 144") relates back (i.e., tacks) to the holding period for the
Preferred Shares. The Company acknowledges and agrees that under Rule 144 and
noaction letters issued by the SEC, such tacking is permitted.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Investor or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by each
Investor to the Company upon conversion of the Series E Preferred Stock (the
"Irrevocable Transfer Agent Instructions"). The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5 will be given by the Company to its transfer agent and that
the Securities shall be freely transferable on the books and records of the
Company and such Securities shall not bear any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Investors 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 the Investors shall be
entitled, in addition to all other available remedies, to an order and/or
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 CONSUMMATE
THE RESTRUCTURING.
The obligation hereunder of the Company to consummate the
Restructuring as contemplated hereby is subject to the satisfaction, at or
before the Closing, of each of the following conditions, 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 by providing each Investor with prior
written notice thereof:
a. Such Investor shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
b. The Amended Certificate shall have been filed with the
Secretary of State of the State of New York.
c. Such Investor shall have delivered to the Company (i)
certificates representing all of the Preferred Shares owned by such Investor
as of the date of Closing
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and (ii) a Notice of Conversion for the Restructuring Shares in accordance
with the terms of the Preferred Shares.
d. The representations and warranties of such Investor shall
be true and correct in all material respects as of the date when made and as
of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Investor 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 such Investor at or prior to the Closing.
e. 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 stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or its securities which prohibits or
adversely affects any of the transactions contemplated by this Agreement, nor
shall any proceeding have been commenced which may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
7. CONDITIONS TO EACH INVESTOR'S OBLIGATION TO
CONSUMMATE THE RESTRUCTURING.
The obligation of each Investor to consummate the
Restructuring as contemplated hereby is subject to the satisfaction, at or
before the Closing, of each of the following conditions, provided that these
conditions are for each Investor's sole benefit and may be waived by such
Investor at any time in its sole discretion by providing the Company with
prior written notice thereof:
a. The Company shall have executed each of the Transaction
Documents and delivered the same to such Investor.
b. The Amended Certificate, shall have been duly filed with
the Secretary of State of the State of New York, and a copy thereof certified
by such Secretary of State shall have been delivered to such Investor.
c. The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been suspended by
the SEC or the Principal Market and the Conversion Shares shall be listed upon
the Principal Market.
d. The representations and warranties of the Company shall
be true and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
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performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Investor shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested
by such Investor including, without limitation, an update as of the Closing
Date regarding the representation contained in Section 3(c) above, in the form
attached hereto as Exhibit B.
e. Such Investor shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to such Investor and in substantially the form of
Exhibit C attached hereto.
f. The Company shall have (i) (A) paid to the Investors, by
wire transfer of immediately available funds, the Redemption Amount, (B)
executed and delivered to such Investor the certificates representing the
Series E Preferred Stock (in such certificate denominations as such Investor
shall request and in the name of such Investor or its designee) and (C) duly
authorized, validly issued and delivered to such Investor the certificates for
the Restructuring Shares, each in the amounts set forth on the Schedule of
Investors, subject in each case to reduction as provided in Section 9(q), and
(ii) paid to the Investors, or its designee(s), by wire transfer of
immediately available funds, the amount provided for in Section 4(h) hereof.
g. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Investor.
h. The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
i. The Company shall have delivered to such Investor a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days
of the Closing Date.
j. As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the shares of Series E Preferred Stock, at least
1,200,000 shares of Common Stock.
k. The Company shall have delivered to such Investor a
certified copy of the Certificate of Incorporation, as certified by the
Secretary of State of the State of New York within ten days of the Closing
Date.
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l. The Company shall have delivered to such Investor a
secretary's certificate, dated as the Closing Date, as to (i) the resolutions
described in Section 7(g), (ii) the Certificate of Incorporation, and (iii)
the Bylaws, each as in effect at the Closing.
m. The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.
n. The Company shall have delivered to such Investor such
other documents relating to the transactions contemplated by this Agreement as
such Investor or its counsel may reasonably request.
o. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which
prohibits or adversely affects any of the transactions contemplated by this
Agreement, nor shall any proceeding have been commenced which may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
8. INDEMNIFICATION. In consideration of each Investor's execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents and the Amended Certificate, the Company shall defend,
protect, indemnify and hold harmless each Investor and each other holder of
the Securities and all of their stockholders, officers, directors, employees
and direct or indirect investors and any of the foregoing person's agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnities") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any
such Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or the Amended Certificate or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or the Amended Certificate or any
other certificate, instrument or document contemplated hereby or thereby, (d)
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (e) the
status of such Investor or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company
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<PAGE>
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate
laws of the State of New York shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York.
Each party hereby irrevocably submits to the non-exclusive jurisdiction of the
state and federal courts sitting in the City of New York, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or
more identical 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; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
-21-
<PAGE>
e. Entire Agreement; Amendments. This Agreement supersedes
all other prior oral or written agreements between the Investors, the Company,
their affiliates and persons acting on their behalf with respect to the
matters discussed herein, including, without limitation, the Letter Agreement,
and 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 any Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and
the holders of at least two-thirds (2/3) of the shares of Series E Preferred
Stock then outstanding, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
No such amendment shall be effective to the extent that it applies to less
than all of the holders of the shares of Series E Preferred Stock then
outstanding. No consideration shall be offered or paid to any person to amend
or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Amended Certificate unless the same consideration
also is offered to all of the parties to the Transaction Documents or holders
of shares of Series E Preferred Stock, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
AMBI Inc.
4 Manhattanville Road
Purchase, New York 10577
Telephone: 914-701-4500
Facsimile: 914-696-0860
Attention: President
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<PAGE>
With a copy to:
Law Offices of Oscar Folger
521 Fifth Avenue, 24th Floor
New York, New York 10175
Telephone: 212-697-6464
Facsimile: 212-697-7833
Attention: Oscar Folger, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Co.
6201 15th Avenue
Brooklyn, New York 11219
Telephone: 718-921-8200
Facsimile: 718-331-1852
Attention: Herbert Lemmer, Esq.
If to an Investor, to it at the address and facsimile number set forth on the
Schedule of Investors, with copies to such Investor's representatives as set
forth on the Schedule of Investors, or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the
first page of such transmission or (C) provided by a nationally recognized
overnight delivery service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns, including any purchasers of the shares of Series E Preferred
Stock. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at
least two-thirds (2/3) of the shares of Series E Preferred Stock then
outstanding, including by merger or consolidation, except pursuant to a Major
Transaction (as defined in Section 3(c) of the Amended Certificate) with
respect to which the Company is in compliance with Section 3 of the Amended
Certificate. An Investor may assign some or all of its rights hereunder
without the consent of the Company, provided, however, that any such
assignment shall not release such Investor from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Investors shall be
entitled to pledge the Securities in connection with a bona fide margin
account.
-23-
<PAGE>
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the
Investors contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing. Each Investor shall be responsible only
for its own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Investor shall have the
right to approve before issuance any press releases 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 any
Investor, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although
each Investor shall be consulted by the Company in connection with any such
press release or other public disclosure 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 Closing shall not have
occurred on or before five (5) business days from the date hereof due to the
Company's or the Investors' failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this
Section 9(l), the Company shall remain obligated to reimburse the nonbreaching
Investors for the expenses described in Section 4(h) above.
m. Placement Agent. The Company acknowledges that it has not
engaged a placement agent in connection with the Restructuring. The Company
shall be responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Investor harmless against, any
liability, loss or expense (including, without limitation, attorneys' fees and
out of pocket expenses) arising in connection with any such claim.
-24-
<PAGE>
n. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
o. Remedies. Each Investor and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Amended Certificate and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investors hereunder or pursuant to the Amended
Certificate or the Investors enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
q. Pre-Closing Conversions. In the event that any of the
Investors converts any of the Preferred Shares into shares of Common Stock
prior to the Closing Date, such Investor's Pro Rata Allocation of each of (i)
the Redemption Amount, (ii) the shares of Series E Preferred Stock and (iii)
the Restructuring Shares shall be reduced by an amount, expressed as a
percentage, equal to a fraction, the numerator of which is (A) the number of
Preferred Shares set forth opposite such Investor's name on the Schedule of
Investors less the number of Preferred Shares held by such Investor as of the
Closing Date, and (B) the denominator of which is the number of Preferred
Shares set forth opposite such Investor's name on the Schedule of Investors.
* * * * * *
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<PAGE>
IN WITNESS WHEREOF, the Investors and the Company have caused this
Exchange and Redemption Agreement to be duly executed as of the date first
written above.
COMPANY: INVESTORS:
AMBI INC. NP PARTNERS (formerly known as
Nelson Partners)
By: By:
--------------------------------- ---------------------------------
Name: Fredric D. Price Name: Kenneth A. Simpler
Its: Chief Executive Officer Its: Authorized Signatory
OLYMPUS SECURITIES, LTD.
By:
---------------------------------
Name: Kenneth A. Simpler
Its: Authorized Signatory
<PAGE>
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Number Investor's Legal
Investor Address of Representatives'
and Facsimile Number Preferred Address and
Investor's Name and Wire Transfer Instructions Shares Restructuring Consideration Facsimile Number
- ------------------------ ------------------------------ --------- ------------------------------------ -----------------------
Redemption Shares of Restructuring
Amount Series E Shares
Preferred
Stock
---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
NP Partners c/o Citadel Investment Group, 166 $747,748 1,122 242,785 Katten Muchin & Zavis
(formerly known Inc. 525 W. Monroe Street
as Nelson Partners) 225 West Washington Street Chicago, Illinois
Chicago, Illinois 60606 60661-3693
Attention: Kenneth A. Simpler Attention:
Facsimile: (312) 338-0780 Robert J. Brantman, Esq.
Telephone: (312) 338-7800 Facsimile: (312) 902-1061
Residence: Illinois Telephone: (312) 902-5200
Bank: First Chicago NBD
SWIFT Code: FNBC US 44
ABA NO: 0710.0001.3
Account Number: 51.24514
Olympus Securities, Ltd. c/o Citadel Investment Group, 56 $252,252 378 81,904 Katten Muchin & Zavis
L.L.C. 525 W. Monroe Street
225 West Washington Street Chicago, Illinois
Chicago, Illinois 60606 60661-3693
Attention: Kenneth A. Simpler Attention:
Facsimile: (312) 338-0780 Robert J. Brantman, Esq.
Telephone: (312) 338-7800 Facsimile: (312) 902-1061
Residence: Illinois Telephone: (312) 902-5200
Bank: First Chicago NBD
SWIFT Code: FNBC US 44
ABA NO: 0710.0001.3
Account Number: 51.40131
</TABLE>
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMBI INC.
(Pursuant to 805 of the Business Corporation Law)
1. The name of the corporation is AMBI Inc. (the "Corporation"), a
corporation organized and existing under the Business Corporation Law of the
State of New York. 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 article Seventeenth, 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 E
Convertible Preferred Stock:
"ARTICLE Seventeenth: There is hereby created a series of the
Preferred Stock of this Corporation to consist of 1,500 shares of the
5,000,000 shares of Preferred Stock, par value $.01 per share, which
this Corporation now has the authority to issue. All references to
Sections in this Article Seventeenth shall refer to the sections
contained in this Article Seventeenth.
(a) Designation and Amount. The designation of this series, which
consists of 1,500 shares of Preferred Stock, is the Series E
Convertible Preferred Stock (the "Preferred Shares") and the face
amount shall be One Thousand U.S. Dollars ($1,000) per share ("Face
Amount").
(b) Dividends. The Preferred Shares shall bear dividends
("Dividends") at a rate of 10.0% per annum, which shall be
cumulative, accrue daily from the Issuance Date (as defined below)
and be payable on the first day of each Calendar Quarter (as defined
below) beginning on January 1, 1999 (each a "Dividend Date"). If a
Dividend Date is not a business day then the Dividend shall be due
and payable on the business day immediately following the Dividend
Date. Dividends shall be payable in cash or, at the option of the
Corporation, in shares of Common Stock, provided that the Dividends
which accrued during any period shall be payable in shares of Common
Stock only if the Corporation provides written notice ("Dividend
Election Notice") to each holder of Preferred Shares at least 30
business days prior to the Dividend Date. Dividends to be paid in
shares of Common Stock shall be paid in a number of fully paid and
nonassessable shares
<PAGE>
(rounded to the nearest whole share) of Common Stock equal to the
quotient of (a) the accrued and unpaid Dividends and (b) the Dividend
Market Price (as defined below) on the applicable Dividend Date.
Notwithstanding the foregoing, the Corporation shall not be entitled
to pay Dividends in shares of Common Stock and shall be required to
pay such Dividends in cash if any event constituting a Triggering
Event (as defined in Section 3(d)), or an event that with the passage
of time would constitute a Triggering Event if not cured, has
occurred and is continuing on the date of the Corporation's Dividend
Election Notice or on the Dividend Date, unless otherwise consented
to in writing by the holder of Preferred Shares entitled to receive
such Dividend. Any accrued and unpaid Dividends which are not paid
within five (5) business days after the applicable Dividend Date
shall bear interest at the rate of 18.0% per annum from such Dividend
Date until the same is paid (the "Default Interest").
(4) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Corporation's common stock, par value $.005 per
share (the "Common Stock"), on the terms and conditions set forth in this
Section 4.
(a) Certain Defined Terms. For purposes of this Certificate of
Amendment, the following terms shall have the following meanings:
(i) "Conversion Price" means, as of any Conversion
Date (as defined below) or other date of determination, $1.25, subject to
adjustment as provided herein.
(ii) "Market Price" means, with respect to any security,
that price which shall be computed as the arithmetic average of the Closing
Bid Prices (as defined below) for such security on each of the 10 consecutive
trading days immediately preceding such date of determination. (All such
determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period).
(iii) "Closing Bid Price" means, for any security as of
any date, the last closing bid price for such security on the Principal Market
(as defined below) as reported by Bloomberg Financial Markets ("Bloomberg"), or,
if the Principal Market is not the principal securities exchange or trading
market for such security, the last 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, or if the foregoing do not apply, the last
closing bid 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 closing bid price is reported for such security by Bloomberg, the last
closing trade price of such security as reported by Bloomberg, or, if no last
closing trade price is reported for such security by Bloomberg, the average of
the bid prices of any market makers for such security
2
<PAGE>
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 mutually determined by the Corporation and
the holders of Preferred Shares. If the Corporation and the holders of
Preferred Shares are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 4(e)(iii) below
with the term "Closing Bid Price" being substituted for the term "Market
Price." (All such determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period).
(iv) "Closing Sale Price" means, for any security as
of any date, the last closing trade price for such security on the Principal
Market (as defined below) as reported by Bloomberg, or, if the Principal
Market is not the principal securities exchange or trading market for such
security, the last closing trade price of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing
trade 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 last
closing trade price is reported for such security by Bloomberg, the last
closing ask price of such security as reported by Bloomberg, or, if no last
closing ask price is reported for such security by Bloomberg, the average of
the ask prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Sale Price
cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be the fair
market value as mutually determined by the Corporation and the holders of
Preferred Shares. If the Corporation and the holders of Preferred Shares are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 4(e)(iii) below with the term
"Closing Sale Price" being substituted for the term "Market Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period).
(v) "N" means, with respect to each Preferred Share,
the number of days from, but excluding, the last Dividend Date with respect to
which Dividends, along with any Default Interest, has been paid by the
Corporation on such Preferred Share through and including the Conversion Date
or the Maturity Date, as the case may be, for which conversion and/or
redemption is being elected for such Preferred Share.
(vi) "Issuance Date" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(vii) "Mandatory Conversion Date" means the date
3
<PAGE>
which is three (3) years after the applicable Issuance Date.
(viii) "Person" means an individual, a limited liability
Corporation, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(ix) "Principal Market" means the Nasdaq National
Market.
(x) "Stated Value" means $1,000.
(xi) "Conversion Amount" means, with respect to each
Preferred Share, the sum of (A) the Additional Amount and (B) $1,000.
(xii) "Additional Amount" means, with respect to each
Preferred Share, the sum of (A) unpaid Default Interest through the date of
determination plus (B) the product of (I) $100, multiplied by (II) the result
of (X) N, divided by (Y) 365.
(xiii) "Exchange Agreement" means that certain exchange
and redemption agreement between the Corporation and the initial holders of
the Preferred Shares relating to the issuance of the initial Preferred Shares
and certain other matters.
(xiv) "Dividend Market Price" means, for the Common
Stock as of any date, the product of (A) .85 and (B) the arithmetic average of
the Closing Bid Prices for the Common Stock on each of the 30 consecutive
trading days immediately preceding such date of determination. (All such
determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period).
(xv) "Calendar Quarter" means, each of the period
beginning on and including January 1 and ending on and including March 31, the
period beginning on and including April 1 and ending on and including June 30,
the period beginning on and including July 1 and ending on and including
September 30, and the period beginning on and including October 1 and ending
on and including December 31.
(b) Holder's Conversion Right; Mandatory Conversion. Subject
to the provisions of Section 4(d) below, at any time or times on or after the
Issuance Date, any holder of Preferred Shares shall be entitled to convert any
whole number of Preferred Shares into fully paid and nonassessable shares of
Common Stock in accordance with Section 4(e), at the Conversion Rate (as
defined below). If any Preferred Shares remain outstanding on the Mandatory
4
<PAGE>
Conversion Date (as defined below), then all such Preferred Shares shall be
converted at the Conversion Rate as of such date in accordance with Section
4(e). The Corporation shall not issue any fraction of a share of Common Stock
upon any conversion. All shares of Common Stock (including fractions thereof)
issuable upon conversion of more than one Preferred Share by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall round such fraction
of a share of Common Stock up or down to the nearest whole share.
(c) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 4(b)
shall be determined according to the following formula (the "Conversion
Rate"):
Conversion Amount
Conversion Price
(d) Limitations on Conversion. The Corporation shall not
effect any conversion of Preferred Shares and no holder of Preferred Shares
shall have the right to convert any Preferred Shares pursuant to Section 4(b)
to the extent that after giving effect to such conversion such Person
(together with such Person's affiliates) (A) would beneficially own in excess
of 10.00% of the outstanding shares of the Common Stock following such
conversion and (B) would have acquired, through conversion of Preferred Shares
or otherwise, in excess of 10.00% of the outstanding shares of the Common
Stock following such conversion during the 60-day period ending on and
including such Conversion Date (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
a Person and its affiliates or acquired by a Person and its affiliates, as the
case may be, shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such sentence is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining,
nonconverted Preferred Shares beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Corporation (including, without
limitation, any warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by such Person
and its affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 4(d)(i), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. Notwithstanding anything to the contrary contained herein, each
Conversion Notice (as defined below) shall constitute a representation by the
holder submitting such Conversion Notice that, after giving effect to such
Conversion Notice, (A) the holder will not beneficially own (as dtermined in
accordance with
5
<PAGE>
this Section 4(d)(i)) and (B) during the 60-day period ending on and including
such Conversion date, the holder will not have acquired, through conversion of
Preferred Shares or otherwise, a number of shares of Common Stock in excess of
10.00% of the outstanding shares of Common Stock as reflected in the
Corporation's most recent Form 10-Q or Form 10-K, as the case may be, or more
recent public press release or other public notice by the Corporation setting
forth the number of shares of Common Stock outstanding, but after giving
effect to conversions of Preferred Shares by such holder since the date as of
which such number of outstanding shares of Common Stock was reported.
(e) Mechanics of Conversion. The conversion of
Preferred Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into shares of Common Stock on any date (the "Conversion
Date"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Eastern Time on such date, a
copy of a fully executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice") to the Corporation's designated transfer
agent (the "Transfer Agent") with a copy thereof to the Corporation and (B)
surrender to a common carrier for delivery to the Transfer Agent as soon as
practicable following such date the original certificates representing the
Preferred Shares being converted (or an indemnification undertaking with
respect to such shares in the case of their loss, theft or destruction) (the
"Preferred Stock Certificates").
(ii) Corporation's Response. Upon receipt by the
Corporation of a copy of a Conversion Notice, the Corporation shall
immediately send, via facsimile, a confirmation of receipt of such Conversion
Notice to such holder and the Transfer Agent, which confirmation shall
constitute an instruction to the Transfer Agent to process such Conversion
Notice in accordance with the terms herein. Upon receipt by the Transfer Agent
of the Preferred Stock Certificates to be converted pursuant to a Conversion
Notice, the Transfer Agent shall, on the next business day following the date
of receipt, (A) issue and surrender to a common carrier for overnight delivery
to the address as specified in the Conversion Notice, a certificate,
registered in the name of the holder or its designee, for the number of shares
of Common Stock to which the holder shall be entitled, or (B) provided the
Transfer Agent is participating in The Depository Trust Corporation ("DTC")
Fast Automated Securities Transfer Program, upon the request of the holder,
credit such aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance account with DTC
through its Deposit Withdrawal Agent Commission system. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted
for conversion is greater than the number of Preferred Shares being converted,
then the Transfer Agent shall, as soon as practicable and in no event later
than three business days after receipt of the Preferred Stock Certificate(s)
6
<PAGE>
and at its own expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a
dispute as to the determination of the Market Price or the arithmetic
calculation of the Conversion Rate, the Corporation shall instruct the
Transfer Agent to issue to the holder the number of shares of Common Stock
that is not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within one (1) business
day of receipt of such holder's Conversion Notice. If such holder and the
Corporation are unable to agree upon the determination of the Market Price or
arithmetic calculation of the Conversion Rate within one (1) business day of
such disputed determination or arithmetic calculation being submitted to the
holder, then the Corporation shall within one (1) business day submit via
facsimile (A) the disputed determination of the Market Price to an
independent, reputable investment bank selected by the Corporation and
approved by the holders of a majority of the Preferred Shares then outstanding
or (B) the disputed arithmetic calculation of the Conversion Rate to the
Corporation's independent, outside accountant. The Corporation shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Corporation and the holder of
the results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Conversion Date.
(v) Corporation's Failure to Timely Convert.
(A) Cash Damages. If within two business
days after the Transfer Agent's receipt of the Preferred Stock Certificates to
be converted and a copy of the Conversion Notice (the "Share Delivery Period")
the Transfer Agent shall fail to issue a certificate to a holder or credit
such holder's balance account with DTC for the number of shares of Common
Stock to which such holder is entitled upon such holder's conversion of
Preferred Shares or to issue a new Preferred Stock Certificate representing
the number of Preferred Shares to which such holder is entitled pursuant to
Section 4(e)(ii) (a "Conversion Failure"), in addition to all other available
remedies which such holder may pursue hereunder and under the Exchange
Agreement between the Corporation and the initial holders of the Preferred
Shares (including indemnification pursuant to Section 10 thereof), the
Corporation shall pay additional damages to such holder on each date after
such second (2nd) business day such conversion is
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not timely effected and/or such Preferred Stock Certificate is not delivered
in an amount equal to 0.25% of the sum of (I) the Conversion Amount of the
Preferred Shares submitted for conversion and with respect to which shares of
Common Stock are not issued to the holder on a timely basis pursuant to
Section 4(e)(ii) and to which such holder is entitled and, (II) in the event
the Corporation has failed to deliver a Preferred Stock Certificate to the
holder on a timely basis pursuant to Section 4(e)(ii), the Conversion Amount
represented by the Preferred Shares represented by such Preferred Stock
Certificate. If the Corporation fails to pay the additional damages set forth
in this Section 4(e)(v) within five business days of the date incurred, then
the holder entitled to such payments shall have the right at any time, so long
as the Corporation continues to fail to make such payments, to require the
Corporation, upon written notice ("Cash Default Notice"), to immediately
issue, in lieu of such cash damages, the number of shares of Common Stock
equal to the quotient of (X) the aggregate amount of the damages payments
described herein divided by (Y) the lesser of (I) the Conversion Price in
effect on such Conversion Date as specified by the holder in the Conversion
Notice and (II) the Market Price on the date the Corporation receives the Cash
Default Notice.
(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason a holder has not received all of the
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Share Delivery Period with respect to a conversion of
Preferred Shares, then the holder, upon written notice to the Transfer Agent,
with a copy to the Corporation, may void its Conversion Notice with respect
to, and retain or have returned, as the case may be, any Preferred Shares that
have not been converted pursuant to such holder's Conversion Notice; provided
that the voiding of a holder's Conversion Notice shall not affect the
Corporation's obligations to make any payments which have accrued prior to the
date of such notice pursuant to Section 4(e)(v)(A) or otherwise. Thereafter,
the Conversion Price of any Preferred Shares returned or retained by the
holder for failure to timely convert shall be adjusted to the lesser of (I)
the Conversion Price as in effect on the date on which the holder voided the
Conversion Notice and (II) the lowest Closing Bid Price during the period
beginning on the Conversion Date and ending on the date such holder voided the
Conversion Notice.
(vi) Pro Rata Conversion and Redemption. In
the event the Corporation receives a Conversion Notice from more than one
holder of Preferred Shares for the same Conversion Date and the Corporation
can convert some, but not all, of such Preferred Shares, the Corporation shall
convert from each holder of Preferred Shares electing to have Preferred Shares
converted at such time a pro rata amount of such holder's Preferred Shares
submitted for conversion based on the number of Preferred Shares submitted for
conversion on such date by such holder relative to the number of Preferred
Shares submitted for conversion on such date.
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(vii) Mechanics of Mandatory Conversion. On the
Mandatory Conversion Date, all holders of Preferred Shares shall surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the Transfer
Agent and all outstanding Preferred Shares shall be converted as of such date
as if the holders of such Preferred Shares had given the Conversion Notice for
all such shares on the Mandatory Conversion Date; provided that the Mandatory
Conversion Date shall be extended for any Preferred Shares for as long as (A)
the conversion of such Preferred Shares would violate the provisions of
Section 4(d), (B) a Triggering Event shall have occurred and be continuing or
(C) any event shall have occurred and be continuing which with the passage of
time and the failure to cure would result in a Triggering Event.
(f) Taxes. The Corporation shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon the conversion of Preferred Shares.
(g) Adjustments to Conversion Price. The Conversion
Price will be subject to adjustment from time to time as provided in this
Section 4(g).
(i) Adjustment of Conversion Price upon
Issuance of Common Stock. If and whenever on or after the date of issuance of
the Preferred Shares, the Corporation issues or sells, or in accordance with
this Section 4(g) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Corporation, but excluding shares of Common Stock
deemed to have been issued by the Corporation in connection with an Approved
Stock Plan (as defined below) or upon conversion of the Preferred Shares) for
a consideration per share less than the lesser of (A) the Market Price of the
Common Stock on the date of such issuance or sale and (B) the Conversion Price
in effect immediately prior to such time (the "Applicable Price"), then
immediately after such issue or sale, the Conversion Price then in effect
shall be reduced to an amount equal to the product of (x) the Conversion Price
in effect immediately prior to such issue or sale and (y) the quotient of (1)
the sum of (I) the product of the Applicable Price and the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately prior to such
issue or sale and (II) the consideration, if any, received by the Corporation
upon such issue or sale, divided by (2) the product of (I) the Applicable
Price multiplied by (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. For purposes of determining
the adjusted Conversion Price under this Section 4(g)(i), the following shall
be applicable:
(A) Issuance of Options. If the Corporation
in any manner grants or sells any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such
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Option or upon conversion or exchange of any Convertible Securities issuable
upon exercise of such Option is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Corporation at the time of the granting or sale of such
Option for such price per share. For purposes of this Section 4(g)(i)(A), the
"lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Option" shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Corporation with respect to any one share of Common Stock
upon granting or sale of the Option, upon exercise of the Option and upon
conversion or exchange of any Convertible Security issuable upon exercise of
such Option. No further adjustment of the Conversion Price shall be made upon
the actual issuance of such Common Stock or of such Convertible Securities
upon the exercise of such Options or upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 4(g)(i)(A) to the extent that such adjustment is based solely on the
fact that the Convertible Securities issuable upon exercise of such Option are
convertible into or exchangeable for Common Stock at a price which varies with
the market price of the Common Stock.
(B) Issuance of Convertible Securities. If
the Corporation in any manner issues or sells any Convertible Securities and
the lowest price per share for which one share of Common Stock is issuable
upon such conversion or exchange thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Corporation at the time of the issuance of sale of
such Convertible Securities for such price per share. For the purposes of this
Section 4(g)(i)(B), the "price per share for which one share of Common Stock
is issuable upon such conversion or exchange" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the issuance or
sale of the Convertible Security and upon the conversion or exchange of such
Convertible Security. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 4(g)(i), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 4(g)(i)(B) to the extent that such adjustment is based solely on the
fact that such Convertible Securities are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common
Stock.
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(C) Change in Option Price or Rate of
Conversion. If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 4(g)(i)(C), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of the Preferred Shares are changed in the manner described
in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect.
(D) Calculation of Consideration Received.
In case any Option is issued in connection with the issue or sale of other
securities of the Corporation, together comprising one integrated transaction
in which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$.01. If any Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the
Corporation therefor. If any Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation will be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Corporation will be the Market Price of such securities on the date of
receipt. If any Common Stock, Options or Convertible Securities are issued to
the owners of the non-surviving entity in connection with any merger in which
the Corporation is the surviving entity, the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined jointly by the
Corporation and the holders of a majority of the Preferred Shares then
outstanding. If such parties are unable to reach agreement within 10 days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five business
days after the tenth (10th) day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Corporation and the
holders of a majority of the Preferred Shares then outstanding. The
determination of such appraiser shall be
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deemed binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Corporation.
(E) Record Date. If the Corporation takes a
record of the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options or
in Convertible Securities or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(F) Certain Definitions. For purposes of
this Section 4(g)(i), the following terms have the respective meanings set
forth below:
(I) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of Directors of the
Corporation, pursuant to which the Corporation's securities may be issued to
any employee, officer, director, consultant or other service provider for
services provided to the Corporation.
(II) "Common Stock Deemed Outstanding"
means, at any given time, the number of shares of Common Stock actually
outstanding at such time, plus the number of shares of Common Stock deemed to
be outstanding pursuant to Sections 2(g)(i)(A) and 2(g)(i)(B) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock owned or
held by or for the account of the Corporation or issuable upon conversion of
the Preferred Shares.
(III) "Options" means any rights, warrants
or options to subscribe for or purchase Common Stock or Convertible
Securities.
(IV) "Convertible Securities" means any
stock or securities (other than Options) directly or indirectly convertible
into or exchangeable for Common Stock.
(ii) Adjustment of Conversion Price upon
Subdivision or Combination of Common Stock. If the Corporation at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Corporation at any time
combines (by combination, reverse stock split or otherwise) one or more
classes of its
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outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Other Events. If any event occurs of the
type contemplated by the provisions of this Section 4(e) but not expressly
provided for by such provisions (including, without limitation, the granting
of stock appreciation rights, phantom stock rights or other rights with equity
features), then the Corporation's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders
of the Preferred Shares; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section 4(e).
(iv) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Corporation will give written notice thereof to each
holder of Preferred Shares, setting forth in reasonable detail, and
certifying, the calculation of such adjustment.
(B) The Corporation will give written
notice to each holder of Preferred Shares at least twenty (20) days prior to
the date on which the Corporation closes its books or takes a record (I) with
respect to any dividend or distribution upon the Common Stock, (II) with
respect to any pro rata subscription offer to holders of Common Stock or (III)
for determining rights to vote with respect to any Organic Change, dissolution
or liquidation, provided that such information shall be made known to the
public prior to or in conjunction with such notice being provided to such
holder.
(C) The Corporation will also give written
notice to each holder of Preferred Shares at least twenty (20) days prior to
the date on which any Organic Change, dissolution or liquidation will take
place, provided that such information shall be made known to the public prior
to or in conjunction with such notice being provided to such holder.
(5) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to
all other rights of the holders of Preferred Shares contained herein, upon the
consummation of a Major Transaction (as defined below), each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Corporation to redeem all or a portion of such holder's Preferred Shares at a
price per Preferred Share equal to the greater of (i) 125% of the Conversion
Amount of such share and (ii) the product of (A) the Conversion Rate on such
date and (B) the Closing Sale Price of the Common Stock on the date
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<PAGE>
immediately preceding such date on which the Principal Market, or the market
or exchange where the Common Stock is then traded, is open for trading ("Major
Transaction Redemption Price").
(b) Redemption Option Upon Triggering Event. In addition to
all other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall
have the right, at such holder's option, to require the Corporation to redeem
all or a portion of such holder's Preferred Shares at a price per Preferred
Share equal to the greater of (i) 125% of the Conversion Amount of such share
and (ii) the product of (A) the Conversion Rate in effect at such time as such
holder delivers a Notice of Redemption at Option of Buyer Upon a Triggering
Event (as defined below) and (B) the Closing Sale Price of the Common Stock on
the date immediately preceding such Triggering Event on which the Principal
Market, or the market or exchange where the Common Stock is then traded, is
open for trading ("Triggering Event Redemption Price" and, collectively with
"Major Transaction Redemption Price," the "Redemption Price").
(c) "Major Transaction". A "Major Transaction" shall be
deemed to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Corporation with or into another Person (other than (A) a
consolidation, merger, or other business combination in which holders of the
Corporation's voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of
the board of directors (or their equivalent if other than a corporation) of
such entity or entities, or (B) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the
Corporation);
(ii) the sale or transfer of all or substantially all of
the Corporation's assets; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 30% of the outstanding shares of Common
Stock.
(d) "Triggering Event". A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:
(i) the suspension from trading or failure of the Common
Stock to be listed on the Nasdaq National Market, The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
consecutive trading days or for more than an aggregate of 10 trading days in any
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365-day period;
(ii) the Corporation's or the Transfer Agent's notice to
any holder of Preferred Shares, including by way of public announcement, at
any time, of its intention not to comply with a request for conversion of any
Preferred Shares into shares of Common Stock that is tendered in accordance
with the provisions of this Certificate of Amendment, or the failure of the
Transfer Agent to comply with a Conversion Notice tendered in accordance with
the provisions of this Certificate of Amendment within 10 business days after
the receipt by the Transfer Agent of the Conversion Notice; or
(iii) the Corporation breaches any representation,
warranty, covenant or other term or condition of the Exchange Agreement, this
Certificate of Amendment or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
thereby and hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 3 of the Exchange Agreement)
and except, in the case of a breach of a covenant which is curable, only if
such breach continues for a period of at least 10 business days.
(e) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, the Corporation shall deliver written
notice thereof via facsimile and overnight courier ("Notice of Major
Transaction") to each holder of Preferred Shares, which notice shall include
the date by which a holder receiving a Notice of Major Transaction must
provide the Corporation with notice of its intent to exercise its redemption
rights hereunder (which date shall not be sooner than five business days after
the date of the Notice of Major Transaction (the "Major Transaction Response
Date")). The Corporation shall publicly disclose the material facts of such
Major Transaction prior to or concurrently with providing the Notice of Major
Transaction, such public disclosure to be made not later than 10 days prior to
the consummation of such Major Transaction. At any time after receipt of a
Notice of Major Transaction and prior to the Major Transaction Response Date
(or, in the event a Notice of Major Transaction is not delivered at least 10
days prior to a Major Transaction, at any time prior to the consummation of a
Major Transaction) any holder of Preferred Shares then outstanding may require
the Corporation to redeem all of the holder's Preferred Shares then
outstanding by delivering written notice thereof via facsimile and overnight
courier ("Notice of Redemption at Option of Buyer Upon Major Transaction") to
the Corporation, which Notice of Redemption at Option of Buyer Upon Major
Transaction shall indicate (i) the number of Preferred Shares that such holder
is electing to redeem and (ii) the applicable Major Transaction Redemption
Price, as calculated pursuant to Section 3(a).
(f) Mechanics of Redemption at Option of Buyer Upon
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Triggering Event. Within one (1) day after the occurrence of a Triggering
Event, the Corporation shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of Preferred
Shares. At any time (i) after the earlier of a holder's receipt of a Notice of
Triggering Event and such holder becoming aware of a Triggering Event, but
(ii) prior to the later of (A) the date which is six business days after such
holder's receipt of the Notice of Triggering Event and (B) such holder's
receipt of written notice from the Corporation that such Triggering Event has
been cured, any holder of Preferred Shares then outstanding may require the
Corporation to redeem all of the Preferred Shares by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option
of Buyer Upon Triggering Event") to the Corporation. The Notice of Redemption
at Option of Buyer Upon Triggering Event shall indicate (i) the number of
Preferred Shares that such holder is electing to redeem and (ii) the
applicable Triggering Event Redemption Price, as calculated pursuant to
Section 3(b) above.
(g) Payment of Redemption Price. Upon the Corporation's
receipt of a Notice(s) of Redemption at Option of Buyer Upon Major Transaction
or a Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the
case may be, from any holder of Preferred Shares, the Corporation shall
immediately notify each holder of Preferred Shares by facsimile of the
Corporation's receipt of such notices and each holder which has sent such a
notice shall promptly submit to the Transfer Agent such holder's Preferred
Stock Certificates which such holder has elected to have redeemed. The
Corporation shall deliver the applicable Redemption Price to such holder
within five business days after the Corporation's receipt of a Notice of
Redemption at Option of Buyer Upon Triggering Event or Notice of Redemption at
Option of Buyer Upon Major Transaction; provided that a holder's Preferred
Stock Certificates shall have been so delivered to the Transfer Agent. If the
Corporation is unable to redeem all of the Preferred Shares submitted for
redemption, the Corporation shall (i) redeem a pro rata amount from each
holder of Preferred Shares based on the number of Preferred Shares submitted
for redemption by such holder relative to the total number of Preferred Shares
submitted for redemption by all holders of Preferred Shares and (ii) in
addition to any remedy such holder of Preferred Shares may have under this
Certificate of Amendment and the Exchange Agreement, pay to each holder
interest at the rate of 2.5% per month (prorated for partial months) in
respect of each unredeemed Preferred Share until paid in full.
(h) Void Redemption. In the event that the Corporation does
not pay the Redemption Price within the time period set forth in Section 3(g),
at any time thereafter and until the Corporation pays such unpaid applicable
Redemption Price in full, a holder of Preferred Shares shall have the option
(the "Void Optional Redemption Option") to, in lieu of redemption, require the
Corporation to promptly return to such holder any or all of the Preferred
Shares
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that were submitted for redemption by such holder under this Section 3 and for
which the applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Corporation via
facsimile (the "Void Optional Redemption Notice"). Upon the Corporation's
receipt of such Void Optional Redemption Notice, (i) the Notice of Redemption
at Option of Buyer Upon Triggering Event or the Notice of Redemption at Option
of Buyer Upon Major Transaction, as the case may be, shall be null and void
with respect to those Preferred Shares subject to the Void Optional Redemption
Notice, (ii) the Corporation shall immediately return any Preferred Shares
subject to the Void Optional Redemption Notice and (iii) the Conversion Price
of such returned Preferred Shares shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional
Redemption Notice is delivered to the Corporation and (B) the lowest Closing
Bid Price during the period beginning on the date on which the Notice of
Redemption at Option of Buyer Upon Major Transaction or the Notice of
Redemption at Option of Buyer Upon Triggering event, as the case may be, is
delivered to the Corporation and ending on the date on which the Void Optional
Redemption Notice is delivered to the Corporation.
(i) Disputes; Miscellaneous. In the event of a dispute as to
the determination of the Closing Bid Price, the Closing Sale Price or the
arithmetic calculation of the Redemption Price, such dispute shall be resolved
pursuant to Section 4(e)(iii) above with the term "Closing Bid Price" and/or
"Closing Sale Price", as the case may be, being substituted for the term
"Market Price" and the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Void Optional Redemption Notice
and exercise of its rights following such notice shall not affect the
Corporation's obligations to make any payments which have accrued prior to the
date of such notice. Payments provided for in this Section 3 shall have
priority to payments to other stockholders in connection with a Major
Transaction. In the event of a redemption pursuant to this Section 3 of less
than all of the Preferred Shares represented by a particular Preferred Stock
Certificate, the Corporation shall promptly cause to be issued and delivered
to the holder of such Preferred Shares a preferred stock certificate
representing the remaining Preferred Shares which have not been redeemed.
(6) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation, Merger
or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Corporation's
assets to another Person or other transaction which is effected in such a way
that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the
Corporation's assets to an acquiring Person or (ii) other Organic Change
following which the Corporation is not a surviving entity, the
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Corporation will secure from the Person purchasing such assets or the
successor resulting from such Organic Change (in each case, the "Acquiring
Entity") a written agreement (in form and substance reasonably satisfactory to
the holders of a majority of the Preferred Shares then outstanding) to deliver
to each holder of Preferred Shares in exchange for such shares, a security of
the Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to the Preferred Shares, including, without limitation,
having a stated value and liquidation preference equal to the Stated Value and
the Liquidation Preference of the Preferred Shares held by such holder, and
satisfactory to the holders of a majority of the Preferred Shares then
outstanding. Prior to the consummation of any other Organic Change, the
Corporation shall make appropriate provision (in form and substance reasonably
satisfactory to the holders of a majority of the Preferred Shares then
outstanding) to insure that each of the holders of the Preferred Shares will
thereafter have the right to acquire and receive in lieu of or in addition to
(as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Preferred
Shares such shares of stock, securities or assets that would have been issued
or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and
receivable upon the conversion of such holder's Preferred Shares as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the convertibility of the Preferred Shares).
(b) Purchase Rights. If at any time the Corporation grants,
issues or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the record holders
of any class of Common Stock (the "Purchase Rights"), then the holders of
Preferred Shares 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 Preferred Shares (without taking
into account any limitations or restrictions on the convertibility of the
Preferred Shares) 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.
(7) Intentionally omitted.
(8) Reservation of Shares. The Corporation shall, so long as any of
the Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding; provided that the number of shares of
Common Stock so reserved
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shall at no time be less than 100% of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares and
each increase in the number of shares so reserved shall be allocated pro rata
among the holders of the Preferred Shares based on the number of Preferred
Shares held by each holder at the time of issuance of the Preferred Shares or
increase in the number of reserved shares, as the case may be. In the event a
holder shall sell or otherwise transfer any of such holder's Preferred Shares,
each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holders.
(9) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the Business
Corporation Law of the State of New York, and as expressly provided in this
Certificate of Amendment.
(10) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Preferred Shares shall be entitled to receive
in cash out of the assets of the Corporation, whether from capital or from
earnings available for distribution to its stockholders (the "Liquidation
Funds"), before any amount shall be paid to the holders of any of the capital
stock of the Corporation of any class junior in rank to the Preferred Shares
in respect of the preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Corporation, an amount per
Preferred Share equal to the Conversion Amount of such Preferred Share as of
such date (the "Liquidation Preference"); provided that, if the Liquidation
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Corporation that are of equal rank with the Preferred Shares as to
payments of Liquidation Funds (the "Pari Passu Shares"), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Liquidation Funds equal to the full amount of Liquidation Funds payable to
such holder as a liquidation preference, in accordance with their respective
Certificates of Amendment, as a percentage of the full amount of Liquidation
Funds payable to all holders of Preferred Shares and Pari Passu Shares. In
addition to the receipt of the Liquidation Preference, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Preferred Shares shall be entitled to receive
Liquidation Funds distributed to holders of Common Stock, after the
Liquidation Preference has been paid, to the same extent as if such holders of
Preferred Shares had converted the Preferred Shares into Common Stock (without
regard to any limitations on conversions herein or elsewhere) and had held
such shares of Common Stock on the record
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date for such distribution of the remaining Liquidation Funds. 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 Person, 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. No holder of Preferred Shares shall be entitled
to receive any amounts with respect thereto upon any liquidation, dissolution
or winding up of the Corporation other than the amounts provided for herein;
provided that a holder of Preferred Shares shall be entitled to all amounts
previously accrued with respect to amounts owed hereunder.
(11) Preferred Rank. All shares of Common Stock shall be of junior
rank to all Preferred Shares in respect to the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the
Corporation. The rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, the Corporation shall not hereafter
authorize or issue additional or other capital stock that is of senior or
equal rank to the Preferred Shares in respect of the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Corporation. Without the prior express written consent of the holders of
not less than two-thirds (2/3) of the then outstanding Preferred Shares, the
Corporation shall not hereafter authorize or make any amendment to the
Corporation's Certificate of Incorporation or bylaws, or file any resolution
of the board of directors of the Corporation with the Secretary of State of
the State of New York or enter into any agreement containing any provisions,
which would adversely affect or otherwise impair the rights or relative
priority of the holders of the Preferred Shares relative to the holders of the
Common Stock or the holders of any other class of capital stock. In the event
of the merger or consolidation of the Corporation with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(12) Participation. Subject to the rights of the holders, if any, of
the Pari Passu Shares, the holders of the Preferred Shares shall, as holders
of Preferred Stock, be entitled to such dividends paid and distributions made
to the holders of Common Stock to the same extent as if such holders of
Preferred Shares had converted the Preferred Shares into Common Stock (without
regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.
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(13) Restriction on Redemption, Cash Dividends and Issuance of
Floating Rate Convertible Securities. Until all of the Preferred Shares have
been converted or redeemed as provided herein, the Corporation shall not,
directly or indirectly, (a) redeem, or declare or pay any cash dividend or
distribution on, its Common Stock or (b) issue or sell any Convertible
Securities that are convertible into or exchangeable for Common Stock at a
price which may vary with the market price of the Common Stock, without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares.
(14) Vote to Change the Terms of Preferred Shares. The affirmative
vote at a meeting duly called for such purpose or the written consent without
a meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, shall be required for any change to this
Certificate of Amendment or the Corporation's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares.
(15) Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates representing the
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Corporation in customary form
and, 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; provided, however, the
Corporation shall not be obligated to re-issue preferred stock certificates if
the holder contemporaneously requests the Corporation to convert such
Preferred Shares into Common Stock.
(16) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Amendment
shall be cumulative and in addition to all other remedies available under this
Certificate of Amendment, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall
be deemed a waiver of compliance with the provisions giving rise to such
remedy 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
Certificate of Amendment. The Corporation covenants to each holder of
Preferred Shares that there shall be no characterization concerning this
instrument other than as expressly provided herein. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the holder thereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Corporation (or the performance thereof). The Corporation
acknowledges that a breach by it of its obligations
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<PAGE>
hereunder will cause irreparable harm to the holders of the Preferred Shares
and that the remedy at law for any such breach may be inadequate. The
Corporation therefore agrees that, in the event of any such breach or
threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(17) Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Amendment shall limit or modify any
more general provision contained herein. This Certificate of Amendment shall
be deemed to be jointly drafted by the Corporation and all Buyers and shall
not be construed against any person as the drafter hereof.
(18) Failure or Indulgence Not Waiver. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.
(19) This amendment has been adopted by the Board of Directors of the
Corporation pursuant to Section 502 of the Business Corporation law
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Fredric D. Price, its Chief Executive Officer, as of
the 30th day of November, 1998.
AMBI INC.
By: /s/ Fredric D. Price
--------------------
Name: Fredric D. Price
Its: Chief Executive Officer
By: /s/ Benjamin T. Sporn
---------------------
Name: Benjamin T. Sporn
Its: Secretary
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EXHIBIT I
AMBI INC.
CONVERSION NOTICE
Reference is made to the Certificate of Amendment of the Certificate of
Incorporation of AMBI Inc. of the Series E Convertible Preferred Stock (the
"Certificate of Amendment"). In accordance with and pursuant to the
Certificate of Amendment, the undersigned hereby elects to convert the number
of shares of Series E Convertible Preferred Stock, par value $.01 per share
(the "Preferred Shares"), of AMBI Inc., a New York corporation (the
"Corporation"), indicated below into shares of Common Stock, par value $.005
per share (the "Common Stock"), of the Corporation, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below
as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Corporation
in the following name and to the following address:
Issue to: _____________________________
_____________________________
_____________________________
Facsimile Number: _____________________________
Authorization: _____________________________
By: _________________________
Title: _______________________
Dated: ______________________________
Account Number:
(if electronic book entry transfer): _______________________________
Transaction Code Number
(if electronic book entry transfer): _______________________________
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EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (the "Agreement"), dated as of November 24, 1998,
by and among AMBI Inc., a New York corporation, with headquarters located at 4
Manhattanville Road, Purchase, New York 10577 (the "Company"), and the
investors listed on the Schedule of Investors attached hereto (individually,
an "Investor" and collectively, the "Investors").
WHEREAS:
A. Each of the Investors owns the number of shares of Series D
Preferred Stock, par value $.01 per share (the "Series D Preferred Stock") of
the Company as is set forth on the Schedule of Investors attached hereto.
B. This Agreement is being entered intow by the Company and the
Investors pursuant to that certain letter agreement, dated November 11, 1998
(the "Letter Agreement"), between the Company and the Investors, which Letter
Agreement described the principal terms set forth in this Agreement. The
Company has agreed and each of the Investors, severally and not jointly, has
agreed that (i) each Investor will tender all outstanding shares of Series D
Preferred Stock (the "Preferred Shares") to the Company and the Company will
(a) exchange the Preferred Shares for shares of a newly created series of
preferred stock designated Series F Convertible Preferred Stock (the "Series F
Preferred Stock"), which shall be convertible into shares of the Company's
Common Stock, par value $.005 per share (the "Common Stock") (as converted,
the "Conversion Shares"), subject to reduction pursuant to Section 9(q) in
accordance with the terms of the Company's Amended Certificate of
Incorporation (the "Amended Certificate") substantially in the form attached
hereto as Exhibit A, and (b) convert the dividends accrued on the Preferred
Shares through the Closing Date (as defined below) into that number of shares
of Common Stock, which is equal to the quotient determined by dividing such
accrued amount by $.7606 (the "Restructuring Shares") and (ii) the Company
will reset the exercise price for the warrants of the Company (the
"Warrants"), 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, to $1.25. The Series F Preferred Stock and the
Restructuring Shares shall be allocated among the Investors pro rata based on
the number of shares of Series D Preferred Stock set forth on the Schedule of
Investors attached hereto (the "Pro Rata Allocation"). The rights and
preferences of the Series F Preferred Stock, including the terms on which the
Series F Preferred Stock may be converted into Common Stock, are set forth in
the Amended Certificate, which shall have been executed, acknowledged, filed,
recorded and become effective in accordance with the Business Corporation Law
of the State of New York (the "NYBCL").
C. The solicitation of this Agreement and, if accepted by the
Company, the issuance of Series F Preferred Stock is being made in reliance
upon the provisions of Section 3(a)(9) of the Securities Act of 1933, as
amended (the "1933 Act"). The shares of
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Series F Preferred Stock and the Conversion Shares issuable upon conversion
thereof are sometimes collectively referred to in this Agreement as the
"Securities."
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit B (the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Investors hereby agree as follows:
1. AGREEMENT; EXCHANGE, CONVERSION AND AMENDMENT OF
WARRANTS.
1.1 Agreement. Each Investor, severally and not jointly,
hereby agrees that at the Closing (as defined below) it will (i) exchange
Preferred Shares for shares of Series F Preferred Stock and (ii) convert the
accrued dividends on the Preferred Shares into the Restructuring Shares, each
in the amounts set forth in the Schedule of Investors and on the terms and
conditions set forth herein.
1.2 Amendment. The Company and each of the Investors hereby
agree that the exercise price of the Warrants is hereby amended by changing
the number $2.72244 (which is set forth in the preamble to the Warrants) to
$1.25.
1.3 Closing Date. The closing of the transactions
contemplated hereby (the "Closing") shall occur at the offices of Katten
Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693, on the third business day after receipt by each of the Investors
of written notice from the Company (the "Closing Notice"), which Closing
Notice confirms that the Registration Statement (as defined in the
Registration Rights Agreement) has been declared effective by the Securities
and Exchange Commission (the "SEC"), or such other date and place as the
Company and the Investors shall agree (the "Closing Date") and shall occur
only upon the valid issuance and receipt of the Closing Notice and the
satisfaction of all of the conditions to the Company's and the Investors'
obligations under Sections 6 and 7, respectively, or the waiver thereof by the
appropriate party. The Company shall give the Closing Notice no sooner than
the first business day after the SEC declares the Registration Statement
effective and no later than the third business day after the SEC declares the
Registration Statement effective.
1.4 Exchange and Conversion Consideration. On the Closing
Date, the Company shall issue to each Investor its Pro Rata Allocation of (i)
the Series F Preferred Stock and (ii) the Restructuring Shares, each in the
denominations as such Investor shall request and in the name of such Investor
or its designee.
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2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
Each Investor represents and warrants with respect to only
itself that:
a. Holding Period. Such Investor (i) purchased the Preferred
Shares directly from the Company and (ii) has held the Preferred Shares for
more than one year, which period has been calculated as described in Rule
144(d) under the 1933 Act.
b. Not an Affiliate. Such Investor is not an "affiliate" (as
that term is defined in Rule 405 of the 1933 Act) of the Company.
c. Reliance on Exemptions. Such Investor understands that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying in part upon the truth
and accuracy of, and such Investor's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Investor
set forth herein in order to determine the availability of such exemptions and
the eligibility of such Investor to acquire such securities.
d. Information. Such Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Investor. Such Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives
shall modify, amend or affect such Investor's right to rely on the Company's
representations and warranties contained in Section 3 below. Such Investor
understands that its investment in the Securities involves a high degree of
risk. Such Investor has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to
its acquisition of the Securities.
e. No Governmental Review. Such Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of the investment in the Securities
nor have such authorities passed upon or endorsed the merits of the offering
of the Securities.
f. Transfer or Resale. Such Investor understands that except
as provided in the Registration Rights Agreement: (i) the Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, (B) such Investor shall have delivered
to the Company an opinion of counsel, in a generally acceptable form, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or
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<PAGE>
(C) such Investor provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144");
(ii) any sale of the Securities made in reliance on Rule 144 may be made only
in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the 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 1933 Act) may require compliance
with some other exemption under the 1933 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 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder.
g. Legends. Such Investor understands that the certificates
or other instruments representing the Series F Preferred Stock and until such
time as the sale of the Conversion Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares, except as set forth below,
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS 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 the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company with reasonable
assurances that the Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that can then be immediately sold.
h. Validity; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Investor and is a
valid and binding
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agreement of such Investor enforceable against such Investor in accordance
with its terms, subject as to enforceability to general principles of equity
and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Investor is a resident of that country
specified in its address on the Schedule of Investors.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Investors
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated,
and have the requisite corporate power and authorization to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results or operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries
except as set forth on Schedule 3(a), and all such Subsidiaries are 100%
wholly-owned by the Company.
b. Authorization; Enforcement; Validity. (i) The Company has
the requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5), and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction Documents"),
and to issue the Securities in accordance with the terms hereof and thereof,
(ii) the execution and delivery of the Transaction Documents and the Amended
Certificate by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Series F Preferred Stock and the reservation for issuance and the issuance
of the Conversion Shares issuable upon conversion thereof, have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the
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Company, (iv) the Transaction Documents constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors' rights and remedies, and (v) prior to the
Closing Date, the Amended Certificate has been filed with the Secretary of
State of the State of New York and will be in full force and effect,
enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 65,000,000 shares of Common
Stock, of which as of the date hereof, 26,549,062 shares are issued and
outstanding, 3,000,000 shares are reserved for issuance pursuant to the
Company's stock option and purchase plans and 2,500,000 shares are issuable
and reserved for issuance pursuant to securities (other than the Preferred
Shares and the shares of Series F Preferred Stock) exercisable or exchangeable
for, or convertible into, shares of Common Stock; (ii) 1,000 shares of Series
C Preferred Stock, of which as of the date hereof, 222 shares are issued and
outstanding; (iii) 100,000 shares of Series D Preferred Stock, of which as of
the date hereof; 5,750 shares are issued and outstanding; (iv) 1,500 shares of
Series E Preferred Stock, none of which are issued and outstanding as of the
date hereof; and (v) 575 shares of Series F Preferred Stock, none of which are
issued and outstanding as of the date hereof. All of such outstanding shares
have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) 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,
any shares of capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings 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 or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares
of capital stock of the Company or any of its Subsidiaries, (iv) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933
Act (except the Registration Rights Agreement), (v) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement, and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement. The Company has furnished to the Investor true
and correct copies of the Company's Certificate of Incorporation, as amended
and as
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in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as amended and as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable
for Common Stock and the material rights of the holders thereof in respect
thereto.
d. Issuance of Securities. The shares of Series F Preferred
Stock are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights and preferences set forth in the Amended Certificate.
At least 690,000 shares of Common Stock (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(e) below) have been duly authorized
and reserved for issuance upon conversion of the Series F Preferred Stock.
Upon conversion in accordance with the Amended Certificate, the Conversion
Shares will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from registration under
the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the
Company, the performance by the Company of its obligations under the Amended
Certificate and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Conversion Shares) will not (i)
result in a violation of the Amended Certificate, including, but not limited
to, the rights of any outstanding series of preferred stock of the Company or
the 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 federal and state securities
laws and regulations and the rules and regulations of the Principal Market (as
defined below)) 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 as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of or in default under its Amended
Certificate, including, but not limited to, the rights of any outstanding
series of preferred stock of the Company or By-laws or their organizational
charter or by-laws, respectively. Except as disclosed in Schedule 3(e),
neither the Company or any of its Subsidiaries is in violation or any term of
or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except for such
violation or default which, individually or in the aggregate, would not have a
Material Adverse Effect. The business of the Company and its Subsidiaries is
not being conducted, and shall not be conducted, in violation of any law,
ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required
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under the 1933 Act, 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 or
contemplated by the Transaction Documents or to perform its obligations under
the Amended Certificate, in each case in accordance with the terms hereof or
thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior
to the date hereof. The Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing. The Company is
not in violation of the listing requirements of the Principal Market (as
defined below), including, without limitation, the requirements set forth in
Rule 4460 of the Principal Market.
f. SEC Documents; Financial Statements. Since June 30, 1997,
the Company has 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 "1934
Act") (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Investors or their respective
representatives true and complete list of the SEC Documents, including the
filing dates thereof. As of their respective dates, or as subsequently
amended, the SEC Documents complied in all material respects with the
requirements of the 1934 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 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 exclude footnotes or may
be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to the Investors
which is not included in the SEC Documents, including, without limitation,
information referred to in Section 2(d) of this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made, not misleading. Neither the Company nor any of
its
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Subsidiaries or any of their officers, directors, employees or agents have
provided the Investors with any material, nonpublic information.
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g), since June 30, 1998 there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law
nor does the Company or any of its Subsidiaries have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings. Except as disclosed in Schedule 3(g), since June 30, 1998, the
Company has not declared or paid any dividends, sold any assets in excess of
$500,000 outside of the ordinary course of business or had capital
expenditures in excess of $500,000.
h. Absence of Litigation. There is no action, 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, the Common Stock or any of the Company's Subsidiaries
or any of the Company's or the Company's Subsidiaries' officers or directors
in their capacities as such, except as set forth in Schedule 3(h).
i. Acknowledgment Regarding Investors' Purchase of
Securities. The Company acknowledges and agrees that each of the Investors is
acting solely in the capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.
The Company further acknowledges that each Investor is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby and any advice given by any of the Investors or any of
their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Investor's purchase of the Securities. The Company further
represents to each Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by
the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on
a registration statement filed with the SEC relating to an issuance and sale
by the Company of its Common Stock and which has not been publicly announced
(each a "Disclosable Event") and no Disclosable Event is contemplated to
occur, except where such Disclosable Event, individually, or in the aggregate
is not likely to have a Material Adverse Effect.
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k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. 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 offers
to buy any security, under circumstances that would require registration of
any of the Securities under the 1933 Act or cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the Company are
listed or designated, nor will the Company or any of its Subsidiaries take any
action or steps that would require registration of any of the Securities under
the 1933 Act or cause the offering of the Securities to be integrated with
other offerings.
m. Intentionally Omitted.
n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its Subsidiaries, is any such dispute threatened. None
of the Company's or its Subsidiaries' employees is a member of a union,
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relations with their employees are good. No executive officer (as defined in
Rule 501(f) of the 1933 Act) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company. No executive officer, to the best knowledge of the Company
and its Subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any
of its Subsidiaries to any liability with respect to any of the foregoing
matters.
o. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. Except as set forth on Schedule
3(o), none of the Company's trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any
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infringement by the Company or its Subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(o), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company
or its Subsidiaries regarding trademark, trade name, patents, patent rights,
copyrights, inventions, license, service names, service marks, service mark
registrations, trade secret or other infringement; and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
p. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval except in
each of the three foregoing cases, the failure to so comply would have,
individually or in the aggregate, a Material Adverse Effect.
q. 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(q) or such
as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
any of its Subsidiaries. Any real property and facilities held under lease by
the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
r. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company
nor any such Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole.
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<PAGE>
s. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.
t. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
u. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation which in
the reasonable judgment of the Company's officers has or is currently expected
in the future to have a Material Adverse Effect. Neither the Company nor any
of its Subsidiaries is a party to any contract or agreement which in the
reasonable judgment of the Company's officers has or is currently expected to
have a Material Adverse Effect.
v. Tax Status. 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 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.
w. Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the
date hereof and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the
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Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the
Investors as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and
the Investor's ownership of the Securities.
y. Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
z. 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 of its Subsidiaries has, in the
course of its 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, as amended; or made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
aa. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Investors relating to the terms or
conditions of the transactions contemplated by the Transaction Documents
except as set forth in the Transaction Documents.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Blue Sky. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary
in order to obtain an exemption for or to qualify the Securities for sale to
the Investors at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States, and shall
provide evidence of any such action so taken to the Investors on or prior to
the Closing Date. The Company shall make all filings and reports relating to
the offer
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and sale of the Securities required under applicable securities or "Blue Sky"
laws of the states of the United States following the Closing Date.
c. Reporting Status. Until the earlier of (i) the date which
is one year after the date as of which the Investors (as that term is defined
in the Registration Rights Agreement) may sell all of the Conversion Shares
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), or (ii) the date on which (A) the Investors shall have
sold all the Conversion Shares and (B) none of the shares of Series F
Preferred Stock is outstanding (the "Registration Period"), the Company shall
file all reports required to be filed with the SEC pursuant to the 1934 Act,
and the Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would otherwise permit such termination.
d. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Registration Period: (i) within two (2) days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) including amendments to any
of the foregoing filed pursuant to the 1933 Act, provided that if any such
report or registration statement is not filed with the SEC through EDGAR then
the Company shall deliver a copy of such report or registration statement to
each Investor by facsimile on the same day it is filed with the SEC; (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii) copies of any
notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving
thereof to the stockholders.
e. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 100% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares.
f. Additional Financing; Right of First Refusal. Subject to
the exceptions described below, the Company and its Subsidiaries shall not
negotiate or contract with any party for any equity financing (including any
debt financing with an equity component) or issue any equity securities of the
Company or any Subsidiary or securities convertible or exchangeable into or
for equity securities of the Company or any Subsidiary (including debt
securities with an equity component) in any form ("Future Offerings") during
the period beginning on the date hereof and ending on, and including, the
first anniversary of the date hereof, unless it shall have first delivered to
each Investor or a designee appointed by such Investor written notice (the
"Future Offering Notice") describing the proposed Future Offering, including
the terms and conditions thereof, and providing each Investor an option to
purchase up to its Aggregate Percentage (as defined below) of the securities
to be issued in such Future Offering, as of the date of delivery of the Future
Offering Notice, in the
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Future Offering (the limitations referred to in this and the preceding
sentence are collectively referred to as the "Capital Raising Limitations").
For purposes of this Section 4(f), "Aggregate Percentage" at any time with
respect to any Investor shall mean the percentage obtained by dividing (i) the
aggregate number of the Preferred Shares owned by such Investor as set forth
on the Schedule of Investors by (ii) the aggregate number of the Preferred
Shares owned by all the Investors as set forth on the Schedule of Investors.
An Investor can exercise its option to participate in a Future Offering by
delivering written notice thereof to participate to the Company within five
(5) business days after receipt of a Future Offering Notice, which notice
shall state the quantity of securities being offered in the Future Offering
that such Investor will purchase, up to its Aggregate Percentage, and that
number of securities it is willing to purchase in excess of its Aggregate
Percentage. In the event that one or more Investors fail to elect to purchase
up to each such Investor's Aggregate Percentage, then each Investor which has
indicated that it is willing to purchase a number of securities in such Future
Offering in excess of its Aggregate Percentage shall be entitled to purchase
its pro rata portion (determined in the same manner as described in the
preceding sentence) of the securities in the Future Offering which one or more
of the Investors have not elected to purchase. In the event the Investors fail
to elect to fully participate in the Future Offering within the periods
described in this Section 4(f), the Company shall have 60 days thereafter to
sell the securities of the Future Offering that the Investors did not elect to
purchase, upon terms and conditions, no more favorable to the purchasers
thereof than specified in the Future Offering Notice. In the event the Company
has not sold such securities of the Future Offering within such 60 day period,
the Company shall not thereafter issue or sell such securities without first
offering such securities to the Investors in the manner provided in this
Section 4(f). The Capital Raising Limitations shall not apply to (i) a loan
from a commercial bank which does not have any equity feature (other than
warrants to acquire that number of shares of Common Stock at an aggregate
exercise price which is less than 10% of the amount of such loan), (ii) any
transaction involving the Company's issuances of securities (A) as
consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or (C) as consideration for the acquisition of a
business, product, license or other assets by the Company, (iii) the issuance
of Common Stock in a firm commitment, underwritten public offering, (iv) 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
hereafter issued pursuant to clause (v) below, (v) the grant of additional
options or warrants, or the issuance of additional securities, (A) under any
Company stock option plan, restricted stock plan or stock purchase plan for
the benefit of the Company's employees or directors or (B) in connection with
services rendered to the Company by accountants, attorneys or consultants. The
Investors shall not be required to participate or exercise their right of
first refusal with respect to a particular Future Offering in order to
exercise their right of first refusal with respect to later Future Offerings.
g. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national
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securities exchange and 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 Registrable Securities from time to time issuable
under the terms of the Transaction Documents and the Amended Certificate. The
Company shall maintain the Common Stock's authorization for quotation on the
Nasdaq National Market, The New York Stock Exchange, Inc. or The American
Stock Exchange, Inc. (collectively, the "Principal Market"). Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common
Stock on the Principal Market. The Company shall promptly, and in no event
later than the following business day, provide to each Investor copies of any
notices it receives from the Principal Market regarding the continued
eligibility of the Common Stock for listing on such automated quotation system
or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(g).
h. Expenses. Subject to Section 9(l) below, at the Closing,
the Company shall pay a nonaccountable expense allowance of $5,000 to the
Investors or their designee(s).
i. Filing of Form 8-K. On or before the first (1st) business
day following the Closing Date, the Company shall file a Form 8-K with the SEC
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act.
j. Transactions With Affiliates. So long as (i) any shares
of Series F Preferred Stock are outstanding or (ii) any Investor owns
Conversion Shares with a market value equal to or greater than $500,000, the
Company shall not, and shall cause each of its Subsidiaries not to, enter
into, amend, modify or supplement, or permit any Subsidiary to enter into,
amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any Subsidiary's officers, directors, persons
who were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or
affiliates or with any individual related by blood, marriage or adoption to
any such individual or with any entity in which any such entity or individual
owns a 5% or more beneficial interest (each a "Related Party"), except for (a)
customary employment arrangements and benefit programs on reasonable terms,
(b) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who
is also an officer of the Company or any Subsidiary of the Company shall not
be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity,
(ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. "Control" or "controls" for purposes
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hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
k. Capital and Surplus; Special Reserves. The Company agrees
that the stated capital of the Company (as such term is used in Section 506 of
the NYBCL) in respect of the Series F Preferred Stock shall be equal to the
aggregate par value of such shares of Series F Preferred Stock. Except in
connection with the initial issuance of securities after the date hereof, the
Company shall not increase its stated capital with respect to any shares of
the Company's capital stock at anytime on or after the date of this Agreement.
The amount to be represented in the capital account for the Series F Preferred
Stock at all times for each outstanding share of Series F Preferred Stock
shall be an amount equal to the product of (i) the Liquidation Preference (as
defined in the Amended Certificate) and (ii) 125%.
l. Stockholder Approval. At a meeting held on July 15, 1997,
the Company held a special meeting of its stockholders, at which meeting the
Company's stockholders approved of the Company's issuance of all of the Common
Stock issuable upon conversion of the Series D Preferred Stock. The Company
further represents that no further stockholder approval is required, pursuant
to Nasdaq Rule 4460 or otherwise, for the issuance of all of the Securities as
described in this Agreement, including without limitation, the issuance of the
Conversion Shares upon conversion of the Series F Preferred Stock.
m. Rule 144. The Company shall not, directly or indirectly,
dispute or otherwise interfere with any claim by a holder of Series E
Preferred Stock that such holder's holding period of any Security for purposes
of Rule 144 promulgated under the 1933 Act (or a successor rule thereto)
("Rule 144") relates back (i.e., tacks) to the holding period for the
Preferred Shares. The Company acknowledges and agrees that under Rule 144 and
noaction letters issued by the SEC, such tacking is permitted.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Investor or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by each
Investor to the Company upon conversion of the Series F Preferred Stock (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
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,
prior to registration of the Conversion Shares under the 1933 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 5 shall affect in any way each
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Investor's obligations and agreements set forth in Section 2(g) to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If an Investor provides the Company with an opinion of counsel, in
a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act
or the Investor provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of
the Conversion Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Investor and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Investors 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 the Investors shall be entitled, in addition to all
other available remedies, to an order and/or 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 CONSUMMATE
THE RESTRUCTURING.
The obligation hereunder of the Company to consummate the
Restructuring as contemplated hereby is subject to the satisfaction, at or
before the Closing, of each of the following conditions, 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 by providing each Investor with prior
written notice thereof:
a. Such Investor shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
b. The Amended Certificate shall have been filed with the
Secretary of State of the State of New York.
c. Such Investor shall have delivered to the Company (i)
certificates representing all shares of Series D Preferred Stock owned by such
Investor as of the date of the Closing and (ii) a Notice of Conversion for the
Restructuring Shares in accordance with the terms of the Preferred Shares.
d. The representations and warranties of such Investor shall
be true and correct in all material respects as of the date when made and as
of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Investor shall have
performed, satisfied and complied in all material
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<PAGE>
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Investor at or
prior to the Closing.
e. 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 stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or its securities which prohibits or
adversely affects any of the transactions contemplated by this Agreement, nor
shall any proceeding have been commenced which may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
7. CONDITIONS TO EACH INVESTOR'S OBLIGATION TO
CONSUMMATE THE RESTRUCTURING.
The obligation of each Investor to consummate the
Restructuring as contemplated hereby is subject to the satisfaction, at or
before the Closing, of each of the following conditions, provided that these
conditions are for each Investor's sole benefit and may be waived by such
Investor at any time in its sole discretion by providing the Company with
prior written notice thereof:
a. The Company shall have executed each of the Transaction
Documents and delivered the same to such Investor.
b. The Amended Certificate, shall have been duly filed with
the Secretary of State of the State of New York, and a copy thereof certified
by such Secretary of State shall have been delivered to such Investor.
c. The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been suspended by
the SEC or the Principal Market and the Conversion Shares shall be listed upon
the Principal Market.
d. The representations and warranties of the Company shall
be true and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Investor shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested
by such Investor including, without limitation, an update as of the Closing
Date
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<PAGE>
regarding the representation contained in Section 3(c) above, in the form
attached hereto as Exhibit C.
e. Such Investor shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to such Investor and in substantially the form of
Exhibit D attached hereto.
f. The Company shall have (i) (A) executed and delivered to
such Investor the certificates representing the Series F Preferred Stock (in
such certificate denominations as such Investor shall request and in the name
of such Investor or its designee) and (B) duly authorized, validly issued and
delivered to such Investor the certificates for the Restructuring Shares, each
in the amounts set forth on the Schedule of Investors, subject to reduction as
provided in Section 9(q), and (ii) paid to the Investors, or their
designee(s), by wire transfer of immediately available funds, the amount
provided for in Section 4(h) hereof.
g. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Investor.
h. The Irrevocable Transfer Agent Instructions, in the form
of Exhibit E attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
i. The Company shall have delivered to such Investor a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days
of the Closing Date.
j. As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series F Preferred Stock, at least 690,000
shares of Common Stock.
k. The Company shall have delivered to such Investor a
certified copy of the Certificate of Incorporation, as certified by the
Secretary of State of the State of New York within ten days of the Closing
Date.
l. The Company shall have delivered to such Investor a
secretary's certificate, dated as the Closing Date, as to (i) the resolutions
described in Section 7(g), (ii) the Certificate of Incorporation, and (iii)
the Bylaws, each as in effect at the Closing.
m. The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.
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<PAGE>
n. The Company shall have delivered to such Investor such
other documents relating to the transactions contemplated by this Agreement as
such Investor or its counsel may reasonably request.
o. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which
prohibits or adversely affects any of the transactions contemplated by this
Agreement, nor shall any proceeding have been commenced which may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
p. The Company has filed a supplement to the registration
statement covering the Warrants and such supplement reflects the amendment to
the Warrants pursuant to Section 1.2 hereof.
q. The Registration Statement has been declared effective by
the SEC, and no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for such purpose are pending or
threatened by the SEC.
8. INDEMNIFICATION. In consideration of each Investor's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the
Transaction Documents and the Amended Certificate, the Company shall defend,
protect, indemnify and hold harmless each Investor and each other holder of
the Securities and all of their stockholders, officers, directors, employees
and direct or indirect investors and any of the foregoing person's agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnities") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any
such Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or the Amended Certificate or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or the Amended Certificate or any
other certificate, instrument or document contemplated hereby or thereby, (d)
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (e) the
status of such
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<PAGE>
Investor or holder of the Securities as an investor in the Company. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate
laws of the State of New York shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York.
Each party hereby irrevocably submits to the non-exclusive jurisdiction of the
state and federal courts sitting in the City of New York, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or
more identical 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; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
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
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<PAGE>
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. Except as set forth in the
following sentence, this Agreement, the Transaction Documents and the Amended
Certificate supersede all other prior oral or written agreements between the
Investors, the Company, their affiliates and persons acting on their behalf
with respect to the matters discussed herein, including, without limitation,
the Letter Agreement, and the instruments referenced herein and therein
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 any Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. The Warrants,
as amended hereby, the Registration Rights Agreement dated as of May 8, 1997,
by and among the Company and the Investors and certain other investors, and
the Securities Purchase Agreement dated May 8, 1997, by and among the Company
and the Investors and certain other investors, shall remain in full force and
effect with respect to the securities and transactions contemplated thereby.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the holders of at least two-thirds (2/3) of
the Series F Preferred Stock then outstanding, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the shares of Series F Preferred
Stock then outstanding. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents or the Amended Certificate unless the same
consideration also is offered to all of the parties to the Transaction
Documents or holders of Series F Preferred Stock, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
AMBI Inc.
4 Manhattanville Road
Purchase, New York 10577
Telephone: 914-701-4500
Facsimile: 914-696-0860
Attention: President
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<PAGE>
With a copy to:
Law Offices of Oscar Folger
521 Fifth Avenue, 24th Floor
New York, New York 10175
Telephone: 212-697-6464
Facsimile: 212-697-7833
Attention: Oscar Folger, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Co.
6201 15th Avenue
Brooklyn, New York 11219
Telephone: 718-921-8200
Facsimile: 718-331-1852
Attention: Herbert Lemmer, Esq.
If to an Investor, to it at the address and facsimile number set forth on the
Schedule of Investors, with copies to such Investor's representatives as set
forth on the Schedule of Investors, or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the
first page of such transmission or (C) provided by a nationally recognized
overnight delivery service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns, including any purchasers of the shares of Series F Preferred
Stock. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at
least two-thirds (2/3) of the Series F Preferred Stock then outstanding,
including by merger or consolidation, except pursuant to a Major Transaction
(as defined in Section 3(c) of the Amended Certificate) with respect to which
the Company is in compliance with Section 3 of the Amended Certificate. An
Investor may assign some or all of its rights hereunder without the consent of
the Company, provided, however, that any such assignment shall not release
such Investor from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, the Investors shall be entitled to pledge the
Securities in connection with a bona fide margin account.
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<PAGE>
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the
Investors contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing. Each Investor shall be responsible only
for its own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Investor shall have the
right to approve before issuance any press releases 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 any
Investor, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although
each Investor shall be consulted by the Company in connection with any such
press release or other public disclosure 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 Closing shall not have
occurred on or before five (5) business days from the date hereof due to the
Company's or the Investors' failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this
Section 9(l), the Company shall remain obligated to reimburse the nonbreaching
Investors for the expenses described in Section 4(h) above.
m. Placement Agent. The Company acknowledges that it has not
engaged a placement agent in connection with the Restructuring. The Company
shall be responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Investor harmless against, any
liability, loss or expense (including, without limitation, attorneys' fees and
out of pocket expenses) arising in connection with any such claim.
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<PAGE>
n. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.
o. Remedies. Each Investor and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Amended Certificate and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investors hereunder or pursuant to the Amended
Certificate or the Investors enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
q. Pre-Closing Conversions. In the event that any of the
Investors converts any of the Preferred Shares into shares of Common Stock
prior to the Closing Date, such Investor's Pro Rata Allocation of the shares
of Series F Preferred Stock shall be reduced by an amount, expressed as a
percentage, equal to a fraction, the numerator of which is (A) the number of
Preferred Shares set forth opposite such Investor's name on the Schedule of
Investors less the number of Preferred Shares held by such Investor as of the
Closing Date and (B) the denominator of which is the number of Preferred
Shares set forth opposite such Investor's name on the Schedule of Investors.
* * * * * *
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<PAGE>
IN WITNESS WHEREOF, the Investors and the Company have caused this
Exchange Agreement to be duly executed as of the date first written above.
COMPANY: INVESTORS:
AMBI INC. NP PARTNERS (formerly known as
Nelson Partners)
By: By:
------------------------------- -----------------------------
Name: Fredric D. Price Name: Kenneth A. Simpler
Its: Chief Executive Officer Its: Authorized Signatory
OLYMPUS SECURITIES, LTD.
By:
-----------------------------
Name: Kenneth A. Simpler
Its: Authorized Signatory
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTORS
Investor Address Number of
Investor's Name and Facsimile Number Preferred Shares
- ------------------------------- ------------------------------------- -----------------
<S> <C> <C>
NP Partners (formerly known as c/o Citadel Investment Group, L.L.C. 2,875
Nelson Partners) 225 West Washington Street
Chicago, Illinois 60606
Attention: Kenneth A. Simpler
Facsimile: (312) 338-0780
Telephone: (312) 338-7800
Residence: Illinois
Olympus Securities, Ltd. c/o Citadel Investment Group, L.L.C. 2,875
225 West Washington Street
Chicago, Illinois 60606
Attention: Kenneth A. Simpler
Facsimile: (312) 338-0780
Telephone: (312) 338-7800
Residence: Illinois
<CAPTION>
Investor's Name Investor's Legal Representatives'
- ------------------------------- Restructuring Consideration Address and Facsimile Number
---------------------------------------- -----------------------------------
Shares of Restructuring
Series F Shares
Preferred
Stock
-------------- -------------
<S> <C> <C>
NP Partners (formerly known as 287.5 (1) Katten Muchin & Zavis
Nelson Partners) 525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200
Olympus Securities, Ltd. 287.5 (1) Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200
</TABLE>
(1) The Restructuring Shares are equal to the accrued dividends on the
Preferred Shares through the Closing Date divided by $.7606.
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMBI INC.
(Pursuant to Section 805 of the Business Corporation Law)
1. The name of the corporation is AMBI Inc. (the "Corporation"), a
corporation organized and existing under the Business Corporation Law of the
State of New York. 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 article Eighteenth, 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 F Convertible
Preferred Stock:
"ARTICLE Eighteenth: There is hereby created a series of the Preferred
Stock of this Corporation to consist of 575 shares of the 5,000,000 shares
of Preferred Stock, par value $.01 per share, which this Corporation now
has the authority to issue. All references to Sections in this Article
Eighteenth shall refer to the sections contained in this Article
Eighteenth:
(a) Designation and Amount. The designation of this series, which consists
of 575 shares of Preferred Stock, is the Series F Convertible Preferred
Stock (the "Preferred Shares") and the face amount shall be One Thousand
U.S. Dollars ($1,000) per share.
(b) Dividends. The Preferred Shares shall bear dividends ("DIVIDENDS") at a
rate of 10.0% per annum, which shall be cumulative, accrue daily from the
Issuance Date (as defined below) and be payable on the first day of each
Calendar Quarter (as defined below) beginning on January 1, 1999 (each a
"DIVIDEND DATE"). If a Dividend Date is not a business day then the
Dividend shall be due and payable on the business day immediately following
the Dividend Date. Dividends shall be payable in cash or, at the option of
the Corporation, in shares of Common Stock, provided that the Dividends
which accrued during any period shall be payable in shares of Common Stock
only if the Corporation provides written notice ("DIVIDEND ELECTION
NOTICE") to each holder of Preferred Shares at least 30 business days prior
to the Dividend Date. Dividends
<PAGE>
to be paid in shares of Common Stock shall be paid in a number of fully
paid and nonassessable shares (rounded to the nearest whole share) of
Common Stock equal to the quotient of (a) the accrued and unpaid Dividends
and (b) the Dividend Market Price (as defined below) on the applicable
Dividend Date. Notwithstanding the foregoing, the Corporation shall not be
entitled to pay Dividends in shares of Common Stock and shall be required
to pay such Dividends in cash if (a) any event constituting a Triggering
Event (as defined in Section 5(d)), or an event that with the passage of
time would constitute a Triggering Event if not cured, has occurred and is
continuing on the date of the Corporation's Dividend Election Notice or on
the Dividend Date, unless otherwise consented to in writing by the holder
of Preferred Shares entitled to receive such Dividend or (b) the
Registration Statement (as defined below) has not been declared effective
by the Securities and Exchange Commission (the "SEC") on or before the
Dividend Date. Any accrued and unpaid Dividends which are not paid within
five (5) business days after the applicable Dividend Date shall bear
interest at the rate of 18.0% per annum from such Dividend Date until the
same is paid (the "DEFAULT INTEREST").
(4) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Corporation's common stock, par value $.005
per share (the "COMMON STOCK"), on the terms and conditions set forth in
this Section 4.
(a) Certain Defined Terms. For purposes of this Certificate of
Amendment, the following terms shall have the following meanings:
(i) "CONVERSION PRICE" means, as of any Conversion Date (as
defined below) or other date of determination, $1.25, subject to adjustment
as provided herein.
(ii) "MARKET PRICE" means, with respect to any security,
that price which shall be computed as the arithmetic average of the Closing
Bid Prices (as defined below) for such security on each of the 10
consecutive trading days immediately preceding such date of
determination. (All such determinations to be appropriately adjusted for
any stock dividend, stock split or other similar transaction during such
period).
(iii) "CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on the Principal
Market (as defined below) as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last 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, or if the foregoing do not apply, the last closing bid price
of such security in the over-the-counter market on the electronic
bulletin board for such security as
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reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade 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
mutually determined by the Corporation and the holders of Preferred
Shares. If the Corporation and the holders of Preferred Shares are unable
to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 4(e)(iii) below with the
term "Closing Bid Price" being substituted for the term "Market Price."
(All such determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period).
(iv) "CLOSING SALE PRICE" means, for any security as
of any date, the last closing trade price for such security on the
Principal Market (as defined below) as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading
market for such security, the last closing trade price of such security
on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing trade 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 last closing trade price is
reported for such security by Bloomberg, the last closing ask price of
such security as reported by Bloomberg, or, if no last closing ask price
is reported for such security by Bloomberg, the average of the ask prices
of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Sale Price cannot
be calculated for such security on such date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be the
fair market value as mutually determined by the Corporation and the
holders of Preferred Shares. If the Corporation and the holders of
Preferred Shares are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved pursuant to Section
4(e)(iii) below with the term "Closing Sale Price" being substituted for
the term "Market Price." (All such determinations to be appropriately
adjusted for any stock dividend, stock split or other similar transaction
during such period).
(v) "N" means, with respect to each Preferred Share,
the number of days from, but excluding, the last Dividend Date with
respect to which Dividends, along with any Default Interest, has been
paid by the Corporation on such Preferred Share through and including the
Conversion Date or the Maturity Date, as the case may be, for which
conversion and/or redemption is being elected for such Preferred Share.
(vi) "ISSUANCE DATE" means, with respect to each Preferred
Share, the date of issuance of the applicable Preferred Share.
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(vii) "MANDATORY CONVERSION DATE" means the date which is
three (3) years after the applicable Issuance Date.
(viii) "PERSON" means an individual, a limited liability
Corporation, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(ix) "PRINCIPAL MARKET" means the Nasdaq National Market.
(x) "STATED VALUE" means $1,000.
(xi) "CONVERSION AMOUNT" means, with respect to each
Preferred Share, the sum of (A) the Additional Amount and (B) $1,000.
(xii) "ADDITIONAL AMOUNT" means, with respect to each
Preferred Share, the sum of (A) unpaid Default Interest through the date
of determination plus (B) the product of (I) $100, multiplied by (II) the
result of (X) N, divided by (Y) 365.
(xiii) "EXCHANGE AGREEMENT" means that certain exchange and
redemption agreement between the Corporation and the initial holders of
the Preferred Shares relating to the issuance of the initial Preferred
Shares and certain other matters.
(xiv) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement between the Corporation and the initial
holders of the Preferred Shares relating to the filing of a registration
statement covering the resale of the shares of Common Stock issuable upon
conversion of the Preferred Shares and as payment of Dividends thereon.
(xv) "DIVIDEND MARKET PRICE" means, for the Common Stock as
of any date, the product of (A) .85 and (B) the arithmetic average of the
Closing Bid Prices for the Common Stock on each of the 30 consecutive
trading days immediately preceding such date of determination. (All such
determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period).
(xvi) "CALENDAR QUARTER" means, each of the period
beginning on and including January 1 and ending on and including March
31, the period beginning on and including April 1 and ending on and
including June 30, the period beginning on and including July 1 and
ending on and including September 30, and the period beginning on and
including October 1 and ending on and including December 31.
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(b) Holder's Conversion Right; Mandatory Conversion. Subject
to the provisions of Section 4(d) below, at any time or times on or after
the Issuance Date, any holder of Preferred Shares shall be entitled to
convert any whole number of Preferred Shares into fully paid and
nonassessable shares of Common Stock in accordance with Section 4(e), at
the Conversion Rate (as defined below). If any Preferred Shares remain
outstanding on the Mandatory Conversion Date (as defined below), then all
such Preferred Shares shall be converted at the Conversion Rate as of
such date in accordance with Section 4(e). The Corporation shall not
issue any fraction of a share of Common Stock upon any conversion. All
shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one Preferred Share by a holder thereof shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If,
after the aforementioned aggregation, the issuance would result in the
issuance of a fraction of a share of Common Stock, the Corporation shall
round such fraction of a share of Common Stock up or down to the nearest
whole share.
(c) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 4(b)
shall be determined according to the following formula (the "CONVERSION
RATE"):
Conversion Amount
Conversion Price
(d) Limitations on Conversion. The Corporation shall not
effect any conversion of Preferred Shares and no holder of Preferred
Shares shall have the right to convert any Preferred Shares pursuant to
Section 4(b) to the extent that after giving effect to such conversion
such Person (together with such Person's affiliates) (A) would
beneficially own in excess of 10.00% of the outstanding shares of the
Common Stock following such conversion and (B) would have acquired,
through conversion of Preferred Shares or otherwise, in excess of 10.00%
of the outstanding shares of the Common Stock following such conversion
during the 60-day period ending on and including such Conversion Date (as
defined below). For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by a Person and its affiliates
or acquired by a Person and its affiliates, as the case may be, shall
include the number of shares of Common Stock issuable upon conversion of
the Preferred Shares with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining,
nonconverted Preferred Shares beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Corporation
(including, without limitation, any warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by such Person and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 4(d)(i),
beneficial ownership shall be calculated
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in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended. Notwithstanding anything to the contrary contained herein,
each Conversion Notice (as defined below) shall constitute a
representation by the holder submitting such Conversion Notice that,
after giving effect to such Conversion Notice, (A) the holder will not
beneficially own (as dtermined in accordance with this Section 4(d)(i))
and (B) during the 60-day period ending on and including such Conversion
date, the holder will not have acquired, through conversion of Preferred
Shares or otherwise, a number of shares of Common Stock in excess of
10.00% of the outstanding shares of Common Stock as reflected in the
Corporation's most recent Form 10-Q or Form 10-K, as the case may be, or
more recent public press release or other public notice by the
Corporation setting forth the number of shares of Common Stock
outstanding, but after giving effect to conversions of Preferred Shares
by such holder since the date as of which such number of outstanding
shares of Common Stock was reported.
(e) Mechanics of Conversion. The conversion of Preferred Shares
shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert Preferred
Shares into shares of Common Stock on any date (the "CONVERSION DATE"),
the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Eastern Time on such
date, a copy of a fully executed notice of conversion in the form
attached hereto as Exhibit I (the "CONVERSION NOTICE") to the
Corporation's designated transfer agent (the "TRANSFER AGENT") with a
copy thereof to the Corporation and (B) surrender to a common carrier for
delivery to the Transfer Agent as soon as practicable following such date
the original certificates representing the Preferred Shares being
converted (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction) (the "PREFERRED STOCK
CERTIFICATES").
(ii) Corporation's Response. Upon receipt by the
Corporation of a copy of a Conversion Notice, the Corporation shall
immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder and the Transfer Agent, which
confirmation shall constitute an instruction to the Transfer Agent to
process such Conversion Notice in accordance with the terms herein. Upon
receipt by the Transfer Agent of the Preferred Stock Certificates to be
converted pursuant to a Conversion Notice, the Transfer Agent shall, on
the next business day following the date of receipt, (A) issue and
surrender to a common carrier for overnight delivery to the address as
specified in the Conversion Notice, a certificate, registered in the name
of the holder or its designee, for the number of shares of Common Stock
to which the holder shall be entitled, or (B) provided the Transfer Agent
is participating in The Depository Trust Corporation ("DTC") Fast
Automated Securities Transfer Program, upon the request of the holder,
credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance
account with DTC through its Deposit
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Withdrawal Agent Commission system. If the number of Preferred Shares
represented by the Preferred Stock Certificate(s) submitted for
conversion is greater than the number of Preferred Shares being
converted, then the Transfer Agent shall, as soon as practicable and in
no event later than three business days after receipt of the Preferred
Stock Certificate(s) and at its own expense, issue and deliver to the
holder a new Preferred Stock Certificate representing the number of
Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Corporation shall instruct the Transfer Agent to
issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) business day of
receipt of such holder's Conversion Notice. If such holder and the
Corporation are unable to agree upon the determination of the Market
Price or arithmetic calculation of the Conversion Rate within one (1)
business day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Corporation shall within one (1)
business day submit via facsimile (A) the disputed determination of the
Market Price to an independent, reputable investment bank selected by the
Corporation and approved by the holders of a majority of the Preferred
Shares then outstanding or (B) the disputed arithmetic calculation of the
Conversion Rate to the Corporation's independent, outside accountant. The
Corporation shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Corporation and the holder of the results no later than forty-eight (48)
hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.
(v) Corporation's Failure to Timely Convert.
(A) Cash Damages. If within two business days after
the Transfer Agent's receipt of the Preferred Stock Certificates to be
converted and a copy of the Conversion Notice (the "SHARE DELIVERY
PERIOD") the Transfer Agent shall fail to issue a certificate to a holder
or credit such holder's balance account with DTC for the number of shares
of Common Stock to which such holder is entitled upon such holder's
conversion of Preferred Shares or to issue a new Preferred Stock
Certificate representing the number of Preferred Shares to which such
holder is entitled pursuant to Section 4(e)(ii) (a "CONVERSION FAILURE"),
in addition to all other available remedies which such holder may pursue
hereunder and
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<PAGE>
under the Exchange Agreement between the Corporation and the initial
holders of the Preferred Shares (including indemnification pursuant to
Section 10 thereof), the Corporation shall pay additional damages to such
holder on each date after such second (2nd) business day such conversion
is not timely effected and/or such Preferred Stock Certificate is not
delivered in an amount equal to 0.25% of the sum of (I) the Conversion
Amount of the Preferred Shares submitted for conversion and with respect
to which shares of Common Stock are not issued to the holder on a timely
basis pursuant to Section 4(e)(ii) and to which such holder is entitled
and, (II) in the event the Corporation has failed to deliver a Preferred
Stock Certificate to the holder on a timely basis pursuant to Section
4(e)(ii), the Conversion Amount represented by the Preferred Shares
represented by such Preferred Stock Certificate. If the Corporation fails
to pay the additional damages set forth in this Section 4(e)(v) within
five business days of the date incurred, then the holder entitled to such
payments shall have the right at any time, so long as the Corporation
continues to fail to make such payments, to require the Corporation, upon
written notice ("CASH DEFAULT NOTICE"), to immediately issue, in lieu of
such cash damages, the number of shares of Common Stock equal to the
quotient of (X) the aggregate amount of the damages payments described
herein divided by (Y) the lesser of (I) the Conversion Price in effect on
such Conversion Date as specified by the holder in the Conversion Notice
and (II) the Market Price on the date the Corporation receives the Cash
Default Notice.
(B) Void Conversion Notice; Adjustment to Conversion
Price. If for any reason a holder has not received all of the shares of
Common Stock prior to the tenth (10th) business day after the expiration
of the Share Delivery Period with respect to a conversion of Preferred
Shares, then the holder, upon written notice to the Transfer Agent, with
a copy to the Corporation, may void its Conversion Notice with respect
to, and retain or have returned, as the case may be, any Preferred Shares
that have not been converted pursuant to such holder's Conversion Notice;
provided that the voiding of a holder's Conversion Notice shall not
affect the Corporation's obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 4(e)(v)(A)
or otherwise. Thereafter, the Conversion Price of any Preferred Shares
returned or retained by the holder for failure to timely convert shall be
adjusted to the lesser of (I) the Conversion Price as in effect on the
date on which the holder voided the Conversion Notice and (II) the lowest
Closing Bid Price during the period beginning on the Conversion Date and
ending on the date such holder voided the Conversion Notice.
(vi) Pro Rata Conversion and Redemption. In the event the
Corporation receives a Conversion Notice from more than one holder of
Preferred Shares for the same Conversion Date and the Corporation can
convert some, but not all, of such Preferred Shares, the Corporation
shall convert from each holder of Preferred Shares electing to have
Preferred Shares converted at such time a pro rata amount of such
holder's Preferred Shares submitted for conversion based on the
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<PAGE>
number of Preferred Shares submitted for conversion on such date by such
holder relative to the number of Preferred Shares submitted for
conversion on such date.
(vii) Mechanics of Mandatory Conversion. On the Mandatory
Conversion Date, all holders of Preferred Shares shall surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the
Transfer Agent and all outstanding Preferred Shares shall be converted as
of such date as if the holders of such Preferred Shares had given the
Conversion Notice for all such shares on the Mandatory Conversion Date;
provided that the Mandatory Conversion Date shall be extended for any
Preferred Shares for as long as (A) the conversion of such Preferred
Shares would violate the provisions of Section 4(d), (B) a Triggering
Event shall have occurred and be continuing or (C) any event shall have
occurred and be continuing which with the passage of time and the failure
to cure would result in a Triggering Event.
(f) Taxes. The Corporation shall pay any and all taxes that
may be payable with respect to the issuance and delivery of Common Stock
upon the conversion of Preferred Shares.
(g) Adjustments to Conversion Price. The Conversion Price will
be subject to adjustment from time to time as provided in this Section
4(g).
(i) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the date of issuance of the
Preferred Shares, the Corporation issues or sells, or in accordance with
this Section 4(g) is deemed to have issued or sold, any shares of Common
Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Corporation, but excluding shares of
Common Stock deemed to have been issued by the Corporation in connection
with an Approved Stock Plan (as defined below) or upon conversion of the
Preferred Shares) for a consideration per share less than the lesser of
(A) the Market Price of the Common Stock on the date of such issuance or
sale and (B) the Conversion Price in effect immediately prior to such
time (the "APPLICABLE PRICE"), then immediately after such issue or sale,
the Conversion Price then in effect shall be reduced to an amount equal
to the product of (x) the Conversion Price in effect immediately prior to
such issue or sale and (y) the quotient of (1) the sum of (I) the product
of the Applicable Price and the number of shares of Common Stock Deemed
Outstanding (as defined below) immediately prior to such issue or sale
and (II) the consideration, if any, received by the Corporation upon such
issue or sale, divided by (2) the product of (I) the Applicable Price
multiplied by (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. For purposes of
determining the adjusted Conversion Price under this Section 4(g)(i), the
following shall be applicable:
(A) Issuance of Options. If the Corporation in any
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<PAGE>
manner grants or sells any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such
Option or upon conversion or exchange of any Convertible Securities
issuable upon exercise of such Option is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the granting
or sale of such Option for such price per share. For purposes of this
Section 4(g)(i)(A), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Corporation with
respect to any one share of Common Stock upon granting or sale of the
Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.
Notwithstanding the foregoing, no adjustment shall be made pursuant to
this Section 4(g)(i)(A) to the extent that such adjustment is based
solely on the fact that the Convertible Securities issuable upon exercise
of such Option are convertible into or exchangeable for Common Stock at a
price which varies with the market price of the Common Stock.
(B) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible Securities and
the lowest price per share for which one share of Common Stock is
issuable upon such conversion or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the
time of the issuance of sale of such Convertible Securities for such
price per share. For the purposes of this Section 4(g)(i)(B), the "price
per share for which one share of Common Stock is issuable upon such
conversion or exchange" shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Corporation with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange of such
Convertible Security. No further adjustment of the Conversion Price shall
be made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for
which adjustment of the Conversion Price had been or are to be made
pursuant to other provisions of this Section 4(g)(i), no further
adjustment of the Conversion Price shall be made by reason of such issue
or sale. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 4(g)(i)(B) to the extent that such adjustment is
based solely on the fact that such Convertible Securities are convertible
into or exchangeable for Common Stock at a price which varies with the
market price of the Common Stock.
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(C) Change in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of
any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock changes
at any time, the Conversion Price in effect at the time of such change
shall be adjusted to the Conversion Price which would have been in effect
at such time had such Options or Convertible Securities provided for such
changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold.
For purposes of this Section 4(g)(i)(C), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of
the Preferred Shares are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security
and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of
such change. No adjustment shall be made if such adjustment would result
in an increase of the Conversion Price then in effect.
(D) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or sale of other
securities of the Corporation, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been
issued for a consideration of $.01. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Corporation therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation will be the fair value of such
consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Corporation will
be the Market Price of such securities on the date of receipt. If any
Common Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which the
Corporation is the surviving entity, the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be
determined jointly by the Corporation and the holders of a majority of
the Preferred Shares then outstanding. If such parties are unable to
reach agreement within 10 days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration
will be determined within five business days after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser
jointly selected by the Corporation and the holders of a majority of the
Preferred Shares then outstanding. The determination of such appraiser
shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the Corporation.
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(E) Record Date. If the Corporation takes a record of
the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options
or in Convertible Securities or (2) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
(F) Certain Definitions. For purposes of this Section
4(g)(i), the following terms have the respective meanings set forth
below:
(I) "APPROVED STOCK PLAN" shall mean any
employee benefit plan which has been approved by the Board of Directors
of the Corporation, pursuant to which the Corporation's securities may be
issued to any employee, officer, director, consultant or other service
provider for services provided to the Corporation.
(II) "COMMON STOCK DEEMED OUTSTANDING"
means, at any given time, the number of shares of Common Stock actually
outstanding at such time, plus the number of shares of Common Stock
deemed to be outstanding pursuant to Sections 2(g)(i)(A) and 2(g)(i)(B)
hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Corporation or issuable
upon conversion of the Preferred Shares.
(III) "OPTIONS" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible
Securities.
(IV) "CONVERTIBLE SECURITIES" means any
stock or securities (other than Options) directly or indirectly
convertible into or exchangeable for Common Stock.
(ii) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock. If the Corporation at any time subdivides
(by any stock split, stock dividend, recapitalization or otherwise) one
or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Corporation at
any time combines (by combination, reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased.
(iii) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 4(e) but not expressly
provided for by
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such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features), then the Corporation's Board of Directors will make an
appropriate adjustment in the Conversion Price so as to protect the
rights of the holders of the Preferred Shares; provided that no such
adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 4(e).
(iv) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Corporation will give written notice thereof to
each holder of Preferred Shares, setting forth in reasonable detail, and
certifying, the calculation of such adjustment.
(B) The Corporation will give written notice to each
holder of Preferred Shares at least twenty (20) days prior to the date on
which the Corporation closes its books or takes a record (I) with respect
to any dividend or distribution upon the Common Stock, (II) with respect
to any pro rata subscription offer to holders of Common Stock or (III)
for determining rights to vote with respect to any Organic Change,
dissolution or liquidation, provided that such information shall be made
known to the public prior to or in conjunction with such notice being
provided to such holder.
(C) The Corporation will also give written notice to
each holder of Preferred Shares at least twenty (20) days prior to the
date on which any Organic Change, dissolution or liquidation will take
place, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such
holder.
(5) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to
all other rights of the holders of Preferred Shares contained herein,
upon the consummation of a Major Transaction (as defined below), each
holder of Preferred Shares shall have the right, at such holder's option,
to require the Corporation to redeem all or a portion of such holder's
Preferred Shares at a price per Preferred Share equal to the greater of
(i) 125% of the Conversion Amount of such share and (ii) the product of
(A) the Conversion Rate on such date and (B) the Closing Sale Price of
the Common Stock on the date immediately preceding such date on which the
Principal Market, or the market or exchange where the Common Stock is
then traded, is open for trading ("MAJOR TRANSACTION REDEMPTION PRICE").
(b) Redemption Option Upon Triggering Event. In addition to
all other rights of the holders of Preferred Shares contained herein,
after a Triggering Event (as defined below), each holder of Preferred
Shares shall have the right, at
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such holder's option, to require the Corporation to redeem all or a
portion of such holder's Preferred Shares at a price per Preferred Share
equal to the greater of (i) 125% of the Conversion Amount of such share
and (ii) the product of (A) the Conversion Rate in effect at such time as
such holder delivers a Notice of Redemption at Option of Buyer Upon a
Triggering Event (as defined below) and (B) the Closing Sale Price of the
Common Stock on the date immediately preceding such Triggering Event on
which the Principal Market, or the market or exchange where the Common
Stock is then traded, is open for trading ("TRIGGERING EVENT REDEMPTION
PRICE" and, collectively with "MAJOR TRANSACTION REDEMPTION PRICE," the
"REDEMPTION PRICE").
(c) Redemption Option Upon Market Trigger. In addition to all
other rights of the holders of Preferred Shares contained herein, after
the end of any calendar month during which there is a Market Trigger (as
defined below), each holder of Preferred Shares shall have the right, at
such holder's option, to require the Corporation to redeem up to 10% of
the face amount (together with accrued dividends thereon) of the
Preferred Shares originally issued to such holder at a price per
Preferred Share equal to 150% of the Conversion Amount of such Preferred
Share. ("MARKET TRIGGER REDEMPTION PRICE" and, collectively with "MAJOR
TRANSACTION REDEMPTION PRICE" AND "TRIGGERING EVENT REDEMPTION PRICE,"
the "REDEMPTION PRICE").
(d) "Major Transaction". A "MAJOR TRANSACTION" shall be deemed to
have occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination
of the Corporation with or into another Person (other than (A) a
consolidation, merger, or other business combination in which holders of
the Corporation's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the
voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if
other than a corporation) of such entity or entities, or (B) pursuant to
a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Corporation);
(ii) the sale or transfer of all or substantially all of the
Corporation's assets; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 30% of the outstanding shares of
Common Stock.
(e) "Triggering Event". A "TRIGGERING EVENT" shall be deemed
to have occurred at such time as any of the following events:
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<PAGE>
(i) the failure of the Registration Statement (as defined
in the Registration Rights Agreement) to be declared effective by the SEC
on or prior to the date that is 120 days after the Issuance Date;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or
is unavailable to the holder of the Preferred Shares for sale of all of
the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of
five consecutive trading days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such
holder of Preferred Shares;
(iii) the suspension from trading or failure of the Common
Stock to be listed on the Nasdaq National Market, The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
consecutive trading days or for more than an aggregate of 10 trading days
in any 365-day period;
(iv) the Corporation's or the Transfer Agent's notice to any
holder of Preferred Shares, including by way of public announcement, at
any time, of its intention not to comply with a request for conversion of
any Preferred Shares into shares of Common Stock that is tendered in
accordance with the provisions of this Certificate of Amendment, or the
failure of the Transfer Agent to comply with a Conversion Notice tendered
in accordance with the provisions of this Certificate of Amendment within
10 business days after the receipt by the Transfer Agent of the
Conversion Notice;
(v) the Corporation breaches any representation, warranty,
covenant or other term or condition of the Exchange Agreement, the
Registration Rights Agreement, this Certificate of Amendment or any other
agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby and hereby, except
to the extent that such breach would not have a Material Adverse Effect
(as defined in Section 3 of the Exchange Agreement) and except, in the
case of a breach of a covenant which is curable, only if such breach
continues for a period of at least 10 days.
(f) "Market Trigger". A "MARKET TRIGGER" shall be deemed to
occur in any calendar month beginning with, and including January 1999, in
which the average of the Closing Bid Prices of the Common Stock for all
trading days during such calendar month (the "AVERAGE PRICE") is less than
$1.875
(g) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, the Corporation shall deliver
written notice
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<PAGE>
thereof via facsimile and overnight courier ("NOTICE OF MAJOR
TRANSACTION") to each holder of Preferred Shares, which notice shall
include the date by which a holder receiving a Notice of Major
Transaction must provide the Corporation with notice of its intent to
exercise its redemption rights hereunder (which date shall not be sooner
than five business days after the date of the Notice of Major Transaction
(the "MAJOR TRANSACTION RESPONSE DATE")). The Corporation shall publicly
disclose the material facts of such Major Transaction prior to or
concurrently with providing the Notice of Major Transaction, such public
disclosure to be made not later than 10 days prior to the consummation of
such Major Transaction. At any time after receipt of a Notice of Major
Transaction and prior to the Major Transaction Response Date (or, in the
event a Notice of Major Transaction is not delivered at least 10 days
prior to a Major Transaction, at any time prior to the consummation of a
Major Transaction) any holder of Preferred Shares then outstanding may
require the Corporation to redeem all of the holder's Preferred Shares
then outstanding by delivering written notice thereof via facsimile and
overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION") to the Corporation, which Notice of Redemption at Option of
Buyer Upon Major Transaction shall indicate (i) the number of Preferred
Shares that such holder is electing to redeem and (ii) the applicable
Major Transaction Redemption Price, as calculated pursuant to Section
5(a) above.
(h) Mechanics of Redemption at Option of Buyer Upon Triggering
Event. Within one (1) day after the occurrence of a Triggering Event, the
Corporation shall deliver written notice thereof via facsimile and
overnight courier ("NOTICE OF TRIGGERING EVENT") to each holder of
Preferred Shares. At any time (i) after the earlier of a holder's receipt
of a Notice of Triggering Event and such holder becoming aware of a
Triggering Event, but (ii) prior to the later of (A) the date which is
six (6) business days after such holder's receipt of the Notice of
Triggering Event and (B) such holder's receipt of written notice from the
Corporation that such Triggering Event has been cured, any holder of
Preferred Shares then outstanding may require the Corporation to redeem
all of the Preferred Shares by delivering written notice thereof via
facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER
UPON TRIGGERING EVENT") to the Corporation, which Notice of Redemption at
Option of Buyer Upon Triggering Event shall indicate (i) the number of
Preferred Shares that such holder is electing to redeem and (ii) the
applicable Triggering Event Redemption Price, as calculated pursuant to
Section 5(b) above.
(i) Mechanics of Redemption at Option of Buyer Upon Market
Trigger. Within one (1) business day after the occurrence of a Market
Trigger, the Corporation shall deliver written notice thereof via
facsimile and overnight courier ("NOTICE OF MARKET TRIGGER") to each
holder of Preferred Shares. At any time within five (5) business days
after the earlier of a holder's receipt of a Notice of Market Trigger and
such holder becoming aware of a Market Trigger, any holder of Preferred
Shares then outstanding may require the Corporation to redeem up to 10%
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<PAGE>
of the Preferred Shares originally issued to such holder by delivering
written notice thereof via facsimile and overnight courier ("NOTICE OF
REDEMPTION AT OPTION OF BUYER UPON MARKET TRIGGER") to the Corporation,
which Notice of Redemption at Option of Buyer Upon Market Trigger shall
indicate (i) the number of Preferred Shares that such holder is electing
to redeem and (ii) the Market Trigger Redemption Price, as calculated
pursuant to Section 5(c) above.
(j) Payment of Major Transaction Redemption Price and
Triggering Event Redemption Price. Upon the Corporation's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the
case may be, from any holder of Preferred Shares, the Corporation shall
immediately notify each holder of Preferred Shares by facsimile of the
Corporation's receipt of such notice(s) and each holder which has sent
such a notice shall promptly submit to the Transfer Agent such holder's
Preferred Stock Certificates which such holder has elected to have
redeemed. The Corporation shall deliver the applicable Redemption Price
to such holder within five (5) business days after the Corporation's
receipt of a Notice of Redemption at Option of Buyer Upon Major
Transaction, or Notice of Redemption at Option of Buyer Upon Triggering
Event; provided that a holder's Preferred Stock Certificates shall have
been so delivered to the Transfer Agent. If the Corporation is unable to
redeem all of the Preferred Shares submitted for redemption, the
Corporation shall (i) redeem a pro rata amount from each holder of
Preferred Shares based on the number of Preferred Shares submitted for
redemption by such holder relative to the total number of Preferred
Shares submitted for redemption by all holders of Preferred Shares and
(ii) in addition to any remedy such holder of Preferred Shares may have
under this Certificate of Amendment and the Exchange Agreement, pay to
each holder interest at the rate of 2.5% per month (prorated for partial
months) in respect of each unredeemed Preferred Share until paid in full.
(k) Payment of Market Trigger Redemption Price. Upon the
Corporation's receipt of a Notice(s) of Redemption at Option of Buyer
Upon Market Trigger from any holder of Preferred Shares, the Corporation
shall immediately notify each holder of Preferred Shares by facsimile of
the Corporation's receipt of such notice(s) and each holder which has
sent such a notice shall promptly submit to the Transfer Agent such
holder's Preferred Stock Certificates which such holder has elected to
have redeemed. The Corporation shall deliver the applicable Redemption
Price to such holder within five (5) business days after the
Corporation's receipt of a Notice of Redemption at Option of Buyer Upon
Market Trigger; provided that a holder's Preferred Stock Certificates
shall have been so delivered to the Transfer Agent. The Market Trigger
Redemption Price may be paid in (i) cash by wire transfer of immediately
available funds or (ii) shares of Common Stock (the "MARKET TRIGGER
SHARES"), subject to the conditions set forth in the following sentence.
In order to pay the Market Trigger Redemption Price by issuing the Market
Trigger Shares, the Corporation shall (i) on the last day of any month in
which a Market Trigger occurs, provide the holder of the Preferred Shares
being
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<PAGE>
redeemed with written notice of its intent to issue the Market Trigger
Shares by facsimile and overnight courier; (ii) issue a number of Market
Trigger Shares equal to the quotient obtained by dividing the Market
Trigger Redemption Price by 85% of the Average Price for such calendar
month; and (iii) prior to the date of delivery of the Market Trigger
Shares, have an effective registration statement under the Securities Act
of 1933, as amended, covering the resale of the Market Trigger Shares by
the holders thereof. If the Corporation is unable to redeem all of the
Preferred Shares submitted for redemption, the Corporation shall (i)
redeem a pro rata amount from each holder of Preferred Shares based on
the number of Preferred Shares submitted for redemption by such holder
relative to the total number of Preferred Shares submitted for redemption
by all holders of Preferred Shares and (ii) in addition to any remedy
such holder of Preferred Shares may have under this Certificate of
Amendment and the Exchange Agreement, pay to each holder interest at the
rate of 2.5% per month (prorated for partial months) in respect of the
Market Trigger Redemption Price of each unredeemed Preferred Share until
paid in full.
(l) Void Redemption. In the event that the Corporation does
not pay the Redemption Price within the time period set forth in Section
5(j) or 5(k), at any time thereafter and until the Corporation pays such
unpaid applicable Redemption Price in full, a holder of Preferred Shares
shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu
of redemption, require the Corporation to promptly return to such holder
any or all of the Preferred Shares that were submitted for redemption by
such holder under this Section 5 and for which the applicable Redemption
Price (together with any interest thereon) has not been paid, by sending
written notice thereof to the Corporation via facsimile (the "VOID
OPTIONAL REDEMPTION NOTICE"). Upon the Corporation's receipt of such Void
Optional Redemption Notice, (i) the Notice of Redemption at Option of
Buyer Upon Major Transaction, or the Notice of Redemption at Option of
Buyer Upon Triggering Event, or the Notice of Redemption at Option of
Buyer Upon Market Trigger, as the case may be, shall be null and void
with respect to those Preferred Shares subject to the Void Optional
Redemption Notice, (ii) the Corporation shall immediately return any
Preferred Shares subject to the Void Optional Redemption Notice and (iii)
the Conversion Price of such returned Preferred Shares shall be adjusted
to the lesser of (A) the Conversion Price as in effect on the date on
which the Void Optional Redemption Notice is delivered to the Corporation
and (B) the lowest Closing Bid Price during the period beginning on the
date on which the Notice of Redemption at Option of Buyer Upon Major
Transaction, or the Notice of Redemption at Option of Buyer Upon
Triggering Event, or the Notice of Redemption at Option of Buyer Upon
Market Trigger, as the case may be, is delivered to the Corporation and
ending on the date on which the Void Optional Redemption Notice is
delivered to the Corporation.
(m) Disputes; Miscellaneous. In the event of a dispute as to
the determination of the Closing Bid Price, the Closing Sale Price or the
arithmetic calculation of the Redemption Price, such dispute shall be
resolved pursuant to
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<PAGE>
Section 4(e)(iii) above with the term "Closing Bid Price" and/or "Closing
Sale Price", as the case may be, being substituted for the term "Market
Price" and the term "Redemption Price" being substituted for the term
"Conversion Rate." A holder's delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not affect
the Corporation's obligations to make any payments which have accrued
prior to the date of such notice. Payments provided for in this Section 5
shall have priority to payments to other stockholders in connection with
a Major Transaction. In the event of a redemption pursuant to this
Section 5 of less than all of the Preferred Shares represented by a
particular Preferred Stock Certificate, the Corporation shall promptly
cause to be issued and delivered to the holder of such Preferred Shares a
preferred stock certificate representing the remaining Preferred Shares
which have not been redeemed.
(6) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation, Merger
or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which is
effected in such a way that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is
referred to herein as "ORGANIC CHANGE." Prior to the consummation of any
(i) sale of all or substantially all of the Corporation's assets to an
acquiring Person or (ii) other Organic Change following which the
Corporation is not a surviving entity, the Corporation will secure from
the Person purchasing such assets or the successor resulting from such
Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement
(in form and substance reasonably satisfactory to the holders of a
majority of the Preferred Shares then outstanding) to deliver to each
holder of Preferred Shares in exchange for such shares, a security of the
Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to the Preferred Shares, including, without
limitation, having a stated value and liquidation preference equal to the
Stated Value and the Liquidation Preference of the Preferred Shares held
by such holder, and satisfactory to the holders of a majority of the
Preferred Shares then outstanding. Prior to the consummation of any other
Organic Change, the Corporation shall make appropriate provision (in form
and substance reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding) to insure that each of the holders of
the Preferred Shares will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of
Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Preferred Shares such shares of stock,
securities or assets that would have been issued or payable in such
Organic Change with respect to or in exchange for the number of shares of
Common Stock which would have been acquirable and receivable upon the
conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or
restrictions on the convertibility of the Preferred Shares).
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<PAGE>
(b) Purchase Rights. If at any time the Corporation grants,
issues or sells any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the
holders of Preferred Shares 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
Preferred Shares (without taking into account any limitations or
restrictions on the convertibility of the Preferred Shares) 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.
(7) Intentionally omitted.
(8) Reservation of Shares. The Corporation shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Preferred Shares, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares then outstanding; provided that the number
of shares of Common Stock so reserved shall at no time be less than 100%
of the number of shares of Common Stock for which the Preferred Shares
are at any time convertible. The initial number of shares of Common Stock
reserved for conversions of the Preferred Shares and each increase in the
number of shares so reserved shall be allocated pro rata among the
holders of the Preferred Shares based on the number of Preferred Shares
held by each holder at the time of issuance of the Preferred Shares or
increase in the number of reserved shares, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's
Preferred Shares, each transferee shall be allocated a pro rata portion
of the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Preferred Shares shall be allocated to
the remaining holders of Preferred Shares, pro rata based on the number
of Preferred Shares then held by such holders.
(9) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the
Business Corporation Law of the State of New York, and as expressly
provided in this Certificate of Amendment.
(10) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Preferred Shares shall be entitled to
receive in cash out of the assets of the Corporation, whether from
capital or from earnings available for distribution to its stockholders
(the "LIQUIDATION FUNDS"), before any amount shall be paid to the
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holders of any of the capital stock of the Corporation of any class
junior in rank to the Preferred Shares in respect of the preferences as
to the distributions and payments on the liquidation, dissolution and
winding up of the Corporation, an amount per Preferred Share equal to the
Conversion Amount of such Preferred Share as of such date (the
"LIQUIDATION PREFERENCE"); provided that, if the Liquidation Funds are
insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred
stock of the Corporation that are of equal rank with the Preferred Shares
as to payments of Liquidation Funds (the "PARI PASSU SHARES"), then each
holder of Preferred Shares and Pari Passu Shares shall receive a
percentage of the Liquidation Funds equal to the full amount of
Liquidation Funds payable to such holder as a liquidation preference, in
accordance with their respective Certificates of Amendment, as a
percentage of the full amount of Liquidation Funds payable to all holders
of Preferred Shares and Pari Passu Shares. In addition to the receipt of
the Liquidation Preference, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
the Preferred Shares shall be entitled to receive Liquidation Funds
distributed to holders of Common Stock, after the Liquidation Preference
has been paid, to the same extent as if such holders of Preferred Shares
had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversions herein or elsewhere) and had held such
shares of Common Stock on the record date for such distribution of the
remaining Liquidation Funds. 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 Person, 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. No holder of Preferred Shares shall be
entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Corporation other than the
amounts provided for herein; provided that a holder of Preferred Shares
shall be entitled to all amounts previously accrued with respect to
amounts owed hereunder.
(11) Preferred Rank. All shares of Common Stock shall be of junior rank
to all Preferred Shares in respect to the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the
Corporation. The rights of the shares of Common Stock shall be subject to
the preferences and relative rights of the Preferred Shares. Without the
prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, the Corporation shall not
hereafter authorize or issue additional or other capital stock that is of
senior or equal rank to the Preferred Shares in respect of the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Corporation. Without the prior express
written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Corporation shall not hereafter
authorize or make any amendment to the Corporation's Certificate of
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Incorporation or bylaws, or file any resolution of the board of directors
of the Corporation with the Secretary of State of the State of New York
or enter into any agreement containing any provisions, which would
adversely affect or otherwise impair the rights or relative priority of
the holders of the Preferred Shares relative to the holders of the Common
Stock or the holders of any other class of capital stock. In the event of
the merger or consolidation of the Corporation with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall
result inconsistent therewith.
(12) Participation. Subject to the rights of the holders, if any, of
the Pari Passu Shares, the holders of the Preferred Shares shall, as
holders of Preferred Stock, be entitled to such dividends paid and
distributions made to the holders of Common Stock to the same extent as
if such holders of Preferred Shares had converted the Preferred Shares
into Common Stock (without regard to any limitations on conversion herein
or elsewhere) and had held such shares of Common Stock on the record date
for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to
the holders of Common Stock.
(13) Restriction on Redemption, Cash Dividends and Issuance of Floating
Rate Convertible Securities. Until all of the Preferred Shares have been
converted or redeemed as provided herein, the Corporation shall not,
directly or indirectly, (a) redeem, or declare or pay any cash dividend
or distribution on, its Common Stock or (b) issue or sell any Convertible
Securities that are convertible into or exchangeable for Common Stock at
a price which may vary with the market price of the Common Stock, without
the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares.
(14) Vote to Change the Terms of Preferred Shares. The affirmative
vote at a meeting duly called for such purpose or the written consent
without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for any change
to this Certificate of Amendment or the Corporation's Certificate of
Incorporation which would amend, alter, change or repeal any of the
powers, designations, preferences and rights of the Preferred Shares.
(15) Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates
representing the Preferred Shares, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the holder to the
Corporation in customary form and, 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; provided, however, the Corporation shall not be
obligated to re-issue preferred stock
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certificates if the holder contemporaneously requests the Corporation to
convert such Preferred Shares into Common Stock.
(16) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Amendment
shall be cumulative and in addition to all other remedies available under
this Certificate of Amendment, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving
rise to such remedy 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 Certificate of Amendment. The Corporation covenants to
each holder of Preferred Shares that there shall be no characterization
concerning this instrument other than as expressly provided herein.
Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the
Corporation (or the performance thereof). The Corporation acknowledges
that a breach by it of its obligations hereunder will cause irreparable
harm to the holders of the Preferred Shares and that the remedy at law
for any such breach may be inadequate. The Corporation therefore agrees
that, in the event of any such breach or threatened breach, the holders
of the Preferred Shares shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security
being required.
(17) Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Amendment shall limit or
modify any more general provision contained herein. This Certificate of
Amendment shall be deemed to be jointly drafted by the Corporation and
all Buyers and shall not be construed against any person as the drafter
hereof.
(18) Failure or Indulgence Not Waiver. No failure or delay on the part
of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or
privilege.
(19) This amendment has been adopted by the Board of Directors of the
Corporation pursuant to Section 502 of the Business Corporation law.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Fredric D. Price, its Chief Executive Officer,
as of the 2nd day of December, 1998.
AMBI INC.
By: /s/ Fredric D. Price
--------------------------------
Name: Fredric D. Price
Its: Chief Executive Officer
By: /s/ Benjamin T. Sporn
--------------------------------
Name: Benjamin T. Sporn
Its: Secretary
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EXHIBIT I
AMBI INC.
CONVERSION NOTICE
Reference is made to the Certificate of Amendment of the Certificate of
Incorporation of AMBI Inc. of the Series E Convertible Preferred Stock (the
"CERTIFICATE OF AMENDMENT"). In accordance with and pursuant to the Certificate
of Amendment, the undersigned hereby elects to convert the number of shares of
Series E Convertible Preferred Stock, par value $.01 per share (the "PREFERRED
SHARES"), of AMBI Inc., a New York corporation (the "CORPORATION"), indicated
below into shares of Common Stock, par value $.005 per share (the "COMMON
STOCK"), of the Corporation, by tendering the stock certificate(s) representing
the share(s) of Preferred Shares specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Corporation
in the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Account Number:
(if electronic book entry transfer):
Transaction Code Number (if electronic book entry transfer):
25
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of November
24, 1998, by and among AMBI Inc., a New York corporation, with headquarters
located at 4 Manhattanville Road, Purchase, New York 10577 (the "Company"), and
the undersigned investors listed on the Schedule of Investors attached hereto
(each, an "Investor" and collectively, the "Investors").
WHEREAS:
A. In connection with the Exchange Agreement by and among the parties
hereto of even date herewith (the "Exchange Agreement"), the Company has agreed,
among other things, and upon the terms and subject to the conditions of the
Exchange Agreement, to exchange shares of a newly created series of preferred
stock designated Series F Convertible Preferred Stock, par value $.01 per share
(the "Preferred Shares") which shall be convertible into shares of the Company's
Common Stock, par value $.005 per share (the "Common Stock") (as converted, the
"Conversion Shares") for all outstanding shares of Series D Preferred Stock, par
value $.01 per share (the "Series D Preferred Stock") in accordance with the
terms of the Amended Certificate; and
B. To induce the Investors to execute and deliver the Exchange
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investors hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means an Investor, any transferee or assignee
thereof to whom an Investor assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 and any transferee or assignee thereof to whom a transferee or
assignee assigns its rights under this Agreement and who agrees to become bound
by the provisions of this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
<PAGE>
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means the Conversion Shares issued
or issuable upon conversion of the Preferred Shares and any shares of capital
stock issued or issuable with respect to the Conversion Shares or the Preferred
Shares as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitation on
conversions of Preferred Shares.
e. "Registration Statement" means a registration statement of
the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Exchange Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable but in no event later than 30 days after the date of
issuance of the relevant Preferred Shares, file with the SEC a Registration
Statement or Registration Statements (as is necessary) on Form S-3 covering the
resale of all of the Registrable Securities. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(e).
The initial Registration Statement prepared pursuant hereto shall register for
resale at least 460,000 shares of Common Stock, subject to adjustment as
provided herein. The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as practicable, but in no event
later than 90 days after the issuance of the relevant Preferred Shares.
b. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company
proposes to file with the SEC a Registration Statement relating to an offering
for its own account or the account of others under the 1933 Act of any of its
securities (other than on Form S-4 or Form S-8 (or their equivalents at such
time) relating to securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company shall
promptly send to each Investor written notice of the Company's intention to file
a Registration Statement and of such Investor's rights under this Section 2(b)
and, if within twenty (20) days after receipt of such notice, such Investor
shall so request in writing, the Company shall include in such Registration
Statement all or any part of the Registrable Securities such Investor requests
to be registered, subject to the priorities set forth in Section 2(b) below. No
right to registration of Registrable Securities under this Section 2(b) shall be
construed to limit any registration required under Section 2(a). The obligations
of the Company under this Section
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<PAGE>
2(b) may be waived by Investors holding a majority of the Registrable
Securities. If an offering in connection with which an Investor is entitled to
registration under this Section 2(b) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. If a registration pursuant to this Section 2(b) is to be an
underwritten public offering and the managing underwriter(s) advise the Company
in writing, that in their reasonable good faith opinion, marketing or other
factors dictate that a limitation on the number of shares of Common Stock which
may be included in the Registration Statement is necessary to facilitate and not
adversely affect the proposed offering, then the Company shall include in such
registration: (1) first, all securities the Company proposes to sell for its own
account, (2) second, up to the full number of securities proposed to be
registered for the account of the holders of securities entitled to inclusion of
their securities in the Registration Statement by reason of demand registration
rights, and (3) third, the securities requested to be registered by the
Investors and other holders of securities entitled to participate in the
registration, as of the date hereof, drawn from them pro rata based on the
number each has requested to be included in such registration.
c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Investors
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("Legal Counsel"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3 is
not available for any registration of Registrable Securities hereunder, the
Company shall (i) register the sale of the Registrable Securities on another
appropriate form and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.
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<PAGE>
f. Rule 416. The Company and the Investors each acknowledge
that each Registration Statement prepared in accordance hereunder shall include
an indeterminate number of Registrable Securities pursuant to Rule 416 under the
1933 Act so as to cover any and all Registrable Securities which may become
issuable (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) if permitted by law, by reason of certain
antidilution provisions or reductions in the Conversion Price (as defined in the
Amended Certificate) of the Preferred Shares in accordance with the terms
thereof, (collectively, the "Rule 416 Securities"). In this regard, the Company
agrees to use all reasonable efforts to ensure that the maximum number of
Registrable Securities which may be registered pursuant to Rule 416 under the
1933 Act are covered by each Registration Statement and, absent guidance from
the SEC or other definitive authority to the contrary, the Company shall use all
reasonable efforts to affirmatively support and to not take any position adverse
to the position that each Registration Statement filed hereunder covers all of
the Rule 416 Securities. If the Company determines that the Registration
Statement filed hereunder does not cover all of the Rule 416 Securities, the
Company shall immediately (i) provide to each Investor written evidence setting
forth the basis for the Company's position and the authority therefor and (ii)
prepare and file an amendment to such Registration Statement or a new
Registration Statement in accordance with Section 2(g).
g. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities or an
Investor's allocated portion of the Registrable Securities pursuant to Section
2(c), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover all of such Registrable Securities, in each case, as soon
as practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises. The Company shall use it best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(g),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. As set forth in Section 2(a), the Company shall promptly
prepare and file with the SEC a Registration Statement with respect to the
Registrable Securities (on or prior to the thirtieth (30th) day after the date
of issuance of any Preferred Shares for the registration of Registrable
Securities) and use its best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective as soon as possible
after such filing (but in no event later than 90 days after the issuance of any
Preferred Shares for the registration of Registrable Securities), and keep such
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors
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<PAGE>
may sell all of the Registrable Securities without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on
which (A) the Investors shall have sold all the Registrable Securities and (B)
none of the Preferred Shares is outstanding (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.
c. The Company shall permit Legal Counsel to review and
comment upon a Registration Statement and all amendments and supplements thereto
at least seven (7) days prior to their filing with the SEC, and not file any
document in a form to which Legal Counsel reasonably objects. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
Legal Counsel, which consent shall not be unreasonably withheld. The Company
shall furnish to Legal Counsel, without charge, (i) any correspondence from the
SEC or the staff of the SEC to the Company or its representatives relating to
any Registration Statement, (ii) promptly after the same is prepared and filed
with the SEC, one copy of any Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits, (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such Registration
Statement and all amendments and supplements thereto (or such other number of
copies as such Investor may reasonably request) and (iii) such other documents,
including copies of any preliminary or final prospectus, as such Investor may
reasonably request from time to time in order to facilitate the disposition of
the Registrable Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by a Registration Statement under
such other securities or
-5-
<PAGE>
"blue sky" laws of such jurisdictions in the United States as Legal Counsel or
any Investor reasonably requests, (ii) prepare and file in those jurisdictions,
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(e), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel and each Investor
who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.
f. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
g. As promptly as practicable after becoming aware of such
event, the Company shall notify Legal Counsel and each Investor in writing of
the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor
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<PAGE>
who holds Registrable Securities being sold (and, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish
to such Investor, on the date of the effectiveness of the Registration Statement
and thereafter from time to time on such dates as an Investor may reasonably
request (i) if required by an underwriter, a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters and the
Investors.
j. Upon notice given no more than five (5) days after delivery
of a Registration Statement, amendment or supplement (the "Draft") to Legal
Counsel pursuant to Section 3(c), the Company shall make available for
inspection by (i) any Investor, (ii) Legal Counsel, (iii) any underwriter
participating in any disposition pursuant to a Registration Statement, (iv) one
firm of accountants or other agents retained by the Investors, and (v) one firm
of attorneys retained by such underwriters (collectively, the "Inspectors") all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be reasonably
deemed necessary by each Inspector to determine the accuracy and completeness of
such Draft, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request in connection
therewith; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or governmental body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector has knowledge. Each Investor
agrees that it shall, upon learning that disclosure of such Records is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential. Such inspection shall
take place at the offices of the Company during normal business hours. The
obligations of the Company regarding the timing of the filing of the
Registration Statement shall be extended for a time equal to the duration of
such inspection.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure
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<PAGE>
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court or
governmental body of competent jurisdiction, or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this Agreement or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt written notice to such Investor and allow such Investor, at
the Investor's expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market System or, if,
despite the Company's best efforts to satisfy the preceding clause (i) or (ii),
the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to
secure the inclusion for quotation on The Nasdaq SmallCap Market for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.
n. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
o. If requested by the managing underwriters or an Investor,
the Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be
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<PAGE>
incorporated in such prospectus supplement or post-effective amendment; and
(iii) supplement or make amendments to any Registration Statement if requested
by a shareholder or any underwriter of such Registrable Securities.
p. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
q. Intentionally Omitted.
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
s. Within two (2) business days after the Registration
Statement which includes the Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
t. Intentionally Omitted.
u. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
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<PAGE>
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(h)
or the first sentence of 3(g), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(h) or the
first sentence of 3(g). Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Amended
Certificate in connection with any sale of Registrable Securities with respect
to which an Investor has entered into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(h) or the first sentence of 3(g) and for which
the Investor has not yet settled.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions or broker's fees or commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees, and fees and disbursements of counsel for
the Company and fees and disbursements of Legal Counsel, shall be paid by the
Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents, representatives of, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the
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Securities Exchange Act of 1934, as amended (the "1934 Act"), and any
underwriter (as defined in the 1933 Act) for the Investors, and the directors
and officers of, and each Person, if any, who controls, any such underwriter
within the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified
Person"), against any losses, claims, damages, liabilities, judgments, fines,
penalties, charges, costs, attorneys' fees, amounts paid in settlement or
expenses, joint or several, (collectively, "Claims") incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the SEC,
whether pending or threatened, whether or not an indemnified party is or may be
a party thereto ("Indemnified Damages"), to which any of them may become subject
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("Blue Sky Filing"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any material violation of this Agreement (the matters in the foregoing
clauses (i) through (iv) being, collectively, "Violations"). The Company shall
reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(d); (ii) with respect to any preliminary prospectus, shall
not inure to the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the subject thereof (or
to the benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(d), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is
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based on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (iv) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or
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Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay reasonable fees for only one
separate legal counsel for the Investors, and such legal counsel shall be
selected by the Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim relates.
The Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
e. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
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7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Exchange Agreement) and the filing of such reports and other documents is
required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of
Registrable Securities if: (i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state
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securities laws; (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein; and (v) such transfer shall have been made in accordance with
the applicable requirements of the Exchange Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
AMBI Inc.
4 Manhattanville Road
Purchase, New York 10577
Telephone: 914-701-4500
Facsimile: 914-696-0860
Attention: President
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With a copy to:
Law Offices of Oscar Folger
521 Fifth Avenue, 24th Floor
New York, New York 10175
Telephone: 212-697-6464
Facsimile: 212-697-7833
Attention: Oscar Folger, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to an Investor, to it at the address and facsimile number set forth on the
Schedule of Investors attached hereto, with copies to such Investor's
representatives as set forth on the Schedule of Investors, or at such other
address and/or facsimile number and/or to the attention of such other person as
the recipient party has specified by written notice given to each other party
five (5) days prior to the effectiveness of such change. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a nationally
recognized overnight delivery service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of New York shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of New York, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any
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suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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 in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
e. This Agreement, the Exchange Agreement and the Amended
Certificate constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the Exchange Agreement and the Amended
Certificate supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. 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.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares then outstanding have
been converted into Registrable Securities without regard to any limitation on
conversions of Preferred Shares.
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<PAGE>
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
l. 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.
* * * * * *
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
COMPANY: INVESTORS:
AMBI INC. NP PARTNERS (formerly known as Nelson
Partners)
By: By:
------------------------------ -----------------------------------
Name: Fredric D. Price Name: Kenneth A. Simpler
Its: Chief Executive Officer Its: Authorized Signatory
OLYMPUS SECURITIES, LTD.
By:
-----------------------------------
Name: Kenneth A. Simpler
Its: Authorized Signatory
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SCHEDULE OF INVESTORS
Investor's Address
Investor Name and Facsimile Number
- --------------------------------- -----------------------------------------
NP Partners (formerly known as c/o Citadel Investment Group, L.L.C.
Nelson Partners) 225 West Washington Street
Chicago, Illinois 60606
Attention: Kenneth A. Simpler
Facsimile: (312) 338-0780
Telephone: (312) 338-7800
Olympus Securities, Ltd. c/o Citadel Investment Group, L.L.C.
225 West Washington Street
Chicago, Illinois 60606
Attention: Kenneth A. Simpler
Facsimile: (312) 338-0780
Telephone: (312) 338-7800
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