<PAGE>
As filed with the Securities and Exchange Commission on
January 26, 2000.
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): JANUARY 24, 2000
ECO SOIL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 0-21975 47-0709577
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
10740 THORNMINT ROAD, SAN DIEGO, CALIFORNIA
92127 (Address of principal executive offices,
including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 675-1660
Page 1 of 6
Exhibit Index on Page 6
<PAGE>
This Current Report on Form 8-K is filed by Eco Soil Systems, Inc.,
a Nebraska corporation (the "Company"), in connection with the matters
described herein.
ITEM 5. OTHER EVENTS.
On January 24, 2000, the Company issued $4.5 million of principal
amount of Senior Secured Convertible Debentures (the "Debentures") and
warrants (the "Warrants") to purchase 356,436 shares of the Company's common
stock, $.005 par value per share (the "Common Stock"), pursuant to a
Convertible Debentures and Warrants Purchase Agreement, dated as of January
17, 2000 (the "Purchase Agreement"), by and among the Company, the Company's
subsidiaries, Agricultural Supply, Inc., Turf Partners, Inc., Sistemas Y
Equipos Agricolas, S.A. de C.V. and Agricultural Supply de Mexico, S.A. de
C.V., and the investors signatory thereto (the "Investors"). The Debentures
are due January 24, 2001 and bear interest at a rate of 7% per annum, which
is due quarterly beginning March 31, 2000, and is payable in cash or Common
Stock at the Company's option. The Debentures are secured by all of the
Company's and certain of its subsidiaries' tangible and intangible assets,
which security interest is subject to the prior liens of the Company's and
its subsidiaries' existing secured lenders.
The holder of each Debenture is entitled, at its option, to convert
at any time the principal amount of the Debenture or any portion thereof,
together with accrued but unpaid interest, into shares of the Company's
Common Stock at a conversion price equal to the lowest of (a) $3.00 (adjusted
for subsequent stock splits and the like) or (b) 90% of the three lowest
closing bid prices on the principal market during the fifteen consecutive
trading days ending with the last trading day prior to the date of
conversion. In no event shall the conversion price be less than $1.89384,
subject to adjustment for any subsequent stock split or the like. The Company
may redeem the Debentures upon at least seven business days notice to the
Investors.
The Warrants are exercisable until January 24, 2005. The Warrants
have an initial exercise price of $4.488 per share (the "Initial Exercise
Price"); however, the Initial Exercise Price is subject to adjustment on the
180th day after the date the Warrants were issued if the five day average of
the closing bid prices of the Company's Common Stock calculated on such date
is lower than the Initial Exercise Price.
The Company has agreed to prepare and file a registration statement
covering the resale of the shares of Common Stock issuable upon the
conversion of the Debentures and upon the exercise of the Warrants with the
Securities and Exchange Commission in accordance with the terms and
conditions of the Registration Rights Agreement, dated as of January 17,
2000, by and among the Company and the investors party thereto.
The Company intends to use the proceeds of the financing for working
capital purposes.
The foregoing summary of the terms of the Purchase Agreement, the
Debentures, the Warrants and the Registration Rights Agreement does not
purport to be complete and is qualified
2
<PAGE>
in its entirety by reference to the full text of such agreements, copies of
which are attached hereto as Exhibits 10.1, 10.2, 10.3 and 10.4 and
incorporated herein by reference.
On January 26, 2000, the Company issued a press release announcing
the financing described above. A copy of the press release is attached hereto
as Exhibit 99.1 and incorporated herein by reference.
In connection with the issuance of the Debentures, the Company
entered into Amendment No. 5 of the Note and Warrant Purchase Agreement,
dated as of August 25, 1998, as amended, by and among the Company, Albion
Alliance Mezzanine Fund, L.P. and Paribas Capital Funding LLC (the
"Purchasers"). Amendment No. 5 contains the Purchaser's consent to the
issuance of the Debentures and the creation of the security interest
described above. The Company issued an aggregate of 200,000 shares of Common
Stock to the Purchasers as consideration for their entering into Amendment
No. 5.
The Company previously amended the Note and Warrant Purchase
Agreement to amend various financial covenants and eliminate prepayment
penalties. Such amendments are reflected in Amendment No. 4. The Company
issued an aggregate of 402,208 shares of Common Stock and amended warrants
held by the Purchasers to increase the number of shares issuable upon the
exercise of such warrants by an aggregate of 399,961 shares as consideration
for the Purchasers entering into Amendment No. 4.
The foregoing summary of the amendments to the Note and Warrant
Purchase Agreement and the amended warrants does not purport to be complete
and is qualified in its entirety by reference to the full text of such
amendments and amended warrants, copies of which are attached hereto as
Exhibits 10.6, 10.7, 10.8, 10.9 and 10.10 and incorporated herein by
reference.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(c) EXHIBITS.
<TABLE>
<S> <C>
10.1 Convertible Debentures and Warrant Purchase Agreement, dated as of
January 17, 2000, by and among Eco Soil Systems, Inc., Agricultural
Supply, Inc., Turf Partners, Inc., Sistemas Y Equipos Agricolas, S.A.
de C.V., Agricultural Supply de Mexico, S.A. de C.V. and the investors
signatory thereto.
10.2 7% Senior Secured Convertible Debentures, dated as of January
24, 2000, in favor of the investors listed on Schedule 1 attached
thereto.
10.3 Stock Purchase Warrant, dated as of January 24, 2000, issued to the
investors listed on Schedule 1 attached thereto.
10.4 Registration Rights Agreement, dated as of January 17, 2000, between
Eco Soil Systems, Inc. and the investors signatory thereto.
10.5 Security Agreement, dated as of January 17, 2000, by and among Eco
Soil Systems, Inc., Agricultural Supply, Inc., Turf Partners, Inc.,
Sistemas Y Equipos Agricolas, S.A. de C.V., Agricultural Supply de
Mexico, S.A. de C.V. and BH Capital Investments, L.P., for itself and
in trust, as agent for Excalibur Limited Partnership, Gundyco in trust
for RSP 550-98866-19 and MB Capital Partners.
10.6 Amendment No. 3 to Note and Warrant Purchase Agreement, dated as of
November 12, 1999 among the Company, Albion Alliance Mezzanine Fund,
L.P. and Paribas Capital Funding LLC.
10.7 Amendment No. 4 to Note and Warrant Purchase Agreement, dated as of
December 21, 1999 among the Company, Albion Alliance Mezzanine Fund,
L.P. and Paribas Capital Funding LLC.
10.8 Amendment No. 5 to Note and Warrant Purchase Agreement, dated as of
January 21, 2000 among the Company, Albion Alliance Mezzanine Fund,
L.P. and Paribas Capital Funding LLC.
10.9 Amended and Restated Common Stock Purchase Warrant expiring August 25,
2005 in favor of Albion Alliance Mezzanine Fund, L.P.
10.10 Amended and Restated Common Stock Purchase Warrant expiring August 25,
2005 in favor of Paribas Capital Funding LLC.
99.1 Press Release, dated January 26, 2000, issued by Eco Soil Systems,
Inc.
</TABLE>
4
<PAGE>
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 hereunto duly authorized.
Date: January 26, 2000 Eco Soil Systems, Inc.
By: /s/ William B. Adams
------------------------
William B. Adams
Chief Executive Officer
5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Page
- ----------- ----
<S> <C> <C>
10.1 Convertible Debentures and Warrant Purchase Agreement, dated as of
January 17, 2000, by and among Eco Soil Systems, Inc., Agricultural
Supply, Inc., Turf Partners, Inc., Sistemas Y Equipos Agricolas, S.A.
de C.V., Agricultural Supply de Mexico, S.A. de C.V. and the investors
signatory thereto.
10.2 7% Senior Secured Convertible Debentures, dated as of January
24, 2000, in favor of the investors listed on Schedule 1 attached
thereto.
10.3 Stock Purchase Warrant, dated as of January 24, 2000, issued to the
investors listed on Schedule 1 attached thereto.
10.4 Registration Rights Agreement, dated as of January 17, 2000, between
Eco Soil Systems, Inc. and the investors signatory thereto.
10.5 Security Agreement, dated as of January 17, 2000, by and among Eco
Soil Systems, Inc., Agricultural Supply, Inc., Turf Partners, Inc.,
Sistemas Y Equipos Agricolas, S.A. de C.V., Agricultural Supply de
Mexico, S.A. de C.V. and BH Capital Investments, L.P., for itself and
in trust, as agent for Excalibur Limited Partnership, Gundyco in trust
for RSP 550-98866-19 and MB Capital Partners.
10.6 Amendment No. 3 to Note and Warrant Purchase Agreement, dated as
of November 12, 1999 among the Company, Albion Alliance Mezzanine
Fund, L.P. and Paribas Capital Funding LLC.
10.7 Amendment No. 4 to Note and Warrant Purchase Agreement, dated as of
December 21, 1999 among the Company, Albion Alliance Mezzanine Fund,
L.P. and Paribas Capital Funding LLC.
10.8 Amendment No. 5 to Note and Warrant Purchase Agreement, dated as of
January 21, 2000 among the Company, Albion Alliance Mezzanine Fund,
L.P. and Paribas Capital Funding LLC.
10.9 Amended and Restated Common Stock Purchase Warrant expiring August 25,
2005 in favor of Albion Alliance Mezzanine Fund, L.P.
10.10 Amended and Restated Common Stock Purchase Warrant expiring August 25,
2005 in favor of Paribas Capital Funding LLC.
99.1 Press Release, dated January 26, 2000, issued by Eco Soil Systems, Inc.
</TABLE>
6
<PAGE>
CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE AGREEMENT
BETWEEN
ECO SOIL SYSTEMS, INC. AND ITS SUBSIDIARIES SIGNATORY HERETO
AND
THE INVESTORS SIGNATORY HERETO
CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE AGREEMENT dated as of
January 17, 2000 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Eco Soil Systems,
Inc., a corporation organized and existing under the laws of the State of
Nebraska (the "Company") and its subsidiaries, Agricultural Supply, Inc., a
Delaware corporation ("Ag Supply"), Turf Partners, Inc., a Delaware
corporation ("Turf Partners"), and the subsidiaries of Ag Supply, Sistemas Y
Equipos Agricolas, S.A. de C.V. and Agricultural Supply de Mexico, S.A. de
C.V., each incorporated under the laws of Mexico (each a "Subsidiary" and all
of such subsidiaries taken together, the "Subsidiaries").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investors shall lend the Company and the
Subsidiaries, jointly and severally, $4,500,000 in the form of secured
subordinated Convertible Debentures (as defined below) and the Investors
shall receive Warrants (as defined below) to purchase shares of the Common
Stock of the Company (as defined below).
WHEREAS, such investments will be made in reliance upon the
provisions of Section 4(2) and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other
exemption from the registration requirements of the Securities Act as may be
available with respect to any or all of the investments in securities to be
made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "CAPITAL SHARES" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.2. "CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights,
or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of
<PAGE>
the Company or any Warrants, options or other rights to subscribe for or
purchase Capital Shares or any such convertible or exchangeable securities.
Section 1.3. "CLOSING" shall mean each closing of the purchase and sale of
the Convertible Debentures and Warrants pursuant to Section 2.1.
Section 1.4. "CLOSING DATE" shall mean the date on which all conditions to
the applicable Closing have been satisfied or waived by the appropriate party
or parties (as defined in Section 2.1 (b) hereto) and the Closing shall have
occurred.
Section 1.5. "COMMON STOCK" shall mean the Company's common stock, $0.005
par value.
Section 1.6. "CONVERSION SHARES" shall mean the shares of Common Stock
issuable upon conversion of the Convertible Debentures and any shares of
Common Stock issued as interest upon the Convertible Debentures.
Section 1.7. "CONVERTIBLE DEBENTURES" shall mean the Company's 7% Senior
Secured Convertible Debentures in the form attached hereto as Exhibit A.
Section 1.8. "DAMAGES" shall mean any loss, claim, damage, judgment,
penalty, deficiency or liability, including reasonable out-of-pocket costs
and expenses (including, without limitation, reasonable attorney's fees and
disbursements and reasonable costs and expenses of expert witnesses and
investigation).
Section 1.9. "EFFECTIVE DATE" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "ESCROW AGENT" shall have the meaning set forth in the Escrow
Agreement.
Section 1.11. "ESCROW AGREEMENT" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.13. "LEGEND" shall mean the legend set forth in Section 9.1.
Section 1.14. "MARKET PRICE" on any given date shall mean the average of any
three closing bid prices on the Principal Market (as reported by Bloomberg,
L.P.) of the Common Stock during the fifteen Trading Day period ending on the
Trading Day immediately prior to the date for which the Market Price is to be
determined, as selected by the Investor.
2
<PAGE>
Section 1.15. "MATERIAL ADVERSE EFFECT" shall mean any effect on the
business, operations, properties, prospects, stock price or financial
condition of the Company or any Subsidiary that is material and adverse to
the Company and its Subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise
interfere with the ability of the Company or any of the Subsidiaries to enter
into and perform any of their respective obligations under this Agreement,
the Registration Rights Agreement, the Escrow Agreement, the Convertible
Debentures, the Security Documents or the Warrants in any material respect.
Section 1.16. "OUTSTANDING" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date
as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in
such Shares; PROVIDED, HOWEVER, that "Outstanding" shall not mean any such
Shares then directly or indirectly owned or held by or for the account of the
Company.
Section 1.17. "PERSON" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.18. "PRINCIPAL MARKET" shall mean the American Stock Exchange, the
New York Stock Exchange or the NASDAQ National Market, whichever is at the
time the principal trading exchange or market for the Common Stock, based
upon share volume.
Section 1.19. "PURCHASE PRICE" shall mean the face principal amount of the
Convertible Debentures.
Section 1.20. "REGISTRABLE SECURITIES" shall mean the Conversion Shares and
the Warrant Shares until (i) the Registration Statement has been declared
effective by the SEC, and all Conversion Shares and Warrant Shares have been
disposed of pursuant to the Registration Statement, (ii) all Conversion
Shares and Warrant Shares have been sold under circumstances under which all
of the applicable conditions of Rule 144 (or any similar provision then in
force) under the Securities Act ("Rule 144") are met, (iii) all Conversion
Shares and Warrant Shares have been otherwise transferred to holders who may
trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for
such securities not bearing a restrictive legend or (iv) such time as, in the
opinion of counsel to the Company, all Conversion Shares and Warrant Shares
may be sold within a three-month period pursuant to Rule 144 (or any similar
provision then in effect) under the Securities Act.
Section 1.21. "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement
regarding the filing of the Registration Statement(s) for the resale of the
Registrable Securities, entered into between the Company and the Investors as
of the Closing Date substantially in the form annexed hereto as Exhibit C.
3
<PAGE>
Section 1.22. "REGISTRATION STATEMENT" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC
for which the Company then qualifies and which counsel for the Company shall
deem appropriate, and which form shall be available for the resale by the
Investors of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement, the Registration Rights
Agreement and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section 1.23. "REGULATION D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.24. "SEC" shall mean the Securities and Exchange Commission.
Section 1.25. "SECTION 4(2)" AND "SECTION 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.26. "SECURITIES ACT" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.27. "SEC DOCUMENTS" shall mean the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC
pursuant to the Exchange Act or the Securities Act since the filing of such
Annual Report through the date hereof.
Section 1.28. "SECURITY DOCUMENTS" shall mean the Security Agreement in the
form of Exhibit G hereto and all UCC-1 and similar financing statements
executed by the Company or any of its direct or indirect Subsidiaries in
favor of Investors in connection therewith.
Section 1.29. "SHARES" shall have the meaning set forth in Section 1.16.
Section 1.30. "TRADING DAY" shall mean any day during which the Principal
Market shall be open for business.
Section 1.31. "WARRANTS" shall mean the Warrants substantially in the form
of Exhibit B to be issued to the Investors hereunder.
Section 1.32. "WARRANT SHARES" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to exercise of the Warrants.
4
<PAGE>
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES AND WARRANTS
Section 2.1. INVESTMENT.
(a) Upon the terms and subject to the conditions set forth herein,
the Company agrees to sell, and the Investors agree to purchase in the
aggregate Four Million Five Hundred Thousand Dollars ($4,500,000) face
principal amount of the Convertible Debentures together with the Warrants at
the Purchase Price on the Closing Date as follows:
(i) Upon execution and delivery of this Agreement, each
Investor shall deliver to the Escrow Agent immediately
available funds in their proportionate amount of the
Purchase Price as set forth on the signature pages hereto,
and the Company shall deliver the Convertible Debentures
and the Warrants to the Escrow Agent, in each case to be
held by the Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction or waiver by the appropriate party or
parties of the conditions set forth in Section 2.1(b), the
Closing ("Closing") shall occur at the offices of the
Escrow Agent at which the Escrow Agent (x) shall release
the Convertible Debentures and the Warrants to the
Investors and (y) shall release the Purchase Price to the
Company (after all fees have been paid as set forth in the
Escrow Agreement), pursuant to the terms of the Escrow
Agreement.
(b) Closing is subject to the satisfaction or waiver by the
appropriate party or parties of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price of the
Convertible Debentures and the Warrants, as more fully set
forth in the Escrow Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of the
Closing Date (as a condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date
(as a condition to the Investors' obligations);
5
<PAGE>
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale
of the Convertible Debentures and Warrants, or shall have
the availability of exemptions therefrom and shall have
obtained the subordination and intercreditor agreements
described in Section 6.11;
(vi) the sale and issuance of the Convertible Debentures and the
Warrants hereunder, and the proposed issuance by the
Company to the Investors of the Common Stock underlying the
Convertible Debentures and the Warrants upon the conversion
or exercise thereof shall be legally permitted by all laws
and regulations to which the Investors and the Company are
subject and there shall be no ruling, judgment or writ of
any court prohibiting the transactions contemplated by this
Agreement;
(vii) delivery of the original fully executed Convertible
Debentures and Warrants to the Escrow Agent;
(viii) delivery to the Escrow Agent of the opinions of Latham &
Watkins, counsel to the Company and of Fitzgerald, Schorr,
Barmettler & Brennan, P.C., Nebraska counsel to the
Company, substantially to the effect of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent substantially in the form
attached hereto as Exhibit F;
(x) delivery to the Escrow Agent of the Registration Rights
Agreement; and
(xi) delivery to the Escrow Agent of the Security Documents.
(c) The number of Warrants to be issued at Closing shall be
determined by dividing 25% of the principal amount of the Convertible
Debentures issued at Closing by the Market Price of the Common Stock on the
Closing Date. The exercise price of the Warrants shall initially be 110% of
the average of the closing bid prices on the five Trading Days immediately
preceding the Closing Date, and shall be reset to be 110% of the average of
the closing bid prices on the five Trading Days immediately preceding the
180th day after the Closing Date, if less than the initial exercise price.
Section 2.2. LIQUIDATED DAMAGES. The parties hereto acknowledge and agree
that the sums payable pursuant to the Registration Rights Agreement and the
Convertible Debentures shall constitute liquidated damages and not penalties.
The parties further acknowledge that (a) the amount of loss or damages likely
to be incurred is incapable or is difficult to precisely estimate, (b) the
amounts specified in such Sections bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely to be
incurred by the Investors in connection with the failure by the Company to
timely cause the registration of the Registrable Securities and (c) the
parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this
Agreement at arm's length.
6
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Each Investor, severally and not jointly, represents and warrants to the
Company that:
Section 3.1. INTENT. The Investor is entering into this Agreement for its
own account and not with a view to or for sale in connection with any
distribution of the Convertible Debentures, the Warrants or the Common Stock
issuable upon conversion or exercise thereof. The Investor has no present
arrangement (whether or not legally binding) at any time to sell the
Convertible Debentures, the Warrants, any Conversion Shares or Warrant Shares
to or through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold such securities
for any minimum or other specific term and reserves the right to dispose of
the Conversion Shares and Warrant Shares at any time in accordance with
federal and state securities laws applicable to such disposition.
Section 3.2. SOPHISTICATED INVESTOR. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an
accredited investor (as defined in Rule 501 of Regulation D), and Investor
has such experience in business and financial matters that it has the
capacity to protect its own interests in connection with this transaction and
is capable of evaluating the merits and risks of an investment in the
Convertible Debentures, the Warrants and the underlying Common Stock. The
Investor acknowledges that an investment in the Convertible Debentures, the
Warrants and the underlying Common Stock is speculative and involves a high
degree of risk.
Section 3.3. AUTHORITY. This Agreement and each agreement attached as an
Exhibit hereto that is required to be executed by Investor has been duly
authorized and validly executed and delivered by the Investor and is a valid
and binding agreement of the Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4. NOT AN AFFILIATE. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.5. ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and each agreement which is attached as an Exhibit hereto and
executed by the Investor in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, and compliance with the
requirements hereof and thereof by the Investor, will not violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding
on Investor or (a) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material
default thereunder; (c) result in the creation or imposition of any lien
pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any third
party; or (d) require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument,
relationship or
7
<PAGE>
legal obligation to which Investor is subject or to which any of its assets,
operations or management may be subject.
Section 3.6. DISCLOSURE; ACCESS TO INFORMATION. The Investor has received
all documents, records, books and other publicly available information
pertaining to Investor's investment in the Company that have been requested
by the Investor. The Company is subject to the periodic reporting
requirements of the Exchange Act, and the Investor has reviewed copies of all
SEC Documents deemed relevant by Investor.
Section 3.7. MANNER OF SALE. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SUBSIDIARIES
The Company, and as to itself, each Subsidiary, represents and warrants to
the Investors that, except as set forth on the Disclosure Schedule prepared
by the Company and delivered herewith:
Section 4.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Nebraska and has all requisite corporate authority to own its properties and
to carry on its business as now being conducted. The Company does not have
any subsidiaries and does not own more that fifty percent (50%) of or control
any other business entity except for the Subsidiaries and as set forth in the
SEC Documents. None of the subsidiaries of the Company listed in the SEC
Documents other than the Subsidiaries conducts any active business or holds
any other than nominal assets. The Company is duly qualified and is in good
standing as a foreign corporation to do business in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2. AUTHORITY. (i) The Company and each Subsidiary has the
requisite corporate power and corporate authority to enter into and perform
its obligations under this Agreement, the Convertible Debentures, the
Security Documents, the Registration Rights Agreement, the Escrow Agreement,
and the Warrants and the Company has the authority to issue the Conversion
Shares, the Warrants and the Warrant Shares pursuant to their respective
terms, (ii) the execution, issuance and delivery of this Agreement, the
Security Documents, the Registration Rights Agreement, the Escrow Agreement,
the Convertible Debentures and the Warrants by the Company and the
Subsidiaries (as applicable) and the consummation by them of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action and no further consent or authorization of the Company or any
Subsidiary or their respective Boards of Directors or stockholders is
required, and (iii) this Agreement, the Security Documents, the Registration
Rights Agreement, the Escrow Agreement, the Convertible Debentures and the
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Warrants have been duly executed and delivered by the Company (or Subsidiary,
as applicable) and at each Closing shall constitute valid and binding
obligations of the Company (or Subsidiary, as applicable) enforceable against
the Company (or Subsidiary, as applicable) in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in
number for the conversion of the Convertible Debentures and for the exercise
of the Warrants. The Company understands and acknowledges the potentially
dilutive effect to the Common Stock of the issuance of the Conversion Shares.
The Company further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Convertible Debentures and Warrant Shares upon
exercise of the Warrants in accordance with this Agreement is absolute and
unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. Section 101 et
seq. (the "Bankruptcy Code"). The Company (or Subsidiary, as applicable)
shall not seek judicial relief from its obligations hereunder except pursuant
to the Bankruptcy Code. In the event the Company (or Subsidiary, as
applicable) is a debtor under the Bankruptcy Code, the Company hereby waives
to the fullest extent permitted any rights to relief it may have under 11
U.S.C. Section 362 in respect of the conversion of the Convertible Debentures
and the exercise of the Warrants. The Company agrees, without cost or expense
to the Investors, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
Section 4.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $0.005 par value, of which
17,887,739 shares were issued and outstanding as of September 30, 1999 and
5,000,000 shares of preferred stock, none of which are issued and outstanding
or been designated as to series. Except for outstanding options and warrants
as set forth in the SEC Documents, there are no outstanding Capital Shares
Equivalents nor any agreements or understandings pursuant to which any
Capital Shares Equivalents may become outstanding. The Company is not a party
to any agreement granting registration or anti-dilution rights to any person
with respect to any of its equity or debt securities. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized
and issued and are fully paid and non-assessable.
Section 4.4. COMMON STOCK. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full
compliance with all reporting requirements of the Exchange Act, and the
Company is in compliance with all requirements for the continued listing or
quotation of its Common Stock, and such Common Stock is currently listed or
quoted on, the Principal Market. As of the date hereof, the Principal Market
is the Nasdaq National Market and the Company has not received any notice
regarding, and to its knowledge there is no threat of, the termination or
discontinuance of the eligibility of the Common Stock for such listing.
Section 4.5. SEC DOCUMENTS. The Company has made available to the Investors
true and complete copies of the SEC Documents. The Company has not provided
to the Investors any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of
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their respective dates, the SEC Documents (a) complied in all material
respects with the requirements of the Exchange Act, and rules and regulations
of the SEC promulgated thereunder, and (b) did not contain any untrue
statement of a material fact or omit 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. The
financial statements of the Company included in the SEC Documents complied in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto at the time of such inclusion. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis 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 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 operations
and cash flows for the periods then ended (subject, in the case of unaudited
interim statements, to normal year-end audit adjustments). Neither the
Company nor any of its subsidiaries has any material indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent
or otherwise, and whether due or to become due) that would have been required
to be reflected in, reserved against or otherwise described in the financial
statements or in the notes thereto in accordance with GAAP, which was not
fully reflected in, reserved against or otherwise described in the financial
statements or the notes thereto included in the SEC Documents or was not
incurred in the ordinary course of business consistent with the Company's
past practices since the last date of such financial statements.
Section 4.6. EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with
the Warrants and validly converted in accordance with the terms of the
Convertible Debentures, the Conversion Shares and the Warrant Shares will be
duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Convertible Debentures, the Conversion Shares, the Warrants or the
Warrant Shares pursuant to, nor the Company's performance of its obligations
under, this Agreement, the Security Documents, the Registration Rights
Agreement, the Escrow Agreement or the Warrants will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares or, except as contemplated herein, any of the
assets of the Company (or Subsidiary, as applicable), or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to
subscribe for or acquire the Capital Shares or other securities of the
Company. The Convertible Debentures, the Conversion Shares, the Warrants and
the Warrant Shares shall not subject the Investors to personal liability to
the Company or its creditors by reason of the possession thereof.
Section 4.7. NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION. Neither the Company nor any of its affiliates nor, to the
knowledge of the Company, any person acting on its or their behalf (i) has
conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to the sale
of the Convertible Debentures or the Warrants, or (ii) made any offers or
sales of any security or solicited any offers
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to buy any security under any circumstances that would require registration
of the sale of the Convertible Debentures, the Conversion Shares, the
Warrants or the Warrant Shares under the Securities Act.
Section 4.8. NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Security Documents by the Company (or Subsidiary, as
applicable) and the consummation by the Company (or Subsidiary, as
applicable) of the transactions contemplated hereby, including without
limitation the granting of liens to the Investors on all assets of the
Company and each Subsidiary, the issuance of and payment of interest upon the
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares, do not and will not (i) result in a violation of the Company's (or
Subsidiary's, as applicable) Certificate of Incorporation or By-Laws or (ii)
conflict with, or constitute a material default (or an event that 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
material agreement, loan document, security agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or
similar agreement to which the Company is a party, or (iii) result in a
violation of any federal, state or local law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations) applicable to the Company (or Subsidiary, as applicable) or by
which any material property or asset of the Company (or Subsidiary, as
applicable) is bound or affected, nor is the Company (or Subsidiary, as
applicable) otherwise in violation of, conflict with or default under any of
the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not have, individually or in the aggregate, a Material Adverse Effect).
The business of the Company (or Subsidiary, as applicable) is not being
conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in
the aggregate would not have a Material Adverse Effect. The Company (or
Subsidiary, as applicable) is not required under any Federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Convertible Debentures or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or
state securities filings that may be required to be made by the Company
subsequent to any Closing, any registration statement that may be filed
pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Principal Market);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investors herein.
Section 4.9. NO MATERIAL ADVERSE CHANGE. Since September 30, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.10. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since September 30,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed in the SEC Documents.
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Section 4.11. NO INTEGRATED OFFERING. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance
or exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, (a) the
Company has not issued or sold the Convertible Debentures, the Warrants or
any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Convertible Debentures, the Warrants or Common
Stock, or any securities convertible into a exchangeable or exercisable for
the Convertible Debentures or Common Stock or any such other securities)
within the six-month period before the date hereof, and (b) the Company shall
not permit any of its directors, officers or affiliates directly or
indirectly to take, any action (including, without limitation, any sale to
any Person of the Convertible Debentures, Warrants or shares of Common
Stock), so as in either (a) or (b) or both to make unavailable the exemption
from Securities Act registration being relied upon by the Company for the
offer and sale to Investors of the Convertible Debentures (and the Conversion
Shares) or the Warrants (and the Warrant Shares) as contemplated by this
Agreement.
Section 4.12. LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the
SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any Subsidiary,
nor has the Company received any written or oral notice of any such action,
suit, proceeding or investigation, which could reasonably be expected to have
a Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or,
to the knowledge of the Company, requested of any court, arbitrator or
governmental agency which could result in a Material Adverse Effect.
Section 4.13. NO MISLEADING OR UNTRUE COMMUNICATION. The Company and, to
the knowledge of the Company, any person representing the Company, or any
other person selling or offering to sell the Convertible Debentures or the
Warrants in connection with the transaction contemplated by this Agreement,
have not made, at any time, any oral communication in connection with the
offer or sale of the same which, together with all such communications,
including the SEC Documents, taken as a whole, contained any untrue statement
of a material fact or omitted to state any material fact necessary in order
to make the statements, in the light of the circumstances under which they
were made, not misleading.
Section 4.14. MATERIAL NON-PUBLIC INFORMATION. The Company has not
disclosed to the Investors any material non-public information that (i) if
disclosed, would reasonably be expected to have a material effect on the
price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the
date hereof but which has not been so disclosed.
Section 4.15. INSURANCE. The Company and each Subsidiary maintains property
and casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound
and reputable insurers that is adequate, consistent with industry standards
and the Company's historical claims experience. The Company has not received
notice from, and has no knowledge of any threat by, any insurer (that has
issued any insurance policy to the Company) that such insurer intends to deny
coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
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Section 4.16. TAX MATTERS.
(a) The Company and each Subsidiary has filed all Tax Returns which
it is required to file under applicable laws; all such Tax Returns are true
and accurate in all material respects and have been prepared in compliance
with all applicable laws; the Company has paid all Taxes due and owing by it
or any Subsidiary (whether or not such Taxes are required to be shown on a
Tax Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and
since December 31, 1998, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending on
the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any
subsidiary is or may be subject to taxation by that jurisdiction. There are
no foreign, federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company or any
Subsidiary; no information related to Tax matters has been requested from the
Company by any foreign, federal, state or local taxing authority; and no
written notice indicating an intent to open an audit or other review has been
received by the Company or any Subsidiary from any foreign, federal, state or
local taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to Section 7121 of the Internal
Revenue Code or any predecessor provision thereof or any similar provision of
state, local or foreign law; or (B) has not agreed to or is required to make
any adjustments pursuant to Section 481 (a) of the Internal Revenue Code or
any similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or any of its Subsidiaries or has
any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to
the business or operations of the Company. The Company has not been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Internal Revenue Code during the applicable period specified
in Section 897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under Section 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of another
person that is not a subsidiary of the Company (A) under Treas. Reg. Section
1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is not obligated to make payments nor is the Company a party to
an agreement that could obligate it to make any payments that would not be
deductible under Section 280G of the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
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"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 1.17. PROPERTY. Neither the Company nor any of its Subsidiaries
owns any real property. Each of the Company and its Subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except those granted to the Investors, to
Coast Business Credit, to First National Bank or such as do not materially
affect the value of such property and do not materially interfere with the
use made and proposed to be made of such property by the Company; and to the
Company's knowledge any real property, and buildings held under lease by the
Company (or Subsidiary, as applicable) as tenant are held by it under valid,
subsisting and enforceable leases with such exceptions as are not material
and do not interfere with the use made and intended to be made of such
property and buildings by the Company (or Subsidiary, as applicable).
Section 4.18. INTELLECTUAL PROPERTY. Each of the Company and its
Subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures) and other similar rights
and proprietary knowledge (collectively, "Intangibles") necessary for the
conduct of its business as now being conducted. To the Company's knowledge,
except as disclosed in the SEC Documents neither the Company nor any of its
Subsidiaries is infringing upon or in conflict with any right of any other
person with respect to any Intangibles. Except as disclosed in the SEC
Documents, no adverse claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
Section 4.19. INTERNAL CONTROLS AND PROCEDURES. The Company maintains books
and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company or any subsidiary is
a party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated
assets is compared with existing assets at regular intervals; (iii) access to
the Company's consolidated assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are recorded
as necessary to permit preparation of the financial statements of the Company
in accordance with U.S. generally accepted accounting principles.
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Section 4.20. PAYMENTS AND CONTRIBUTIONS. Neither the Company, any
Subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment of
Company funds to any foreign or domestic government official or employee;
(iii) violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other similar payment to any person with
respect to Company matters.
Section 4.21. NO MISREPRESENTATION. The representations and warranties of
the Company contained in this Agreement, any schedule, annex or exhibit
hereto and any agreement, instrument or certificate furnished by the Company
to the Investors pursuant to this Agreement, do 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 under which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. COMPLIANCE WITH LAW. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with
all applicable state and federal securities laws, rules and regulations and
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. REGISTRATION RIGHTS. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall
comply in all material respects with the terms thereof.
Section 6.2. RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to issue the Conversion Shares and the
Warrant Shares pursuant to any conversion of the Convertible Debentures or
exercise of the Warrants. The number of shares so reserved from time to time,
as theretofore increased or reduced as hereinafter provided, may be reduced
by the number of shares actually delivered pursuant to any conversion of the
Convertible Debentures or exercise of the Warrants and the number of shares
so reserved shall be increased or decreased to reflect potential increases or
decreases in the Common Stock that the Company may thereafter be
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obligated to issue by reason of adjustments to the Warrants. The Company
further agrees that if at any time 200% of the number of shares of Common
Stock issuable upon conversion of the Convertible Debentures and exercise of
the Warrants would cause the Company to be obligated to issue a number of
shares of Common Stock in excess of its authorized capital (after taking into
account all other Capital Shares Equivalents then existing), it shall
promptly commence all necessary corporate and shareholder action necessary to
increase its authorized capital so as to eliminate the aforesaid condition.
Section 6.3. LISTING OF COMMON STOCK. The Company hereby agrees to maintain
the listing of the Common Stock on a Principal Market, and as soon as
reasonably practicable following the Closing to list the Conversion Shares
and the Warrant Shares on the Principal Market. The Company further agrees,
if the Company applies to have the Common Stock traded on any other Principal
Market, it will include in such application the Conversion Shares and the
Warrant Shares, and will take such other action as is necessary or desirable
in the opinion of the Investors to cause the Conversion Shares and Warrant
Shares to be listed on such other Principal Market as promptly as possible.
The Company will take all action to continue the listing and trading of its
Common Stock on a Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws
or rules of the Principal Market and shall provide Investors with copies of
any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Investors have disposed of all of their
Registrable Securities.
Section 6.4. EXCHANGE ACT REGISTRATION. The Company will cause its Common
Stock to continue to be registered under Section 12(b) or (g) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting
and filing obligations under the Exchange Act, and will not take any action
or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under said Act until the
Investors have disposed of all of their Registrable Securities.
Section 6.5. LEGENDS. The certificates evidencing the Registrable
Securities shall be free of legends, except as set forth in Article IX.
Section 6.6. CORPORATE EXISTENCE; CONFLICTING AGREEMENTS. The Company will
take all steps necessary to preserve and continue the corporate existence of
the Company and each Subsidiary. The Company shall not enter into, or permit
any Subsidiary to enter into, any agreement, the terms of which agreement
would restrict or impair the right or ability of the Company or any
Subsidiary to perform any of their respective obligations under this
Agreement or any of the other agreements attached as exhibits hereto.
Section 6.7. CONSOLIDATION; MERGER. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company or
any Subsidiary with or into, or a transfer of all or substantially all of the
assets of the Company or any Subsidiary to, another entity (a
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"Consolidation Event") unless the resulting successor or acquiring entity (if
not the Company) assumes by written instrument or by operation of law the
Company's and/or such Subsidiary's obligations under this Agreement,
including the obligation to deliver to the Investors such shares of stock
and/or securities as the Investors are entitled to receive pursuant to this
Agreement and the Convertible Debentures.
Section 6.8. ISSUANCE OF CONVERTIBLE DEBENTURES AND WARRANT SHARES. The
sale of the Convertible Debentures and the Warrants and the issuance of the
Warrant Shares pursuant to exercise of the Warrants and the Conversion Shares
upon conversion of the Convertible Debentures shall be made in accordance
with the provisions and requirements of Section 4(2), 4(6) or Regulation D
and any applicable state securities law. The Company shall make any necessary
SEC and "blue sky" filings required to be made by the Company in connection
with the sale of the Securities to the Investors as required by all
applicable laws, and shall provide a copy thereof to the Investors promptly
after such filing.
Section 6.9. LIMITATIONS ON AND RIGHT TO PARTICIPATE IN FUTURE FINANCING.
The Company agrees that it will not enter into any sale of Capital Shares
Equivalents for a period of 180 days after the Closing Date except (i)
pursuant to the exercise of outstanding warrants, or options issued pursuant
to any shareholder-approved stock option plan, or (ii) to any strategic
partner, the purpose of which is not primarily to raise money, or (iii) the
sale of shares of Common Stock at a price of not less than $2.50 per share
with warrant coverage of up to 40% for aggregate proceeds of up to
$3,500,000. In addition, until 12 months after the Closing Date, the Company
agrees that it will not enter into any sale of Capital Shares Equivalents
(other than the sale of shares of Common Stock at a price of not less than
$2.50 per share with warrant coverage of up to 40% for aggregate proceeds of
up to $3,500,000, or pursuant to the exceptions set forth in the previous
sentence) without offering each Investor, severally and not jointly, (i) the
right of first refusal to purchase such Capital Shares Equivalents on the
same terms and conditions on which the Company is prepared to sell such
Capital Shares Equivalents to other persons and (ii) if the Investor does not
exercise such right of first refusal, the further right to exchange all or
part of the securities purchased pursuant to this Agreement (as elected by
each Investor) for an equivalent Purchase Price amount of the securities
being sold in such subsequent offering. Such right of first refusal or right
of exchange must be exercised in writing within seven (7) Trading Days of the
Investors' receipt of notice of the proposed terms of such financing. For
purposes of this Section 6.9, the issuance of shares of Common Stock in
fulfillment of the earn-out obligations described in Section 4.3 of the
Disclosure Schedule shall not constitute a "sale." The Company further agrees
that it shall not issue any equity or equity-linked securities to either
Albion Alliance Mezzanine Fund, LP or Paribas Capital Funding LLC as a means
of repayment of any existing indebtedness owed to either such company,
without the express prior written consent of all Investors.
Section 6.10. USE OF PROCEEDS. The proceeds from the sale of the
Convertible Debentures shall be used for general working capital purposes,
and shall not be used to repay the principal of any of the Company's
indebtedness for borrowed money.
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Section 6.11. AGREEMENTS WITH EXISTING LENDERS. The Company is presently
indebted to Coast Business Credit and to Albion Alliance Mezzanine Fund, LP
and Paribas Capital Funding LLC. Each such lender shall have waived in
writing any existing covenant defaults through March 31, 2000 on or before
the Closing, subject to completion of the Closing. Further, Coast and First
National Bank of San Diego shall each have entered into Intercreditor and
Subordination Agreements with the Investors on terms satisfactory to both
such lenders and the Investors prior to the Closing, and Albion and Paribas
shall have consented to the transactions contemplated by this Agreement,
agreed that their respective term notes are subordinate in right of payment
to the rights of the Investors, and to the lockup of all but 100,000 of their
shares, notwithstanding the registration of any or all of such shares in such
Registration Statement, on terms satisfactory to both such subordinated
lenders and the Investors.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. SURVIVAL. The representations, warranties and covenants made
by each of the Company (or Subsidiary, as applicable) and each Investor in
this Agreement, the annexes, schedules and exhibits hereto and in each
instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive each Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or
violation of any of such representations, warranties or covenants, the party
to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it
under the provisions of this Agreement, irrespective of any investigation
made by or on behalf of such party on or prior to any Closing Date.
Section 7.2. INDEMNITY. (a) The Company and each Subsidiary jointly and
severally hereby agrees to indemnify and hold harmless the Investors, their
respective Affiliates (as defined in SEC Rule 405) and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any
of the Company's (or Subsidiary's, as applicable) representations or
warranties contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Company pursuant to this Agreement; or
(ii) any failure by the Company (or Subsidiary, as applicable)
to perform in any material respect any of its covenants, agreements,
undertakings or obligations set forth in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company (or Subsidiary, as
applicable) pursuant to this Agreement; or
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<PAGE>
(iii) any action instituted against the Investors, or any of
them, by any stockholder of the Company who is not an Affiliate of an
Investor, with respect to any of the transactions contemplated by this
Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with any misrepresentation, omission of fact, or breach of any of
the Investor's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this
Agreement.
Section 7.3. NOTICE. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified
Party promptly shall notify the party from whom indemnification pursuant to
Section 7.2 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not
relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is actually
prejudiced by such omission or delay. In connection with any Claim as to
which both the Indemnifying Party and the Indemnified Party are parties, the
Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the
Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel and to participate in the defense of such Claim, and
the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified
Party, potentially differing interests between such parties in the conduct of
the defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available
to the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within
a reasonable period of time after notice of the commencement of such Claim.
If the Indemnified Party employs separate legal counsel in circumstances
other than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Indemnifying Party shall not, in
connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent
shall not unreasonably be withheld), settle or compromise any Claim or
consent to the entry of any judgment that does not include an unconditional
release of the Indemnified Party from all liabilities with respect to such
Claim or judgment.
19
<PAGE>
Section 7.4. DIRECT CLAIMS. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver
notice of such claim to the Indemnifying Party. If the Indemnified Party
disputes the claim, such dispute shall be resolved by mutual agreement of the
Indemnified Party and the Indemnifying Party or by binding arbitration
conducted in accordance with the procedures and rules of the American
Arbitration Association as set forth in Article X. Judgment upon any award
rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. DUE DILIGENCE REVIEW. Subject to Section 8.2, the Company
shall make available for inspection and review by the Investors, advisors to
and representatives of the Investors (who may or may not be affiliated with
the Investors and who are reasonably acceptable to the Company), any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investors pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky,
Nasdaq or other filing, all SEC Documents and other filings with the SEC, and
all other publicly available corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and
cause the Company's officers, directors and employees to supply all such
publicly available information reasonably requested by the Investors or any
such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and
such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
Section 8.2. NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
(a) The Company shall not disclose material non-public information
to the Investors, advisors to or representatives of the Investors unless
prior to disclosure of such information the Company identifies such
information as being non-public information and provides the Investors, such
advisors and representatives with the opportunity to accept or refuse to
accept such non-public information for review. Other than disclosure of any
comment letters received from the SEC staff with respect to the Registration
Statement, the Company may, as a condition to disclosing any non-public
information hereunder, require the Investors' advisors and representatives to
enter into a confidentiality agreement in form and content reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that
20
<PAGE>
it does not disseminate material non-public information to any investors who
purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein
to the contrary, the Company will, as hereinabove provided, promptly notify
the advisors and representatives of the Investors and, if any, underwriters,
of any event or the existence of any circumstance (without any obligation to
disclose the specific event or circumstance) of which it becomes aware,
constituting material non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in
the Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in
order to make the statements, therein in light of the circumstances in which
they were made, not misleading. Nothing contained in this Section 8.2 shall
be construed to mean that such persons or entities other than the Investors
(without the written consent of the Investors prior to disclosure of such
information as set forth in Section 8.2(a)) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. LEGENDS. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or
equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS
EXEMPT FROM SUCH REGISTRATION.
Section 9.2. TRANSFER AGENT INSTRUCTIONS. Upon Closing, the Company will
issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's
appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be
21
<PAGE>
irrevocable by the Company from and after the date hereof or from and after
the issuance thereof to any such substitute or replacement transfer agent, as
the case may be.
Section 9.3. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend
other than the one specified in Section 9.1 has been or shall be placed on
the share certificates representing the Registrable Securities and no
instructions or "stop transfer orders," "stock transfer restrictions," or
other restrictions have been or shall be given to the Company's transfer
agent with respect thereto other than as expressly set forth in this Article
IX.
Section 9.4. INVESTORS' COMPLIANCE. Nothing in this Article shall affect in
any way each Investor's obligations to comply with all applicable securities
laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. GOVERNING LAW/ARBITRATION. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
applicable to contracts made in New York by persons domiciled in New York
City and without regard to its principles of conflicts of laws. Any dispute
under this Agreement shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York, and shall be
finally and conclusively determined by the decision of a board of arbitration
consisting of three (3) members (hereinafter referred to as the "Board of
Arbitration") selected according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive business days in New York City, New
York, and shall reach and render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party
in respect of a claim filed. In connection with rendering its decisions, the
Board of Arbitration shall adopt and follow the laws of the State of New York
unless the matter at issue is the corporation law of the company's state of
incorporation, in which event the corporation law of such jurisdiction shall
govern such issue. To the extent practical, decisions of the Board of
Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and
entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment
against any party failing to participate in any proceeding hereunder within
the time periods set forth in the AAA rules. The non-prevailing party to any
arbitration (as determined by the Board of Arbitration) shall pay the
expenses of the prevailing party, including reasonable attorney's fees, in
connection with such arbitration. Any party shall be entitled to obtain
injunctive relief from a court in any case where such relief is available,
and the non-prevailing party in such injunctive action shall pay the expenses
of the prevailing party, including reasonable attorneys' fees, in connection
with such injunctive action.
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<PAGE>
ARTICLE XI
ASSIGNMENT
Section 11.1. ASSIGNMENT. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any permitted
transferee of any of the Convertible Debentures or Warrants purchased or
acquired by any Investor hereunder with respect to the Convertible Debentures
or Warrants held by such person, and (b) each Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any Affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to
be bound by the terms of this Agreement.
ARTICLE XII
NOTICES
Section 12.1. NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) hand delivered, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with
charges prepaid, or (iv) transmitted by facsimile, addressed as set forth
below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery
(if delivered other than on a business day during normal business hours where
such notice is to be received) or (b) on the first business day following the
date of sending by reputable courier service, fully prepaid, addressed to
such address, or (c) upon actual receipt of such mailing, if mailed. The
addresses for such communications shall be:
23
<PAGE>
If to the Company: Eco Soil Systems, Inc.
10740 Thornmint Road
San Diego, CA 92127
Attention: William B. Adams,
C.E.O.
Telephone: (858) 675-1660
Facsimile: (858) 676-8345
with a copy to (shall not constitute
notice): Latham & Watkins
701 B Street, Suite 2100
San Diego, CA 92101
Attention: Bruce Shepherd, Esq.
Telephone: (619) 238-2867
Facsimile: (619) 696-7419
if to the Investors: As set forth on the signature
pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving written notice of such
changed address or facsimile number to the other party hereto as provided in
this Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. COUNTERPARTS/FACSIMILE/AMENDMENTS. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which
shall be enforceable against the parties actually executing such counterparts
and all of which together shall constitute one and the same instrument.
Except as otherwise stated herein, in lieu of the original documents, a
facsimile transmission or copy of the original documents shall be as
effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties.
Section 13.2. ENTIRE AGREEMENT. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Certificate of
Designations, the Warrants, the Escrow Agreement and the Registration Rights
Agreement, set forth the entire agreement and
24
<PAGE>
understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part
of this Agreement as is fully set forth herein.
Section 13.3. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force
and effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement
to any party.
Section 13.4. HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 13.5. NUMBER AND GENDER. There may be one or more Investors parties
to this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if
there is only one Investor, and all references to an Investor as "it" shall
apply equally to a natural person.
Section 13.6. REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debentures or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the
Company (which shall not include the posting of any bond) or (iii) in the
case of any such mutilation, on surrender and cancellation of such
certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate of like tenor.
Section 13.7. FEES AND EXPENSES. Each of the Company and the Investors
agrees to pay its own expenses incident to the execution and delivery of this
Agreement and each agreement which is an Exhibit hereto, except that the
Company shall pay actual fees, expenses and disbursements relating to
accountant and legal and escrow fees of the Investors in an amount up to
$30,000 as set forth in the Escrow Agreement, irrespective of whether a
Closing occurs. The Company shall reimburse the Investors for their
reasonable expenses and legal fees incurred in enforcing this Agreement or in
any modifications or waivers with respect thereto.
Section 13.8. BROKERAGE. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other except for G.
Kopolow & Associates, The Shemano Group, Inc. and CIBC World Markets, whose
fees shall be paid by the Company. The Company on the one hand, and the
Investors, on the other hand, agree to indemnify the other against and hold
the other harmless from any and all liabilities to any person claiming
brokerage commissions or finder's fees on account of services purported to
have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
25
<PAGE>
Section 13.9. PUBLICITY. The Company agrees that it will not issue any
press release or other public announcement of the transactions contemplated
by this Agreement without the prior consent of the Investors, which shall not
be unreasonably withheld nor delayed by more than two (2) Trading Days from
their receipt of such proposed release. No release shall name the Investors
without their express consent.
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debentures and Warrants Purchase Agreement to be executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
Eco Soil Systems, Inc.
By:
------------------------------------------
Mark D. Buckner, Vice President
Agricultural Supply, Inc.
By:
------------------------------------------
Mark D. Buckner, Vice President
Turf Partners, Inc.
By:
------------------------------------------
Mark D. Buckner, Vice President
Sistemas Y Equipos Agricolas, S.A. de C.V.
By:
------------------------------------------
Mark D. Buckner, Vice President
Agricultural Supply de Mexico, S.A. de C.V.
By:
------------------------------------------
Mark D. Buckner, Vice President
26
<PAGE>
INVESTORS:
<TABLE>
<S> <C>
Address: 175 Bloor Street East Investor: BH Capital Investments, L.P.
South Tower, 7th Floor By: HB and Co., Inc., its General Partner
Toronto, Ontario, Canada M4W 3R8
Fax: 416-929-5314 By:
Total principal amount of Convertible --------------------------------------
Debentures to be purchased at closing: Name: Henry Brachfeld
$1,625,000 Authorized Signatory
Address: 33 Prince Arthur Avenue Investor: Excalibur Limited Partnership
Toronto, Ontario, Canada M5R 1B2 By: Excalibur Capital Management, Inc.,
Fax: 416-964-8868 its General Partner
Total principal amount of Convertible
Debentures to be purchased at closing: By:
$1,625,000 --------------------------------------
Name: William Hechter, President
Address: 4120 Yonge Street, Suite 416 Investor: Gundyco in trust for RSP 550-98866-19
Toronto, Ontario, Canada M2P 2B8
Fax: 416-443-2503
Total principal amount of Convertible
Debentures to be purchased at closing: By:
$750,000 --------------------------------------
Name: Mark Shoom, Authorized Signatory
Address: c/o Borden, Elliot, Scott & Investor: MB Capital Partners
Aylen By: MSM Management Corporation,
1000-60 Rue Queen Street its General Partner
Ottawa, Canada K1P 5Y7
Fax: 613-230-8842 : By:
--------------------------------------
Name: Timothy J. McCunn, President
Total principal amount of Convertible
Debentures to be purchased at closing:
$500,000
</TABLE>
27
<PAGE>
7% SENIOR SECURED CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE
RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
No. ___ US $_______
Eco Soil Systems, Inc. and Subsidiaries
7% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JANUARY 24, 2001
THIS DEBENTURE is issued jointly and severally by Eco Soil Systems,
Inc., a corporation organized and existing under the laws of the State of
Nebraska (the "Company") and its wholly-owned subsidiaries, Agricultural
Supply, Inc., a Delaware corporation, Turf Partners, Inc., a Delaware
corporation and the subsidiaries of Agricultural Supply, Agricultural Supply
de Mexico, S.A. de C.V. and Sistemas Y Equipos Agricolas, S.A. de C.V., each
incorporated in Mexico (all of such subsidiaries collectively being referred
to herein as the "Subsidiaries") and is designated as their 7% Senior Secured
Convertible Debenture Due January 24, 2001.
FOR VALUE RECEIVED, the Company promises to pay to _______________,
or permitted assigns (the "Holder"), the principal sum of
__________________________________________________ (US $__________) Dollars
plus a premium equal to ten percent of the outstanding principal balance on
the Maturity Date on January 24, 2001 (the "Maturity Date") and to pay
interest on the principal sum outstanding from time to time quarterly in
arrears at the rate of 7% per annum accruing from the date of initial
issuance. Accrual of interest shall commence on the first business day to
occur after the date of initial issuance and continue until payment in full
of the principal sum has been made or duly provided for. Quarterly interest
payments shall be due and payable on March 31, June 30, September 30 and
December 31 of each year, commencing with March 31, 2000. If any interest
payment date or the Maturity Date is not a business day in the State of New
York, then such payment shall be made on the next succeeding business day.
The interest on this Debenture is payable at the option of the Company, in
cash or in registered shares of Common Stock of the Company, $.005 par value
per share ("Common Stock") valued at the closing bid price of the Common
Stock on the interest payment date, at the address last appearing on the
Debenture Register of the
<PAGE>
Company as designated in writing by the Holder from time to time. The Company
will pay the principal of and any accrued but unpaid interest due upon this
Debenture on the Maturity Date, less any amounts required by law to be
deducted, to the registered holder of this Debenture and addressed to such
holder at the last address appearing on the Debenture Register. The
forwarding of such check shall constitute a payment of principal and interest
hereunder and shall satisfy and discharge the liability for principal and
interest on this Debenture to the extent of the sum represented by such check
plus any amounts deducted as required by law.
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any amounts
required to be withheld under the applicable provisions of the United States
income tax laws or other applicable laws at the time of such payments, and
Holder shall execute and deliver all required documentation in connection
therewith.
2. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. The Holder
shall deliver written notice to the Company of any proposed transfer of this
Debenture. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation including
legal opinions that the issuance of the Debenture in such other name does not
and will not cause a violation of the Act or any applicable state or foreign
securities laws. Prior to due presentment for transfer of this Debenture, the
Company and any agent of the Company may treat the person in whose name this
Debenture is duly registered on the Company's Debenture Register as the owner
hereof for the purpose of receiving payment as herein provided and for all
other purposes, whether or not this Debenture be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary. This
Debenture has been executed and delivered pursuant to the Convertible
Debentures and Warrants Purchase Agreement dated as of January 17, 2000
between the Company and the original Holder (the "Purchase Agreement"), and
is subject to the terms and conditions of the Purchase Agreement, which are,
by this reference, incorporated herein and made a part hereof. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
for such terms in the Purchase Agreement.
3. The Holder of this Debenture is entitled, at its
option, to convert at any time commencing on the date hereof, the principal
amount of this Debenture or any portion thereof, together with accrued but
unpaid interest into shares of Common Stock of the Company ("Conversion
Shares") at a conversion price for each share of Common Stock ("Conversion
Price") equal to the lowest of (a) $3.00 (adjusted for any subsequent stock
splits or the like), (b) the average of the closing bid prices on the
Principal Market during the period of five consecutive Trading Days ending
the day prior to the issuance date of the Debenture, or (c) 90% of the three
lowest closing bid prices on the Principal Market during the fifteen
consecutive Trading Days ending with the last Trading Day prior to the date
of conversion. In no event shall the Conversion Price be less than two-thirds
(66.67%) of the Conversion Price which would
2
<PAGE>
apply on the issuance date of this Debenture (the "Floor Price"), subject to
adjustment for any subsequent stock split or the like.
4. The Company shall at all times prior to the conversion
in full or payment in full of this Debenture reserve a sufficient number of
shares of Common Stock to permit the Holder to convert the entire principal
amount of this Debenture at the Floor Price.
5. The Company shall have the right to deliver to the
Holder a written notice of the Company's intent to redeem the entire
outstanding amount of this Debenture upon at least seven (7) Trading Days'
prior written notice, at a price equal to 110% of the average of the closing
bid prices of the Common Stock on the Principal Market for the five Trading
Days prior to the redemption date specified in such notice multiplied by the
number of shares which would otherwise be issuable upon conversion of the
entire principal balance hereof on such redemption date, plus all accrued but
unpaid interest. The Company shall make the redemption payment to the Holder
within two (2) Trading Days of the redemption date set forth in the Company
notice of redemption, or else the redemption notice shall be void, and the
Company shall thereafter not have any further right to redeem this Debenture.
The Holder shall have the right to convert this Debenture until the Trading
Day prior to the Trading Day set for payment of the redemption price.
6. Notwithstanding anything to the contrary contained
herein, unless the shareholders of the Company shall have approved such
issuance in accordance with the requirements of the Principal Market, in the
event that a conversion (when aggregated with all prior conversions of
portions of this Debenture and all other Debentures and Warrants issued
pursuant to the Purchase Agreement plus that number of shares of Common Stock
which the Company contemplates issuing in the near future subject to the
limitations set forth in Section 6.9(iii) of the Purchase Agreement) requires
the Company to issue a number of shares of Common Stock which would exceed
19.9% of the number of shares of Common Stock issued and outstanding on the
date of this Debenture, the Company shall issue only such number of shares of
Common Stock as shall not exceed such limit and shall pay the Holder cash in
the amount of the closing price on the Conversion Date for the number of
shares of Common Stock in excess of such number of shares into which this
Debenture (or the portion thereof then being converted) is then convertible
at the Conversion Price. Any payments under this Paragraph 6 shall be made to
an account designated in writing by the Holder to the Company when the Notice
of Conversion is given. The rights of all holders of Convertible Debentures
issued under the Purchase Agreement to convert their Convertible Debentures
into shares of Common Stock shall be prorated among such holders based on
their respective percentage holdings at the time of conversion of the
aggregate outstanding amount of all Convertible Debentures in order to comply
with the aforesaid overall limitation. Any conversion which is paid in cash
under this Paragraph 6 shall be paid within five (5) Trading Days of the
Conversion Date, or else the Company shall thereafter be unable to exercise
its redemption rights under Paragraph 5 with respect to the outstanding
Debentures.
7. [intentionally omitted]
3
<PAGE>
8. (a) Conversion shall be effectuated by surrendering
this Debenture to the Company (if such Conversion will convert all
outstanding principal) together with the form of conversion notice attached
hereto as Exhibit A (the "Notice of Conversion"), executed by the Holder of
this Debenture evidencing such Holder's intention to convert this Debenture
or a specified portion (as above provided) hereof, and accompanied, if
required by the Company, by proper assignment hereof in blank. Interest
accrued or accruing from the date of issuance to the date of conversion
shall, at the option of the Company, be paid in cash as set forth above or in
Common Stock upon conversion at the closing bid price on the Conversion Date.
No fraction of a share or scrip representing a fraction of a share will be
issued on conversion, but the number of shares issuable shall be rounded to
the nearest whole share. The date on which Notice of Conversion is given (the
"Conversion Date") shall be deemed to be the date on which the Holder faxes
the Notice of Conversion duly executed to the Company. Facsimile delivery of
the Notice of Conversion shall be accepted by the Company at facsimile number
(858) 676-8345 Attn.: Mark Buckner. Certificates representing Common Stock
upon conversion will be delivered to the Holder within three (3) Trading Days
from the date the Notice of Conversion is delivered to the Company. Delivery
of shares upon conversion shall be made to the address specified by the
Holder in the Notice of Conversion.
(b) The Company understands that a delay in the
issuance of shares of Common Stock upon a conversion beyond the four (4)
Trading Day period described in Paragraph 8(a) could result in economic loss
to the Holder. As compensation to the Holder for such loss, the Company
agrees to pay late payments to the Holder for late issuance of shares of
Common Stock upon conversion in accordance with the following schedule (where
"No. Trading Days Late" is defined as the number of Trading Days beyond four
(4) Trading Days from the date the Notice of Conversion is delivered to the
Company).
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
No. Trading Days Late Late Payment for Each
$5,000 of Principal Amount
Being Converted
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
1 $100
- ------------------------------------------------------------ ---------------------------------------------------------
2 $200
- ------------------------------------------------------------ ---------------------------------------------------------
3 $300
- ------------------------------------------------------------ ---------------------------------------------------------
4 $400
- ------------------------------------------------------------ ---------------------------------------------------------
5 $500
- ----------------------------------------------------------- ---------------------------------------------------------
6 $600
- ------------------------------------------------------------ ---------------------------------------------------------
7 $700
- ------------------------------------------------------------ ---------------------------------------------------------
8 $800
- ------------------------------------------------------------ ---------------------------------------------------------
9 $900
- ------------------------------------------------------------ ---------------------------------------------------------
10 $1,000
- ------------------------------------------------------------ ---------------------------------------------------------
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
4
<PAGE>
The Company shall pay any payments incurred under this
Paragraph 8(b) in immediately available funds upon demand. Nothing herein
shall limit Holder's right to pursue injunctive relief and/or actual damages
for the Company's failure to issue and deliver Common Stock to the holder,
including, without limitation, the Holder's actual losses occasioned by any
"buy-in" of Common Stock necessitated by such late delivery. Furthermore, in
addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of such shares
of Common Stock within four (4) Trading Days from the date the Notice of
Conversion is delivered to the Company, the Holder will be entitled to revoke
the relevant Notice of Conversion by delivering a notice to such effect to
the Company, whereupon the Company and the Holder shall each be restored to
their respective positions immediately prior to delivery of such Notice of
Conversion, and in such event no late payments shall be due in connection
with such withdrawn conversion.
(c) If at any time (a) the Company challenges,
disputes or denies the right of the Holder to effect the conversion of this
Debenture into Common Stock or otherwise dishonors or rejects any Notice of
Conversion delivered in accordance with this Paragraph 8 or (b) any Company
stockholder who is not and has never been an Affiliate (as defined in Rule
405 under the Securities Act of 1933, as amended) of the Holder obtains a
judgment or any injunctive relief from any court or public or governmental
authority which denies, enjoins, limits, modifies, delays or disputes the
right of the holder hereof to effect the conversion of this Debenture into
Common Stock, then the Holder shall have the right, by written notice, to
require the Company to promptly redeem this Debenture for cash at a
redemption price equal to one hundred thirty percent (130%) of the
outstanding principal amount hereof and all accrued and unpaid interest
hereon. Under any of the circumstances set forth above, the Company shall be
responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in
disputing any such action or pursuing its rights hereunder (in addition to
any other rights of the Holder), subject in the case of clause (b) to the
Company's right to control and assume the defense of any such action. In the
absence of an injunction precluding the same, the Company shall issue shares
upon a properly noticed conversion.
(d) The Holder shall be entitled to exercise its
conversion privilege notwithstanding the commencement of any case under 11
U.S.C. Section 101 ET SEQ. (the "Bankruptcy Code"). In the event the Company
is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C.
Section. 362 in respect of the Holder's conversion privilege.
9. No provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay
the principal of, and interest on, this Debenture at the time, place, and
rate, and in the coin or currency or shares of Common Stock, herein
prescribed. This Debenture is a direct obligation of the Company.
10. This Debenture is secured, PARI PASSU with all other
holders of the Company's 7% Senior Secured Debentures, by a security interest
in all assets of the Company and the Subsidiaries as set forth in a security
agreement dated as of January 17, 2000 among the original holders of the
Debentures, the Company and each Subsidiary.
5
<PAGE>
11. Payment of this Debenture is subject to the provisions
of those certain Intercreditor and Subordination Agreements between the
original holders of the Debentures and Coast Business Credit and First
National Bank of San Diego, respectively.
12. If the Company merges or consolidates with another
corporation or sells or transfers all or substantially all of its assets to
another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the
Company and any such successor, purchaser or transferee agree that the
Debenture may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture
might have been converted immediately before such merger, consolidation, sale
or transfer, subject to adjustments which shall be as nearly equivalent as
may be practicable. In the event of any proposed merger, consolidation or
sale or transfer of all or substantially all of the assets of the Company (a
"Sale"), the Holder hereof shall have the right to convert by delivering a
Notice of Conversion to the Company within fifteen (15) days of receipt of
notice of such Sale from the Company.
13. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York. Each of the parties
consents to the jurisdiction of the federal courts whose districts encompass
any part of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
14. Any one of the following shall constitute an "Event of
Default":
a. The Company or any Subsidiary shall default in the
payment of principal or interest on this Debenture
and same shall continue for a period of three (3)
days; or
b. Any of the representations or warranties made by
the Company or any Subsidiary herein, in the
Purchase Agreement, the Security Agreement, the
Registration Rights Agreement, or in any
agreement, certificate or financial or other
written statements heretofore or hereafter
furnished by the Company or any Subsidiary in
connection with the execution and delivery of this
Debenture or the Purchase Agreement or the
Security Agreement shall be false or misleading in
any material respect at the time made; or
c. The Company fails to issue shares of Common Stock
to the Holder or to cause its Transfer Agent to
issue shares of Common Stock upon exercise by the
Holder of the conversion rights of the Holder
6
<PAGE>
in accordance with the terms of this Debenture,
fails to transfer or to cause its Transfer Agent
to transfer any certificate for shares of Common
Stock issued to the Holder upon conversion of this
Debenture as and when required by this Debenture
or the Registration Rights Agreement, and such
transfer is otherwise lawful, or fails to remove
any restrictive legend or to cause its Transfer
Agent to transfer any certificate or any shares of
Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this
Debenture, the Purchase Agreement or the
Registration Rights Agreement and such legend
removal is otherwise lawful, and any such failure
shall continue uncured for five (5) business days;
or
d. The Company or any Subsidiary shall fail to
perform or observe, in any material respect, any
other covenant, term, provision, condition,
agreement or obligation of the Company under the
Purchase Agreement, the Security Agreement, the
Registration Rights Agreement or this Debenture
and such failure shall continue uncured for a
period of thirty (30) days after written notice
from the Holder of such failure (it being
understood that if the Company cannot achieve or
maintain the effectiveness of the Registration
Statement but continues to use its best efforts to
achieve such effectiveness and otherwise complies
with the terms of the Registration Rights
Agreement, its failure to achieve or maintain
effectiveness of the Registration Statement shall
not be deemed a breach for purposes of this
subsection d., so long as the Company makes timely
payment of the liquidated damages provided for in
Section 3 of the Registration Rights Agreement); or
e. The Company or any Subsidiary shall (1) admit in
writing its inability to pay its debts generally
as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for
its dissolution; or (3) apply for or consent to
the appointment of a trustee, liquidator or
receiver for its or for a substantial part of its
property or business; or
f. A trustee, liquidator or receiver shall be
appointed for the Company or any Subsidiary or for
a substantial part of its property or business
without its consent and shall not be discharged
within sixty (60) days after such appointment; or
g. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the
whole or any substantial portion of the properties
or assets of the Company or any Subsidiary and
shall not be dismissed within sixty (60) days
thereafter; or
7
<PAGE>
h. Any money judgment, writ or warrant of attachment,
or similar process in excess of One Hundred
Thousand ($100,000) Dollars in the aggregate shall
be entered or filed against the Company or any
Subsidiary or any of its properties or other
assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60)
days or in any event later than five (5) days
prior to the date of any proposed sale thereunder;
or
i. Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or
against the Company or any Subsidiary and, if
instituted against the Company or any Subsidiary,
shall not be dismissed within sixty (60) days
after such institution or the Company or any
Subsidiary shall by any action or answer approve
of, consent to, or acquiesce in any such
proceedings or admit the material allegations of,
or default in answering a petition filed in any
such proceeding; or
j. Any holder of Senior Debt or any holder of other
indebtedness of the Company or any Subsidiary for
borrowed money shall declare an Event of Default
pursuant to the documents evidencing such
indebtedness, or such other lender takes any other
action to collect any part of such debt other than
regularly scheduled payments of principal or
interest; or
k. The Company shall have its Common Stock suspended
or delisted from trading on a Principal Market for
in excess of two (2) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and the Holder may immediately enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
15. Nothing contained in this Debenture shall be construed
as conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
16. In no event shall the Holder be permitted to convert
this Debenture for shares of Common Stock in excess of the amount of this
Debenture upon the conversion of which, (x) the number of shares of Common
Stock owned by such Holder (other than shares of
8
<PAGE>
Common Stock issuable upon conversion of this Debenture) plus (y) the number
of shares of Common Stock issuable upon conversion of this Debenture, would
be equal to or exceed 9.9% of the number of shares of Common Stock then
issued and outstanding, including shares issuable upon conversion of this
Debenture held by such Holder after application of this Paragraph 16. As used
herein, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder. To the extent that the limitation contained in this
Paragraph 16 applies, the determination of whether this Debenture is
convertible (in relation to other securities owned by the Holder) and of
which a portion of this Debenture is convertible shall be in the sole
discretion of such Holder, and the submission of a Notice of Conversion shall
be deemed to be such Holder's determination of whether this Debenture is
convertible (in relation to other securities owned by such holder) and of
which portion of this Debenture is convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. Nothing contained
herein shall be deemed to restrict the right of a holder to convert this
Debenture into shares of Common Stock at such time as such conversion will
not violate the provisions of this Paragraph 16. The provisions of this
Paragraph 16 may be waived by the Holder of this Debenture upon not less than
75 days' prior notice to the Company, and the provisions of this Paragraph 16
shall continue to apply until such 75th day (or such later date as may be
specified in such notice of waiver). No conversion of this Debenture in
violation of this Paragraph 16 but otherwise in accordance with this
Debenture shall affect the status of the Common Stock issued upon such
conversion as validly issued, fully-paid and nonassessable.
9
<PAGE>
IN WITNESS WHEREOF, the Company and the Subsidiaries have caused
this instrument to be duly executed by their respective officers thereunto
duly authorized.
Dated: January 24, 2000
Eco Soil Systems, Inc.
By:
------------------------------------------
Mark D. Buckner, Vice President
Turf Partners, Inc.
By:
------------------------------------------
Mark D. Buckner, Vice President
Agricultural Supply, Inc.
By:
------------------------------------------
Mark D. Buckner, Vice President
Sistemas Y Equipos Agricolas, S.A. de C.V.
By:
------------------------------------------
Mark D. Buckner, Vice President
Agricultural Supply de Mexico, S.A. de C.V.
By:
------------------------------------------
Mark D. Buckner, Vice President
10
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $______________
of the principal amount of the above Debenture No. ___ into Shares of Common
Stock of ECO SOIL SYSTEMS, INC. (the "Company") according to the conditions
hereof, as of the date written below.
Date of Conversion*
----------------------------------------------------------
Applicable Conversion Price *
------------------------------------------------
Accrued Interest
-------------------------------------------------------------
Signature
--------------------------------------------------------------------
[Name]
Address:
---------------------------------------------------------------------
---------------------------------------------------------------------
11
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Principal Amount
Name of Debentures
- ---- ----------------
<S> <C>
BH Capital Investments, L.P. $ 1,625,000.00
Excalibur Limited Partnership $ 1,625,000.00
Gundyco in trust for RSP 550-98866-19 $ 750,000.00
MB Capital Partners $ 500,000.00
</TABLE>
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE
HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase ____ Shares of Common Stock of
Eco Soil Systems, Inc.
THIS CERTIFIES that, for value received, [INVESTOR] (the "Holder"),
is entitled, upon the terms and subject to the conditions hereinafter set
forth, at any time on or after the date hereof (the "Initial Exercise Date")
and on or prior to the close of business on January 24, 2005 (the
"Termination Date") but not thereafter, to subscribe for and purchase from
Eco Soil Systems, Inc., a corporation incorporated in Nebraska (the
"Company"), up to [NUMBER] (#) shares (the "Warrant Shares") of Common Stock,
$0.005 par value, of the Company (the "Common Stock"). The initial purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be $4.488, as set forth in the Convertible Debentures and Warrants
Purchase Agreement dated as of January 17, 2000 pursuant to which this
Warrant has been issued (the "Purchase Agreement"). The Exercise Price and
the number of shares for which the Warrant is exercisable shall be subject to
adjustment as provided herein. In the event of any conflict between the terms
of this Warrant and the Purchase Agreement, the Purchase Agreement shall
control. Capitalized terms used and not otherwise defined herein shall have
the meanings set forth for such terms in the Purchase Agreement.
<PAGE>
1. TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
2. AUTHORIZATION OF SHARES. The Company covenants that all shares
of Common Stock which may be issued upon the exercise of rights represented
by this Warrant will, upon exercise of the rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).
3. EXERCISE OF WARRANT. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at
any time or times on or after the Initial Exercise Date, and before the close
of business on the Termination Date by the surrender of this Warrant and the
Notice of Exercise Form annexed hereto duly executed, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such
holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased by wire transfer or cashier's
check drawn on a United States bank, the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. This Warrant may also be exercised in whole or in part by means of
a "cashless exercise" by means of tendering this Warrant to the Company to
receive a number of shares of Common Stock equal in Market Value to the
difference between the Market Value of the shares of Common Stock issuable
upon such exercise of this Warrant and the total cash exercise price of that
part of the Warrant being exercised. Market Value for this purpose shall be
the last trade on the Trading Day of such cashless exercise. Certificates for
shares purchased hereunder shall be delivered to the holder hereof within
three (3) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by payment to the Company of the Exercise
Price and all taxes required to be paid by Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid. If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase
the unpurchased shares of Common Stock called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
2
<PAGE>
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made
without charge to the holder hereof for any issue tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes
and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as
may be directed by the holder of this Warrant; provided, however, that in the
event certificates for shares of Common Stock are to be issued in a name
other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof and the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
6. CLOSING OF BOOKS. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant.
7. TRANSFER, DIVISION AND COMBINATION. (a) Subject to compliance
with any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company, together with a written assignment of
this Warrant substantially in the form attached hereto duly executed by
Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
or denominations specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of
shares of Common Stock without having a new Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Section 7(a), as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of the
Warrants.
8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender
of this Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the later of the
date of such surrender or payment.
3
<PAGE>
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant certificate or any stock certificate relating to the Warrant Shares,
and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which shall not include the posting of any
bond except as required by the Company's transfer agent), and upon surrender
and cancellation of such Warrant or stock certificate, if mutilated, the
Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday, Sunday or legal holiday.
11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
(a) ADJUSTMENT AFTER 180 DAYS. The Exercise Price shall
be adjusted to equal 110% of the five day average of the closing bid prices
of the Common Stock calculated on the 180th day after the date of issuance of
this Warrant, if such adjusted Exercise Price would be lower than the initial
Exercise Price (adjusted for any stock splits etc.), and otherwise shall
remain at the initial Exercise Price.
(b) STOCK SPLITS, ETC. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the happening of any of the
following. In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue any shares of its capital stock in a reclassification of
the Common Stock, then the number of Warrant Shares purchasable upon exercise
of this Warrant immediately prior thereto shall be adjusted so that the
holder of this Warrant shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which he would have owned
or have been entitled to receive had such Warrant been exercised in advance
thereof. Upon each such adjustment of the kind and number of Warrant Shares
or other securities of the Company which are purchasable hereunder, the
holder of this Warrant shall thereafter be entitled to purchase the number of
Warrant Shares or other securities resulting from such adjustment at an
Exercise Price per Warrant Share or other security obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the
number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other
securities of the Company resulting from such adjustment. An adjustment made
pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(c) REORGANIZATION, RECLASSIFICATION, MERGER,
CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize
its capital, reclassify its capital stock, consolidate or merge with or into
another corporation (where the Company is not the
4
<PAGE>
surviving corporation or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares
of stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu
of common stock of the successor or acquiring corporation ("Other Property"),
are to be received by or distributed to the holders of Common Stock of the
Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of
assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the Company)
shall expressly assume in writing or by operation of law the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is
not preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or
upon the arrival of a specified date or the happening of a specified event
and any warrants or other rights to subscribe for or purchase any such stock.
The foregoing provisions of this Section 11 shall similarly apply to
successive reorganizations, reclassifications, mergers, consolidations or
disposition of assets.
12. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
13. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares (and other securities or property) after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made. Such notice, in the absence of manifest error, shall be conclusive
evidence of the correctness of such adjustment.
5
<PAGE>
14. NOTICE OF CORPORATE ACTION. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property,
assets or business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i)
at least 10 days' prior written notice of the record date for such dividend,
distribution or right or for determining rights to vote in respect of any
such reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 20 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution
or right, the date on which the holders of Common Stock shall be entitled to
any such dividend, distribution or right, and the amount and character
thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is expected to take place and the
time, if any such time is to be fixed, as of which the holders of Common
Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such disposition, dissolution,
liquidation or winding up. Each such written notice shall be sufficiently
given if addressed to Holder at the last address of Holder appearing on the
books of the Company and delivered in accordance with Section 16(d).
15. AUTHORIZED SHARES. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights under
this Warrant. The Company further covenants that its issuance of this Warrant
shall constitute full authority to its officers who are charged with the duty
of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may
be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the Principal Market upon which the Common Stock may be
listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid
6
<PAGE>
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder against impairment. Without
limiting the generality of the foregoing, the Company will (a) not increase
the par value of any shares of Common Stock receivable upon the exercise of
this Warrant above the amount payable therefor upon such exercise immediately
prior to such increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise
of this Warrant, and (c) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant
and the obligations of the Company hereunder.
Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company
shall take any corporate action which may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such Common Stock at such adjusted Exercise Price.
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
16. MISCELLANEOUS.
(a) JURISDICTION. This Warrant shall constitute a
contract under the laws of New York without regard to its conflict of law,
principles or rules, and be subject to arbitration pursuant to the terms set
forth in the Purchase Agreement.
(b) RESTRICTIONS. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities
laws.
(c) NONWAIVER AND EXPENSES. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights,
powers or remedies, notwithstanding all rights hereunder terminate on the
Termination Date. If the Company fails to comply with any provision of this
Warrant, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by Holder
in collecting any amounts due pursuant hereto or in otherwise enforcing any
of its rights, powers or remedies hereunder.
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<PAGE>
(d) NOTICES. Any notice, request or other document
required or permitted to be given or delivered to the holder hereof by the
Company shall be delivered in accordance with the notice provisions of the
Purchase Agreement.
(e) LIMITATION OF LIABILITY. No provision hereof, in the
absence of affirmative action by Holder to purchase shares of Common Stock,
and no enumeration herein of the rights or privileges of Holder hereof, shall
give rise to any liability of Holder for the purchase price of any Common
Stock or as a stockholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
(f) REMEDIES. Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Warrant and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(g) SUCCESSORS AND ASSIGNS. Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the
Company and the successors and permitted assigns of Holder. The provisions of
this Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant and shall be enforceable by any such Holder or holder of
Warrant Shares.
(h) INDEMNIFICATION. The Company agrees to indemnify and
hold harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys'
fees, expenses and disbursements of any kind which may be imposed upon,
incurred by or asserted against Holder in any manner relating to or arising
out of any failure by the Company to perform or observe in any material
respect any of its covenants, agreements, undertakings or obligations set
forth in this Warrant; PROVIDED, HOWEVER, that the Company will not be liable
hereunder to the extent that any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses or disbursements are found in a final non-appealable judgment by a
court to have resulted from Holder's negligence, bad faith or willful
misconduct in its capacity as a stockholder or warrantholder of the Company.
(i) AMENDMENT. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.
(j) SEVERABILITY. Wherever possible, each provision of
this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.
(k) HEADINGS. The headings used in this Warrant are for
the convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: January 24, 2000
Eco Soil Systems, Inc.
By:
------------------------------------------
Mark D. Buckner, Vice President
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<PAGE>
NOTICE OF EXERCISE
To: Eco Soil Systems, Inc.
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of Eco Soil Systems, Inc. pursuant to the
terms of the attached Warrant, and [ ] tenders herewith payment of the
exercise price in full OR [ ] tenders the Warrant for cashless exercise,
together with all applicable transfer taxes, if any.
(2) Calculation of cashless exercise value, if applicable: ________
_____________________________________________________________________________
___________________
(3) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
Dated:
-------------------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ,
--------------- -------
Holder's Signature:
----------------------------------------
Holder's Address:
----------------------------------------
----------------------------------------
Signature Guaranteed:
------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Name Warrants
- ---- --------
<S> <C>
BH Capital Investments, L.P. 128,713
Excalibur Limited Partnership 128,713
Gundyco in trust for RSP 550-98866-19 59,406
MB Capital Partners 39,604
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 17, 2000,
between the investor or investors signatory hereto (each an "Investor" and
together the "Investors"), and Eco Soil Systems, Inc., a Nebraska corporation
(the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investors are purchasing from the Company, pursuant to a
Convertible Debentures and Warrants Purchase Agreement dated the date hereof
(the "Purchase Agreement"), $4,500,000 principal amount of Convertible
Debentures and Warrants to purchase shares of the Company's Common Stock
(terms not defined herein shall have the meanings ascribed to them in the
Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investors the
registration rights set forth herein with respect to the Conversion Shares of
Common Stock issuable upon conversion of the Convertible Debentures purchased
pursuant to the Purchase Agreement or issued as interest thereon, and shares
of Common Stock issuable upon exercise of the Warrants (hereinafter referred
to as the "Stock" or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. REGISTRABLE SECURITIES. As used herein the term
"Registrable Security" means the Securities until (i) the Registration
Statement has been declared effective by the SEC, and all Securities have
been disposed of pursuant to the Registration Statement, (ii) all Securities
have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Securities have been otherwise
transferred to holders who may trade such Securities without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such Securities not bearing a restrictive
legend or (iv) such time as, in the opinion of counsel to the Company, all
Securities may be sold within a three-month period pursuant to Rule 144 (or
any similar provision then in effect). The term "Registrable Securities"
means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be
made in the definition of "Registrable Security" as is appropriate in order
to prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.
Section 2. RESTRICTIONS ON TRANSFER. Each Investor acknowledges
and understands that prior to the registration of the Securities as provided
herein, the Securities are "restricted securities" as defined in Rule 144
promulgated under the Act. Each Investor understands that no disposition or
transfer of the Securities may be made by Investor in the absence of (i) an
opinion of counsel to the Investor, in form and substance reasonably
satisfactory to the Company, that such transfer may be made without
registration under the Securities Act or (ii) such registration.
<PAGE>
With a view to making available to the Investors the
benefits of Rule 144 under the Securities 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) comply with the provisions of paragraph (c)(1) of Rule
144; and
(b) file with the SEC in a timely manner all reports and
other documents required to be filed with the SEC pursuant to Section 13 or
15(d) under the Exchange Act by companies subject to either of such sections,
irrespective of whether the Company is then subject to such reporting
requirements.
Section 3. REGISTRATION RIGHTS WITH RESPECT TO THE SECURITIES.
(a) The Company agrees that it will prepare and file with
the SEC, at the earliest opportunity, but in no event later than the earlier
of forty-five (45) days after the Closing Date or the filing of another
registration statement for another purpose on a form which would allow
registration of the Registrable Securities sold at the Closing, a
registration statement (on Form S-3, or other appropriate registration
statement form) under the Securities Act (the "Registration Statement"), at
the sole expense of the Company (except as provided in Section 3(c) hereof),
in respect of the Investors, so as to permit a public offering and resale of
the Securities issuable in connection with the Convertible Debentures and
Warrants under the Act by the Investors as selling stockholders and not as
underwriters.
The Company shall use its best efforts to cause the
Registration Statement to become effective within ninety (90) days from the
Closing Date (or 120 days if such Registration Statement receives a "full
review" from the SEC staff, which shall not include a "plain English" or
"Plan of Distribution" review), or, if earlier, within five (5) days of SEC
clearance to request acceleration of effectiveness. The number of shares
designated in the Registration Statement to be registered shall include all
the Warrant Shares, at least the number of shares initially issuable upon
conversion of the Convertible Debentures at the minimum Conversion Price, and
such number of shares as the Company deems prudent for the purpose of issuing
shares of Common Stock as interest on the Convertible Debentures, and shall
include appropriate language regarding reliance upon Rule 416 to the extent
permitted by the SEC. The Company will notify the Investors of the
effectiveness of each Registration Statement within one Trading Day of such
event.
(b) The Company will maintain the Registration Statement
or post-effective amendment filed under this Section 3 effective under the
Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and
outstanding, (ii) the date that all of the Securities have been sold pursuant
to such Registration Statement, (iii) the date that all of the Securities
that have not been sold thereunder may be sold under the provisions of Rule
144 within a three-month period, (iv) all Securities have been otherwise
transferred to persons who may trade such shares without restriction under
the Securities Act, and the Company has delivered a new certificate or other
2
<PAGE>
evidence of ownership for such securities not bearing a restrictive legend,
or (v) all Securities may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) or any similar provision then in effect
under the Securities Act (the "Effectiveness Period").
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing
of the Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees of the Company) shall be borne by the Company. The Investors
shall bear the cost of underwriting and/or brokerage discounts, fees and
commissions, if any, applicable to the Securities being registered and the
fees and expenses of their counsel. The Investors and their counsel shall
have a reasonable period, not to exceed five (5) Trading Days, to review the
proposed Registration Statement or any amendment thereto, prior to filing
with the SEC, and the Company shall provide each Investor with copies of any
comment letters received from the SEC with respect thereto within two (2)
Trading Days of receipt thereof. The Company shall qualify any of the
securities for sale in such states as any Investor reasonably designates and
shall furnish indemnification in the manner provided in Section 6 hereof.
However, the Company shall not be required to qualify in any state which will
require an escrow or other restriction relating to the Company and/or the
sellers, or which will require the Company to qualify to do business in such
state or require the Company to file therein any general consent to service
of process. The Company at its expense will supply the Investors with copies
of the Registration Statement and the prospectus included therein and other
related documents in such quantities as may be reasonably requested by the
Investors.
(d) The Company shall not be required by this Section 3 to
include an Investor's Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Investor and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Investor and the
Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144
under the Securities Act.
(e) In the event that (i) the Registration Statement is
not filed with the SEC within forty-five (45) days from the Closing Date,
(ii) such Registration Statement is not declared effective by the SEC within
the earlier of ninety (90) days from the Closing Date (or 120 days in the
event of a "full review") or five (5) days of clearance by the SEC to request
effectiveness, or (iii) such Registration Statement is not maintained as
effective by the Company for the period set forth in Section 3(b) above and
subject to Section 3(g) below (each a "Registration Default") then the
Company will pay Investor (pro rated on a daily basis), as liquidated damages
for such failure and not as a penalty two percent (2%) of the aggregate
market value of shares of Common Stock purchased from the Company (including
the Conversion Shares which would be issuable upon conversion of the
Convertible Debentures on any date of determination, and whether or not the
Convertible Debentures are then convertible pursuant to their terms) and held
by the Investor for the first month and three percent (3%) for every month
thereafter until such Registration Statement has been filed, and in the event
of late effectiveness (in case of clause (ii) above) or lapsed effectiveness
(in the case of clause (iii)
3
<PAGE>
above), two percent (2%) of the aggregate market value of shares of Common
Stock purchased from the Company and held by the Investor (including the
Conversion Shares which would be issuable upon conversion of the Convertible
Debentures on any date of determination, and whether or not the Convertible
Debentures are then convertible pursuant to their terms) for the first month
and three percent (3%) for every month thereafter (provided only one set of
liquidated damages shall be payable whether one or more such Registration
Defaults are then in existence) until such Registration Statement has been
declared effective. Such payment of the liquidated damages shall be made to
the Investors in cash, within five (5) calendar days of demand, provided,
however, that the payment of such liquidated damages shall not relieve the
Company from its obligations to register the Securities pursuant to this
Section. The market value of the Common Stock for this purpose shall be the
closing price (or last trade, if so reported) on the Principal Market for
each day during such Registration Default.
If the Company does not remit the payment to the Investors
as set forth above, the Company will pay the Investors reasonable costs of
collection, including attorneys' fees, in addition to the liquidated damages.
The registration of the Securities pursuant to this provision shall not
affect or limit the Investors' other rights or remedies as set forth in this
Agreement.
(f) The Company shall not include any securities other
than the Registrable Securities in any Registration Statement which it is
required to file pursuant to this Section 3, except with the prior written
consent of all Investors, other than (i) 402,208 shares held by Albion
Alliance Mezzanine Fund LP and Paribas Capital Funding LLC, provided that
such holders shall have agreed in writing with the Company and the Investors
that they shall not sell more than 100,000 shares every ninety (90) days from
the Effective Date, and their stock certificates shall have been legended to
such effect, (ii) up to one million shares privately issued to other
institutional investors, provided such other transaction closes within the
initial filing deadline provided for herein and does not cause any delay in
the filing of the Registration Statement and (iii) other issued and
outstanding shares of Common Stock and shares of Common Stock issuable upon
exercise of issued and outstanding warrants and options, held by persons with
rights to require the inclusion of such shares in the Registration Statement,
but, except as set forth in clause (i) above, not including shares held by or
issuable to Albion or Paribas.
(g) If at any time or from time to time after the
effective date of the Registration Statement, the Company notifies the
Investors in writing of the existence of a Potential Material Event (as
defined in Section 3(h) below), the Investors shall not offer or sell any
Securities or engage in any other transaction involving or relating to
Securities, from the time of the giving of notice with respect to a Potential
Material Event until the Investors receive written notice from the Company
that such Potential Material Event either has been disclosed to the public or
no longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Securities for more
than twenty (20) days in the aggregate during any twelve month period, during
the period the Registration Statement is required to be in effect, without
such event being a Registration Default. If a Potential Material Event shall
occur prior to the date the Registration Statement is required to be filed,
then the Company's obligation to file the Registration Statement shall be
delayed without penalty for not more than thirty (30) days, and such delay or
delays shall not constitute a
4
<PAGE>
Registration Default. The Company must, if lawful, give the Investors notice
in writing at least two (2) Trading Days prior to the first day of the
blackout period.
(h) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not ripe for
disclosure in a registration statement, as determined in good faith by the
Chief Executive Officer or the Board of Directors of the Company that
disclosure of such information in a Registration Statement would be
detrimental to the business and affairs of the Company; or (b) any material
engagement or activity by the Company which would, in the good faith
determination of the Chief Executive Officer or the Board of Directors of the
Company, be adversely affected by disclosure in a registration statement at
such time, which determination shall be accompanied by a good faith
determination by the Chief Executive Officer or the Board of Directors of the
Company that the applicable Registration Statement would be materially
misleading absent the inclusion of such information.
Section 4. COOPERATION WITH COMPANY. The Investors will cooperate
with the Company in all respects in connection with this Agreement, including
timely supplying all information reasonably requested by the Company (which
shall include all information regarding the Investors and proposed manner of
sale of the Registrable Securities required to be disclosed in the
Registration Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the Registrable
Securities and entering into and performing their obligations under any
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering. Nothing in this Agreement shall obligate any Investor
to consent to be named as an underwriter in any Registration Statement. The
obligation of the Company to register all of the Registrable Securities shall
be absolute and unconditional as to those Securities which the SEC will
permit to be registered without naming the Investors as underwriters.
Section 5. REGISTRATION PROCEDURES. If and whenever the Company is
required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible, subject to the Investors' assistance and cooperation as reasonably
required with respect to the Registration Statement:
(a) (i) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Act with respect to the
sale or other disposition of all securities covered by such registration
statement whenever the Investors shall desire to sell or otherwise dispose of
the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful
action such that each of (A) the Registration Statement and any amendment
thereto does not, when it becomes effective, contain an 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
under which they were made, not misleading and (B) the prospectus forming
part of the Registration Statement, and any amendment or supplement thereto,
does not at any
5
<PAGE>
time during the Registration Period include an 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 under
which they were made, not misleading;
(b) (i) prior to the filing with the SEC of any
Registration Statement (including any amendments thereto) and the
distribution or delivery of any prospectus (including any supplements
thereto), provide draft copies thereof to the Investors as required by
Section 3(c) and reflect in such documents all such comments as the Investors
(and their counsel) reasonably may propose respecting the Selling
Shareholders and Plan of Distribution sections (or equivalents) and (ii)
furnish to each Investor such numbers of copies of a prospectus including a
preliminary prospectus or any amendment or supplement to any prospectus, as
applicable, in conformity with the requirements of the Act, and such other
documents, as such Investor may reasonably request in order to facilitate the
public sale or other disposition of the securities owned by such Investor;
(c) register and qualify the Registrable Securities
covered by the Registration Statement under such other securities or blue sky
laws of such jurisdictions as the Investors shall reasonably request (subject
to the limitations set forth in Section 3(c) above), and do any and all other
acts and things which may be necessary or advisable to enable each Investor
to consummate the public sale or other disposition in such jurisdiction of
the securities owned by such Investor;
(d) list such Registrable Securities on the Principal
Market, if the listing of such Registrable Securities is then permitted under
the rules of such Principal Market;
(e) notify each Investor at any time when a prospectus
relating thereto covered by the Registration Statement is required to be
delivered under the Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing, and the Company shall prepare and file a
curative amendment under Section 5(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware of
such event, notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of
the issuance by the SEC of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates
for the Registrable Securities to be in such denominations or amounts, as the
case may be, as the Investors reasonably may request and registered in such
names as the Investors may request; and, within three (3) Trading Days after
a Registration Statement which includes Registrable Securities is declared
effective by the SEC, deliver and
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cause legal counsel selected by the Company to deliver to the transfer agent
for the Registrable Securities (with copies to the Investors) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(h) take all such other lawful actions reasonably
necessary to expedite and facilitate the disposition by the Investors of
their Registrable Securities in accordance with the intended methods therefor
provided in the prospectus which are customary for issuers to perform under
the circumstances;
(i) in the event of an underwritten offering, promptly
include or incorporate in a prospectus supplement or post-effective amendment
to the Registration Statement such information as the managers reasonably
agree should be included therein and to which the Company does not reasonably
object and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such Prospectus supplement or
post-effective amendment; and
(j) maintain a transfer agent and registrar for its Common
Stock.
Section 6. INDEMNIFICATION.
(a) To the maximum extent permitted by law, the Company
agrees to indemnify and hold harmless the Investors and each person, if any,
who controls an Investor within the meaning of the Securities Act (each a
"Distributing Investor") against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include,
but not be limited to, all reasonable costs of defense and investigation and
all reasonable attorneys' fees and expenses), to which the Distributing
Investor may become subject, under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration
Statement, or any related final prospectus or amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that the
Company will not be liable in any such case to the extent, and only to the
extent, that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Investor, its counsel, affiliates or any underwriter,
specifically for use in the preparation thereof. In addition, the Company
shall not be liable hereunder to the extent a Distributing Investor caused
such losses etc. by failing to deliver the final prospectus or any amendment
or supplement thereto. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each
Distributing Investor agrees that it will indemnify and hold harmless the
Company, and each officer and director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of
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this Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees and expenses) to
which the Company or any such officer, director or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, or any related final
prospectus or amendment or supplement thereto, or arise out of or are based
upon (i) failure by such Distributing Investor to deliver the final
prospectus or any amendment or supplement thereto, or (ii) the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in
each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, final prospectus or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
such Distributing Investor, its counsel, affiliates or any underwriter,
specifically for use in the preparation thereof. This indemnity agreement
will be in addition to any liability which the Distributing Investor may
otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action against such
indemnified party, such indemnified party will, if a claim in respect thereof
is to be made against the indemnifying party under this Section 6, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve the indemnifying party
from any liability which it may have to any indemnified party except to the
extent the failure of the indemnified party to provide such written
notification actually prejudices the ability of the indemnifying party to
defend such action. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified parties as a group
shall have the right to employ one separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying
party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party unless (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying
party, or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by its counsel that there may
be one or more legal defenses available to the indemnifying party different
from or in conflict with any legal defenses which may be available to the
indemnified party or any other indemnified party (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable only for the reasonable fees and expenses of
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one separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party). No settlement of any action
against an indemnified party shall be made without the prior written consent
of the indemnified party, which consent shall not be unreasonably withheld so
long as such settlement includes a full release of claims against the
indemnified party.
Section 7. CONTRIBUTION. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6
hereof but is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that the express
provisions of Section 6 hereof provide for indemnification in such case, or
(ii) contribution under the Securities Act may be required on the part of any
indemnified party, then the Company and the applicable Distributing Investor
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or the applicable Distributing Investor on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Distributing Investor agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 7. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in
this Section 7 shall be deemed to include any reasonable legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall any
(i) Investor be required to undertake liability to any person under this
Section 7 for any amounts in excess of the dollar amount of the proceeds
received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are registered under the Securities Act and (ii) underwriter be
required to undertake liability to any person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by
it and distributed pursuant to such Registration Statement.
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Section 8. NOTICES. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
delivered as provided in the Purchase Agreement.
Section 9. ASSIGNMENT. This Agreement is binding upon and inures
to the benefit of the parties hereto and their respective heirs, successors
and permitted assigns. The rights granted the Investors under this Agreement
may be assigned to any purchaser of any of the Registrable Securities (or the
rights thereto) from an Investor, as otherwise permitted by the Purchase
Agreement.
Section 10. ADDITIONAL COVENANTS OF THE COMPANY. The Company
agrees that at such time as it otherwise meets the requirements for the use
of Securities Act Registration Statement on Form S-3 for the purpose of
registering the Registrable Securities, it shall file all reports and
information required to be filed by it with the SEC in a timely manner and
take all such other action so as to maintain such eligibility for the use of
such form.
Section 11. COUNTERPARTS/FACSIMILE. This Agreement may be executed
in two or more counterparts, each of which shall constitute an original, but
all of which, when together shall constitute but one and the same instrument,
and shall become effective when one or more counterparts have been signed by
each party hereto and delivered to the other parties. In lieu of the
original, a facsimile transmission or copy of the original shall be as
effective and enforceable as the original.
Section 12. REMEDIES. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their best efforts
to find and employ an alternative means to achieve the same or substantially
the same result as that contemplated by such term, provision, covenant or
restriction.
Section 13. CONFLICTING AGREEMENTS. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with
the rights granted to the holders of Registrable Securities in this Agreement
or otherwise prevents the Company from complying with all of its obligations
hereunder.
Section 14. HEADINGS. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 15. GOVERNING LAW, ARBITRATION. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York applicable to contracts made in New York by persons domiciled in New
York City and without regard to its principles of conflicts of laws. Any
dispute under this Agreement shall be submitted to arbitration under the
American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3)
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members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet
on consecutive business days in New York City, New York, and shall reach and
render a decision in writing (concurred in by a majority of the members of
the Board of Arbitration) with respect to the amount, if any, which the
losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more
than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to
be delivered to all parties involved in the dispute. Any decision made by the
Board of Arbitration (either prior to or after the expiration of such thirty
(30) calendar day period) shall be final, binding and conclusive on the
parties to the dispute, and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction. The
Board of Arbitration shall be authorized and is hereby directed to enter a
default judgment against any party failing to participate in any proceeding
hereunder within the time periods set forth in the AAA rules. The
non-prevailing party to any arbitration (as determined by the Board of
Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorneys' fees, in connection with such arbitration. Any party
shall be entitled to obtain injunctive relief from a court in any case where
such relief is available. The non-prevailing party to any injunctive
proceeding (as determined by the court) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in connection with
such injunctive proceeding.
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IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
Eco Soil Systems, Inc.
By:
------------------------------------------
Mark D. Buckner, Vice President
Investor: BH Capital Investments, L.P.
By: HB and Co., Inc., its General Partner
By:
------------------------------------------
Name: Henry Brachfeld
Authorized Signatory
Investor: Excalibur Limited Partnership
By: Excalibur Capital Management, Inc.,
its General Partner
By:
------------------------------------------
Name: William Hechter, President
Investor: Gundyco in trust for RSP 550-9866-19
By:
------------------------------------------
Name: Mark Shoom
Authorized Signatory
Investor: MB Capital Partners
By: MSM Management Corporation,
its General Partner
By:
------------------------------------------
Name: Timothy J. McCunn, President
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SECURITY AGREEMENT
This SECURITY AGREEMENT (the "Agreement") is made and entered into
as of January 17, 2000, by and among BH Capital Investments, L.P. for itself
and in trust, as agent for Excalibur Limited Partnership, Gundyco in trust
for RSP 550-98866-19 and MB Capital Partners (together, "Secured Party") and
Eco Soil Systems, Inc. and its direct and indirect subsidiaries, and
Agricultural Supply, Inc., Turf Partners, Inc., Sistemas Y Equipos Agricolas,
S.A. de C.V. and Agricultural Supply de Mexico, S.A. de C.V. (individually
and collectively, the "Debtor").
WITNESSETH:
WHEREAS, pursuant to the provisions of a certain Convertible
Debentures and Warrants Purchase Agreement of even date herewith between the
Debtor and the Secured Party (the "Purchase Agreement") the Secured Party has
agreed to lend to the Debtor jointly and severally for the mutual benefit of
each Debtor, and Debtor have agreed to borrow from the Secured Party
$4,500,000 under certain terms and conditions set forth in the Purchase
Agreement; and
WHEREAS, pursuant to the provisions of the Purchase Agreement, and
as a condition to Secured Party's obligation to lend thereunder, the Debtor
has also agreed to provide certain collateral to secure Debtor's obligations
to the Secured Party pursuant to the Purchase Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the
covenants set forth herein, the Secured Party and the Debtor hereby agree as
follows:
ARTICLE I
COLLATERAL
Section 1.1 GRANT AND DESCRIPTION. As security for the Debtor's
obligations under the Purchase Agreement and the Convertible Debentures, the
Debtor, and each of them, jointly and severally, hereby grants to the Secured
Party a continuing security interest in the property of the Debtor, and each
of them, listed and described in Schedule A attached hereto (the
"Collateral"). Notwithstanding the foregoing such grant of a security
interest shall not extend to, and the term "Collateral" shall not include:
(a) any rights in any general intangibles representing rights under
agreements between the Debtor and any other party (other than agreements
between a Debtor and a subsidiary or parent entity of such Debtor), which are
now or hereafter held by the Debtor as lessee, licensee or otherwise, only to
the extent that (i) such general intangibles are not assignable or capable of
being encumbered as a matter of law or under the terms of the agreement
applicable thereto (but solely to the extent that any such restriction shall
be enforceable under applicable law), without the consent of the other party
thereto and (ii) such consent has not been obtained and (b) any capital stock
or other ownership interests held by Debtor of any foreign subsidiary to the
extent (and only to the extent) that the pledge of such
<PAGE>
capital stock or other ownership interests would trigger the "deemed
dividend" rules of Section 900 et. seq. of the Internal Revenue Code of 1986,
as amended. Debtor shall execute UCC-1 Financing Statements suitable for
filing and/or recording with the appropriate filing offices as demanded by
Secured Party within three business days of presentment and demand therefor.
ARTICLE II
OBLIGATIONS SECURED
Section 2.1 OBLIGATIONS SECURED. The Collateral and the power of
collection pertaining thereto shall secure the prompt and complete
performance and repayment of any and all loans and advances made by Secured
Party to Debtor pursuant to the Purchase Agreement prior to, on or after the
date hereof, and specifically the unpaid principal amount outstanding at any
time under the Convertible Debentures, plus all accrued and unpaid interest
thereunder, together with all fees, expenses, commissions, charges,
penalties, and other amounts owing or chargeable by Debtor under the Purchase
Agreement or the Convertible Debentures whether any of the foregoing are
direct or indirect, joint or several, absolute or contingent, due or to
become due, now existing or hereafter arising, no matter how or when arising
and whether under any present or future agreement or instrument or otherwise,
whether or not evidenced by a writing (collectively the "Obligations").
ARTICLE III
DUTIES OF THE DEBTOR REGARDING COLLATERAL
Section 3.1 DUTIES OF THE DEBTOR REGARDING COLLATERAL. At all
times hereafter the Debtor agrees that it shall:
(a) Preserve the Collateral in good condition and order
and not permit it to be abused or misused;
(b) Not allow any of the Collateral to be affixed to real
estate, except for any property deemed to be fixtures, provided such property
is included in the Secured Party's security interest given hereunder;
(c) Maintain good and complete title to the Collateral
subject to Permitted Liens;
(d) Keep the Collateral free and clear at all times of all
other security interests, liens, or encumbrances of any kind, including,
without limitation any lien arising as a result of the Debtors' failure to
pay any and all taxes or governmental assessments or charges of any kind
whatsoever, except existing liens in favor of Coast Business Credit or First
National Bank of San Diego ("Senior Debt"), the existence and priority of
which are acknowledged by Secured Party, and other Permitted Liens;
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(e) Except as otherwise expressly provided herein, refrain
from selling, assigning or otherwise disposing of any of the Collateral or
moving or removing any of the Collateral except in the ordinary course of
Debtor's business, without the prior written consent of the Secured Party, or
until all of the Debtor's obligations have been paid in full;
(f) Promptly provide to the Secured Party such financial
statements, reports, lists and schedules related to the Collateral and any
other information relating to the Collateral as the Secured Party from time
to time may reasonably request;
(g) Permit the Secured Party to inspect all books and
records of the Debtor relating to the Collateral at such times, upon such
notice and as often as the Secured Party may reasonably request; and
(h) Notify the Secured Party of any material change in any
fact or circumstance warranted or represented by the Debtor herein or
furnished in connection herewith to the Secured Party or if any Event of
Default occurs.
Section 3.2 "PERMITTED LIENS" means the following:
(a) purchase money security interests in specific items of
equipment;
(b) leases of specific items of equipment, technology and
intellectual property including capital leases;
(c) liens for taxes not yet payable;
(d) security interests existing as of the date hereof
(including security interests evidencing the Senior Debt) and set forth on
Schedule C and additional security interests and liens consented to in
writing by Secured Party in its absolute discretion;
(e) security interests being terminated substantially
concurrently with this Agreement and liens created hereunder;
(f) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business
and securing obligations which are not delinquent;
(g) liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by liens of the type
described above in clauses (a) or (b) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; or
(h) liens in favor of customs and revenue authorities
which secure payment of customs duties in connection with the importation of
goods
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Nothing herein shall restrict Debtor's: (i) leases of BioJects (whether
Debtor is the lessor or lessee), related equipment and related technology
(including all use and possessory rights created/permitted pursuant to the
leases of BioJects), and (ii) licenses of intellectual property rights
related to the production of microbials, in the ordinary course of its
business. Secured Party will have the right to require, as a condition to any
consent under clause (d) above, that the holder of the additional security
interest or lien sign an intercreditor agreement on Secured Party's then
standard form, acknowledge that the security interest is subordinate to the
security interest in favor of Secured Party, and agree not to take any action
to enforce its subordinate security interest so long as any Obligations
remain outstanding, and that Debtor agree that any uncured default in any
obligation secured by the subordinate security interest shall also constitute
an Event of Default under this Agreement.
ARTICLE IV
EVENTS OF DEFAULT
Section 4.1 DEFINED. The occurrence of any of the following events
shall constitute an event of default under this Agreement (an "Event of
Default"):
(i) The failure of the Debtor to perform or comply with
any act, duty or obligation required to be performed under this Agreement if
such failure is not remedied within ten (10) days following receipt by Debtor
of notice of such failure from Secured Party.
(ii) If any of the representations or warranties of the
Debtor set forth in this Agreement shall prove to have been incorrect in any
material respect when made, or if they become incorrect, if not cured within
thirty (30) days of notice from Secured Party of such event.
(iii) If any material portion of the Collateral shall be
damaged, destroyed or otherwise lost and such damage, destruction or loss is
not covered by insurance.
(iv) If an Event of Default as defined in the Convertible
Debentures shall have occurred.
Section 4.2 RIGHTS AND REMEDIES UPON DEFAULT. If an Event of
Default shall have occurred hereunder or under the Convertible Debentures,
the Secured Party may, at its sole option, without notice or demand, declare
the Obligations to be immediately due and payable. As to any Collateral, the
Secured Party shall have the rights and remedies of any secured creditor
under the Uniform Commercial Code as in effect, from time to time, in
California ("UCC"), such rights to be exercised in such order or manner as
Secured Party may determine in its sole discretion against any one or more of
the entities constituting Debtor. If for any reason the Secured Party should
be required by law or otherwise to give notice to the Debtor of the sale of
any Collateral, the Debtor agrees that that any written notice sent by
overnight delivery service not less than five (5) calendar days before the
sale or mailed postage prepaid to the Debtor's address listed below not less
than ten (10) calendar days before the sale shall be deemed reasonable and
adequate.
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ARTICLE V
ADDITIONAL REMEDIES
Section 5.1 POWER OF COLLECTION. Upon the happening of an Event of
Default hereunder and subject to any prior rights of the holders of the
Senior Debt, the Debtor shall:
(a) Endorse any and all documents evidencing any
Collateral to the Secured Party and notify any payor that said documents have
been so endorsed and that all sums due and owing pursuant to them should be
paid directly to the Secured Party;
(b) Turn over to the Secured Party all documents
evidencing any right to collection of any sums due the Debtor arising from or
in connection with any of the Collateral;
(c) Mark or stamp each of its accounting records
pertaining to any of its accounts, relating howsoever to this Agreement or
the Convertible Debentures, with the legend "assigned to BH Capital
Investments, L.P." and keep all of its books, records, documents and
instruments relating to the Collateral in such manner as the Secured Party
may require;
(d) Mark or stamp all invoices with a similar legend
satisfactory to the Secured Party so as to indicate that the same must be
know paid directly to the Secured Party;
(e) Take any action reasonably required by the Secured
Party with reference to the Federal Assignment of Claims Act; and
(f) Assign to Secured Party any or all of Debtor's
copyrights and patents as demanded by Secured Party.
The Secured Party shall also have the right, at any time, upon
the happening of any Event of Default hereunder or as defined in the
Convertible Debentures, directly to notify any debtor or debtors of the
Debtor to make payments of any and all amounts directly to the Secured Party,
and the Secured Party shall have the further right to notify the U.S. postal
authorities to change the address for delivery of mail of the Debtor to an
address designated by the Secured Party and to receive, open and dispose of
all mail addressed to the Debtor.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1 WARRANTIES. The Debtor represents and warrants:
(a) That it is the owner of and, subject to the lien of
the holders of the Senior Debt and other Permitted Liens, has good and
marketable title to the Collateral secured hereby;
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(b) That it has not granted, nor will grant a security
interest in the Collateral to any other individual or entity other than the
holders of the Senior Debt and other Permitted Liens, and that such
Collateral is otherwise free and clear of any mortgage, pledge, lease, trust,
bailment, lien, security interest, encumbrance, charge or other arrangement;
(c) That it has the authority and capacity to perform its
respective obligations hereunder; and
(d) That its true and correct company name, any trade
name(s) under which it conducts its business; each of its chief executive
office; its place(s) of business and the locations of the Collateral or
records relating to the Collateral are set forth in Schedule B hereto
provided, however, Schedule B does not include (i) such information with
respect to Sistemas Y Equipos Agricolas, S.A. de C.V. and Agricultural Supply
de Mexico, S.A. de C.V. or (ii) the location of any bioject equipment located
at the premises of customers of Borrower or any direct or indirect
subsidiaries.
ARTICLE VII
NEGATIVE COVENANTS
Section 7.1 OTHER ENCUMBRANCES. Debtor shall defend its title to a
Secured Party's interest in the Collateral against all claims, take any
action necessary to remove any encumbrances other than those permitted
hereunder and defend the right, title and interest of Secured Party in and to
any of Debtor's rights in the Collateral.
Section 7.2 CHANGE IN MANAGEMENT. Debtor shall not make a material
change in the management of the Debtor except as provided in Section 7.4.
Section 7.3 CHANGE NAME OR LOCATION. Debtor shall not change its
company name or conduct its business under any name other than that set forth
herein or change its chief executive office, place of business or location of
the Collateral or records relating to the collateral from the current
location.
Section 7.4 DISSOLUTION. Debtor shall not dissolve or otherwise
terminate its company status or make any substantial change in the basic type
of business conducted by Debtor as of the date hereof, other than pursuant to
strategic transactions which have been approved by Secured Party.
ARTICLE VIII
WAIVERS
Section 8.1 WAIVERS. The Debtor waives any right to require the
Secured Party to (a) proceed against any person, (b) proceed against any
other collateral under any other agreement, (c) pursue any other remedy in
the Secured Party's power, and (d) make presentment, demand, dishonor, notice
of dishonor, acceleration and/or notice of non-payment.
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Section 8.2 WAIVER OF DEFENSE. The Debtor waives any defense,
which it may have to the exercise by Secured Party of its rights under this
Agreement, other than payment in full of the Obligations.
ARTICLE IX
MISCELLANEOUS
Section 9.1 ATTORNEY-IN-FACT. The Debtor appoints the Secured
Party its true attorney-in-fact to perform any of the following powers, which
are irrevocable until termination of this Agreement and may be exercised,
from time to time, by the Secured Party's officers and employees or any of
them in the event of a default hereunder or under the Convertible Debentures
or either of them: (i) to perform any obligation of the Debtor hereunder in
the Debtor's name or otherwise; (ii) to collect by legal proceedings or
otherwise all dividends, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral, to accept other property in
exchange for the Collateral, and any money or property received in exchange
for the Collateral may be applied to the Obligations to the Secured Party or
held by the Secured Party under this Agreement; (iii) to make any compromise
or settlement the Secured Party deems desirable or proper in respect of the
Collateral; and (iv) to insure, process and preserve the Collateral. The
foregoing power of attorney shall take effect only upon an Event of Default
or upon failure by Debtor to perform any of its obligations hereunder.
Section 9.2 CROSS DEFAULT. Debtor agrees and acknowledges that
default under the terms of this Agreement shall constitute default under the
Convertible Debentures, and default under the Convertible Debentures shall
constitute default under this Agreement. The security interests, liens and
other rights and interests in and relative to any of the real or personal
property of the Debtor now or hereafter granted to the Secured Party by
Debtor by or in any instrument or agreement, including but not limited to
this Agreement, the Purchase Agreement, or the Convertible Debentures shall
serve as security for any and all liabilities of Debtor to Secured Party,
including but not limited to the liabilities described in this Agreement, the
Purchase Agreement and the Convertible Debentures, and, for the repayment
thereof, Secured Party may resort to any security held by it in such order
and manner as it may elect.
Section 9.3 NOTICES. All notices, requests or demand to or upon a
party to this Agreement shall be given or made by the other party hereto in
writing and by depositing in the mails postage prepaid, return receipt
requested, addressed to the addressee at the address set forth below.
If to the Secured Party: BH Capital Investments, L.P.
175 Bloor Street East
South Tower, 7th Floor
Toronto, Ontario M4W 3R8
Attention: Henry Brachfeld
Fax: (416) 929-5314
If to the Debtor:
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c/o Eco Soil Systems, Inc.
10890 Thornmint Road
San Diego, CA 92127
Fax: (619)
No other method of giving any notice, request or demand is
hereby precluded provided such shall not be deemed given until such notice is
actually received at the address of the addressee.
Section 9.4 FEES AND EXPENSES. On demand by Secured Party, without
limiting any of the terms of the Purchase Agreement, Debtor shall pay all
reasonable fees, costs, and expenses (including without limitation reasonable
attorneys' fees and legal expenses) incurred by Secured Party in connection
with (a) filing or recording any documents (including all taxes in connection
therewith) in public offices; and (b) paying or discharging any taxes,
counsel fees, maintenance fees, encumbrances, or other amounts in connection
with protecting, maintaining, or preserving the Collateral or defending or
prosecuting any actions or proceedings arising out of or related to the
Collateral.
Section 9.5 NO WAIVER. No course of dealing between Debtor and
Secured Party, nor any failure to exercise nor any delay in exercising, on
the part of Secured Party, any right, power, or privilege under this
Agreement or under the Purchase Agreement or any other agreement, shall
operate as a waiver. No single or partial exercise of any right, power, or
privilege under this Agreement or under the Purchase Agreement or any other
agreement by Secured Party shall preclude any other or further exercise of
such right, power, or privilege or the exercise of any other right, power, or
privilege by Secured Party.
Section 9.6 RIGHTS ARE CUMULATIVE. All of Secured Party's rights
and remedies with respect to the Collateral whether established by this
Agreement, the Purchase Agreement, the Convertible Debentures or any other
documents or agreements, or by law shall be cumulative and may be exercised
concurrently or in any order.
Section 9.7 INDEMNITY. Debtor shall protect, defend, indemnify,
and hold harmless Secured Party and Secured Party's assigns from all
liabilities, losses, and costs (including without limitation reasonable
attorneys' fees) incurred or imposed on Secured Party relating to the matters
in this Agreement, including, without limitation, in connection with Secured
Party's defense of any action brought by a third party against Secured Party
relating to this Agreement or any of the Collateral, but otherwise not
arising from Secured Party's gross negligence or willful misconduct.
Section 9.8 SEVERABILITY. The provisions of this Agreement are
severable. If any provision of this Agreement is held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity
or unenforceability shall affect only such provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such provision or part
thereof in any other jurisdiction, or any other provision of this Agreement
in any jurisdiction.
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Section 9.9 AMENDMENTS; ENTIRE AGREEMENT. This Agreement is
subject to modification only by a writing signed by the parties. To the
extent that any provision of this Agreement conflicts with any provision of
the Purchase Agreement or the Convertible Debentures, the provision giving
Secured Party greater rights or remedies shall govern, it being understood
that the purpose of this Agreement is to add to, and not detract from, the
rights granted to Secured Party under the Purchase Agreement and the
Convertible Debentures. This Agreement, the Purchase Agreement, the
Convertible Debentures and the documents relating thereto comprise the entire
agreement of the parties with respect to the matters addressed in this
Agreement.
Section 9.10 FURTHER ASSURANCES. At Secured Party's request,
Debtor shall execute and deliver to Secured Party any further instruments or
documentation, and perform any acts, that may be reasonably necessary or
appropriate to implement this Agreement, the Purchase Agreement or any other
agreement, and the documents relating thereto, including without limitation
any instrument or documentation reasonably necessary or appropriate to
create, maintain, perfect, or effectuate Secured Party's security interests
in the Collateral.
Section 9.11 RELEASE. At such time as Debtor shall completely
satisfy all of the Obligations and the Convertible Debentures are no longer
outstanding, Secured Party shall execute and deliver to Debtor all
assignments and other instruments as may be reasonably necessary or proper to
terminate Secured Party's security interest in the Collateral, subject to any
disposition of the Collateral which may have been made by Secured Party
pursuant to this Agreement. For the purpose of this Agreement, the
Obligations shall be deemed to continue if Debtor enters into any bankruptcy
or similar proceeding at a time when any amount paid to Secured Party could
be ordered to be repaid as a preference or pursuant to a similar theory, and
shall continue until it is finally determined that no such repayment can be
ordered.
Section 9.12 SUCCESSORS. The benefits and burdens of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties; provided that Debtor may not
transfer any of the Collateral or any rights hereunder, without the prior
written consent of Secured Party, except as specifically permitted hereby.
Section 9.13 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF
CALIFORNIA. ALL DISPUTES BETWEEN THE DEBTOR AND SECURED PARTY, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY
STATE AND FEDERAL COURTS LOCATED IN SAN DIEGO COUNTY, CALIFORNIA AND THE
COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT
SECURED PARTY SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, TO PROCEED AGAINST THE DEBTOR OR ITS PROPERTY IN ANY LOCATION REASONABLY
SELECTED BY SECURED PARTY IN GOOD FAITH TO ENABLE SECURED PARTY TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
SECURED PARTY. THE
9
<PAGE>
DEBTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS
OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY SECURED PARTY. THE DEBTOR WAIVES
ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SECURED
PARTY HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
Section 9.14 WAIVER OF RIGHT TO JURY TRIAL. SECURED PARTY AND
DEBTOR EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS
AGREEMENT; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT
BETWEEN SECURED PARTY AND DEBTOR; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF
SECURED PARTY OR DEBTOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SECURED PARTY OR
DEBTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
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<PAGE>
Section 9.15 CAPITALIZED TERMS. All terms capitalized herein and
not otherwise defined shall have the meaning set forth in the Purchase
Agreement, and in the Uniform Commercial Code as in effect in the State of
California.
IN WITNESS WHEREOF, the Debtor and the Secured Party have
duly executed this Agreement as of the day and year first written above.
SECURED PARTY:
BH Capital Investments, L.P., for itself and as
agent for Excalibur Limited Partnership and
Grundyco in trust for RSP 550-98866-19
By: HB & Company, Inc., its general partner
By:
-------------------------------------------
Henry Brachfeld, President
DEBTOR:
Eco Soil Systems, Inc.
By:
-------------------------------------------
Mark D. Buckner, Vice President
Agricultural Supply, Inc.
By:
-------------------------------------------
Mark D. Buckner, Vice President
Turf Partners, Inc.
By:
-------------------------------------------
Mark D. Buckner, Vice President
Sistemas Y Equipos Agricolas, S.A. de C.V.
By:
-------------------------------------------
Mark D. Buckner, Vice President
Agricultural Supply de Mexico, S.A. de C.V.
By:
-------------------------------------------
Mark D. Buckner, Vice President
11
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SCHEDULE A
Collateral
All Accounts, Deposit Accounts, Goods, Fixtures, Securities,
Documents of Title, Inventory, General Intangibles, Equipment and Records now
owned or acquired at any time hereafter by Debtor, wherever located or
situated, and the products and proceeds (including condemnation proceeds) of
the foregoing.
The capitalized terms used herein shall have the meanings set forth
below. All other terms used herein are used as defined in the UCC.
"Accounts" means any and all bank accounts, rights to payment for
goods, including Inventory, sold or leased or to be sold or leased or for
services rendered or to be rendered, whether or not evidenced by an
instrument or chattel paper, and no matter how evidenced, including such
rights in the form of accounts (as that term is defined in the UCC), accounts
receivable, exchange receivables, contract rights, Instruments, Documents,
Chattel Paper, purchase orders, notes, drafts, acceptances and all other
forms of obligations and receivables, including all right, title and interest
of the Debtor in the Inventory which gave rise to any of the foregoing,
including the right of stoppage in transit and all returned, rejected,
rerouted or repossessed Inventory.
"Chattel paper" means "chattel paper" as that term is defined in the
UCC.
"Deposit Accounts" means "deposit accounts" as that term is defined
in the UCC.
"Documents" means "documents" as that term is defined in the UCC.
"Documents of Title" means "documents of title" as defined in the
UCC.
"Equipment" means "equipment" as defined in the UCC, and also all
motor vehicles, rolling stock, machinery, office equipment, plant equipment,
tools, dies, molds, store fixtures, furniture, and other goods, property, and
assets which are used and/or were purchased for use in the operation of
furtherance of the Debtor's business, and any and all accessions, additions
thereto, and substitutions therefore.
"Fixtures" means "fixtures" as that term is defined in the UCC.
"General Intangibles" means "general intangibles" as defined in the
UCC and also all books and records; customer lists; goodwill; causes of
action; judgments; literary rights; rights to performance; licenses, permits,
certificates of convenience and necessity, and similar rights granted by any
governmental authority; copyrights, trademarks, patents, patent applications,
proprietary processes, blueprints, drawings, designs, diagrams, plans,
reports, charts, catalogs, manuals, literature, technical data, proposals,
cost estimates and all other reproductions on paper, or otherwise, of any and
all the design, development, manufacture, sale, marketing, lease or use of
any or all goods produced or sold or leased or credit extended, or service
performed by the Debtor, whether intended for an individual customer or the
general
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business of Debtor.
"Goods" means "goods" as that term is defined in the UCC.
"Instruments" means "instruments" as that term is defined in the UCC.
"Inventory" means any and all raw materials, supplies, work in
process, finished goods, goods returned by customers, and inventory (as that
term is defined in the UCC), including goods in transit, wherever located,
which are-held for sale (but excluding goods subject to leases and goods not
manufactured by the Debtor or an affiliate and which were purchased for
resale directly or indirectly by the Debtor from a non-affiliate pursuant to
a then existing agreement or arrangement with a non-affiliate customer),
including the right of stoppage in transit, or goods which are or might be
used in connection with the manufacturing or packing of such goods, and all
such goods, the sale or disposition of which has given rise to an Account,
which are returned to and/or repossessed and/or stopped in transit by the
Debtor or by the Secured Party, or at any time hereafter in the possession or
under the control of the Debtor or the Secured Party or any agent or bailee
of the Debtor or the Secured Party, and any documents of title representing
any of the above.
"Records" means all books, records, customer lists, ledger cards,
computer programs, computer tapes, disks, printouts and records and other
property and general intangibles at any time evidencing or relating to any of
the types (or items) of property covered by this financing statement, whether
now in existence or hereafter created.
"Securities" means "securities" as that term is defined in the UCC.
"UCC" means the Uniform Commercial Code as in effect in the State of
California.
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EXECUTION FORM
ECO SOIL SYSTEMS, INC.
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
Dated as of November 12, 1999
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A
AMENDMENT NO. 3 AND WAIVER
Ladies and Gentlemen:
Reference is made to the Note and Warrant Purchase
Agreement, dated as of August 25, 1998, as amended by a letter agreement,
dated March 31, 1999, and by Amendment No. 2, dated as of June 30, 1999 (as
so amended, the "Note Agreement"), among Eco Soil Systems, Inc., a Nebraska
corporation (the "Company"), and Albion Alliance Mezzanine Fund, L.P. and
Paribas Capital Funding LLC (collectively, the "Purchasers"). The Purchasers
hold 100% of the Notes outstanding under the Note Agreement. Capitalized
terms used herein without definition have the meanings specified therefor in
the Note Agreement.
The Company hereby agrees with the Purchasers as follows:
1. LIMITED WAIVER. The Company represents and
warrants that, except for (a) the Company's non-compliance with sections
10.2(a), (b) and (c) of the Note Agreement for the quarter ended September
30, 1999, (b) any past failure of the Company to have provided monthly
financial reports of the type and within the time period set forth in section
7(e) of the Note Agreement and (c) any past failure of the Company to have
provided notice of its non-compliance with the covenants referred to in this
paragraph 1 within the time period set forth in section 7(h) of the Note
Agreement (the "Existing Defaults"), no condition or event exists which
constitutes an Event of Default or Potential Event of Default. In
consideration of the agreements of the Company set forth hereinafter, the
Purchasers hereby waive the Existing Defaults. This waiver is limited to the
Existing Defaults and may not be construed to extend to any other or
subsequent Events of Default, whether or not disclosed.
<PAGE>
2. AMENDMENT OF SECTION 11. Section 11 of the Note
Agreement is hereby amended to add after subdivision (j) thereof the
following new subdivision (k):
"(k) if the Amendment No. 4 Transactions shall not
have been consummated to the satisfaction of the Purchasers on or prior
to December 10, 1999;"
3. ADDITIONAL DEFINITION. The following defined term
is hereby added to section 14 of the Note Agreement in the appropriate
alphabetical order:
"AMENDMENT NO. 4 TRANSACTIONS: collectively, the
following instruments and transactions:
(a) the execution and delivery by the
Company of Amendment No. 4 to this Note Agreement, providing
for:
(i) the amendment of sections 10.2(a), (b)
and (c) of this Agreement for the fiscal quarters
ending December 31, 1999, March 31, 2000 and June 30,
2000, to replace the ratios set forth therein with a
requirement that the Company have EBITDA for such
quarters of not less than zero, negative $750,000 and
$2,700,000, respectively; and for the fiscal quarter
ending September 30, 2000, to amend the ratios set
forth therein to be not greater than 4.31 to 1, for
section 10.2(a), not greater than 6.15 to 1, for
section 10.2(b), and not less than 1.5 to 1, for
section 10.2(c);
(ii) the amendment of sections 10.2(d) of
this Agreement for the fiscal year 2000 to prohibit
the Company from making Capital Expenditures of more
than $1,000,000 for such fiscal year;
(iii) the amendment of section 10.1 of this
Agreement to provide that the references therein to
section 10.2 mean section 10.2 as in effect prior to
the amendments contemplated by paragraph (i) above;
(iv) the addition to section 9 of this
Agreement of a new provision requiring the
2
<PAGE>
Company to apply the cash proceeds received by the
Company or its Subsidiaries after the date of the
Amendment No. 4 Transactions as consideration for the
issuance of capital stock or securities convertible
into or exercisable for capital stock, as follows:
(x) the first $7,500,000 of such proceeds to the
prepayment of the Notes, without premium, and accrued
interest thereon; (y) the next $2,500,000 of such
proceeds to be retained by the Company and (z) 50% of
all proceeds received after the first $10,000,000 to
be applied to the prepayment of the Notes, without
premium, and accrued interest thereon; (excluding,
however, from any of the proceeds referred to in this
paragraph (iv) the first $5,000,000 of the proceeds
of the issuance of capital stock to Palladin Group or
other investors approved by the Purchasers and
amounts received pursuant to the exercise of employee
stock options or any outstanding warrants);
(v) the amendment of section 9 to eliminate
the premium on voluntary prepayment of the Notes; and
(vi) the payment of the reasonable fees and
expenses of counsel for the Purchasers incurred in
connection with Amendment No. 3 and 4 to this
Agreement;
or, in each case, such other amendments as shall be
satisfactory to the Purchasers;
(b) the execution and delivery by the
Company of an amendment to the Warrants, (i) advancing the
commencement of the exercise period of the Warrants from
February 25, 2000 to the date of the Amendment No. 4
Transactions; (ii) extending the expiration of the exercise
period from August 25, 2003 to August 25, 2005 and (iii)
adding a provision satisfactory to the Purchasers requiring
that, in the event any exercise of Warrants (including the new
warrants provided in paragraph (d) below) causes such any
Purchaser to violate any provision of applicable law, the
Company will either cooperate with such Purchaser
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<PAGE>
in any efforts by it to dispose of some or all of it shares of
Common Stock so as to avoid such violation or use its best
efforts to create a non-voting stock to be issued to such
Purchaser upon exercise in lieu of the Common Stock;
(c) the issuance to the Purchasers of a
number of shares of Common Stock equal to X in the following
formula (each Purchaser to receive its PRO RATA share of such
number of shares):
X = 1,275,000 / Q
Q = the lesser of (i) $4.00 and (ii) the average of the
closing price for the Common Stock for the ten consecutive
trading days immediately prior to the date of the Amendment
No. 4 Transactions;
(d) the issuance to the Purchaser of new
warrants, having the same exercise price, exercise period and
other terms as the Warrants (as amended pursuant to paragraph
(b) above), for the purchase of a number of shares of Common
Stock equal to Y in the following formula (each Purchaser to
receive its PRO RATA share of such number of shares):
Y = [262,500 x (8 / Q)] - 262,500
Q has the meaning specified in paragraph (c);
(e) the execution and delivery by the
Company of an agreement to issue to the Purchasers on March
31, 2000, an additional number of shares of Common Stock equal
to the greater of 1,000,000 and 5% of the fully-diluted Common
Stock on the date of the Amendment No. 4 Transactions (each
Purchaser to receive its PRO RATA share of such number of
shares) if on such date the Notes shall not have been prepaid;
such amount to be reduced in the case of a partial prepayment
of the Notes, in proportion to the amount of the Notes
prepaid; such share quantities to be adjusted in the event of
share splits on or prior to such date;
(f) the execution and delivery by the
Company of an agreement conferring on the shares issued
pursuant to the foregoing paragraphs (c),
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(d) and (e) registration rights comparable to the registration
rights currently set forth in the Warrants;
(g) the timely payment on November 25, 1999,
of the interest payment due on the Notes on that date; and the
payment into an escrow account on or prior to December 10,
1999, on terms satisfactory to the Purchasers, of an amount
sufficient to pay the interest payment to become due on the
Notes on February 25, 2000; and
(h) the delivery by the Company to the
Purchaser of a certificate to the effect that, after giving
effect to the above transactions, no Event of Default or
Potential Event of Default exists."
4. RATIFICATION. Except as amended hereby, all of the
provisions of the Note Agreement shall remain in full force and effect.
5. MISCELLANEOUS. This Amendment and Waiver shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not. THIS
AMENDMENT AND WAIVER SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The headings in this Amendment and
Waiver are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof. This Amendment and Waiver may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
[THIS SPACE IS LEFT BLANK INTENTIONALLY]
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If the Purchasers are in agreement with the foregoing, please
sign the form of agreement on the accompanying counterparts of this letter and
return one of the same to the Company, whereupon this letter shall become a
binding agreement between the Purchasers and the Company.
Very truly yours,
ECO SOIL SYSTEMS, INC.
By:_________________________________
The foregoing Amendment is
hereby agreed to as of the
date hereof.
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC,
its General Partner
By:___________________________
Name: Peter C. Gummeson
Title: Senior Vice President
PARIBAS CAPITAL FUNDING LLC
By: ___________________________
Name: Jeff Youle
Title: Managing Director
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ECO SOIL SYSTEMS, INC.
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
Dated as of December 21, 1999
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED ANNEX 1
Amendment No. 4 to
Note and Warrant Purchase Agreement
-----------------------------------
Ladies and Gentlemen:
Reference is made to the Note and Warrant Purchase
Agreement, dated as of August 25, 1998, as amended by letter agreements dated
March 31, 1999, June 30, 1999 and November 12, 1999 (as so amended, the "Note
Agreement"), among Eco Soil Systems, Inc., a Nebraska corporation (the
"Company"), and Albion Alliance Mezzanine Fund, L.P. and Paribas Capital
Funding LLC (collectively, the "Purchasers"). The Purchasers hold 100% of the
Notes outstanding under the Note Agreement. Capitalized terms used herein
without definition have the meanings specified therefor in the Note Agreement.
The Company requests the consent of the Purchasers to
certain amendments of the Notes, the Warrants and the Note Agreement, and the
Purchasers are willing to consent to such amendments, on the terms and
subject to the conditions set forth herein.
The parties agree as follows:
1. AMENDMENTS. 1.1. AMENDMENT OF SECTION 9.1. Section 9.1
of the Note Agreement is hereby amended and restated to read in its entirety
as follows:
"9.1. OPTIONAL PREPAYMENTS. The Company may, at its
option, upon notice as provided in section 9.4, prepay at any time
all, or from time to time any part (in an amount of at least
$1,000,000 in the aggregate or an integral multiple of $1,000 in
excess thereof) of, the Notes at the principal amount so prepaid,
without premium."
<PAGE>
1.2. AMENDMENT OF SECTION 9.3. Section 9.3 of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"9.3. PREPAYMENT PREMIUM. Except as may otherwise
be provided for in sections 9.2 and 11, no premium shall be due and
payable by the Company upon the prepayment of the Notes."
1.3. AMENDMENT OF SECTION 9.8. Section 9.8 of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"9.8. MANDATORY PREPAYMENT UPON SALE OF EQUITY. In
the event that at any time there shall be Equity Proceeds, the Company
shall give prompt written notice thereof to each holder of the Notes,
by facsimile transmission or registered mail (and shall confirm such
notice by prompt telephonic advice to an investment officer of each
such holder). The Company shall promptly (but in no event later than
five days after the Company's receipt thereof) apply such Equity
Proceeds to the prepayment of the Notes, at the principal amount so
prepaid, together with interest on such principal amount accrued to
such date, in accordance with the following:
"(a) the first $7,500,000 of any of such Equity
Proceeds received by the Company after December 21, 1999 shall
be applied by it to the prepayment of the Notes and accrued
interest thereon;
"(b) the Company may retain the next $2,500,000 of
Equity Proceeds it receives; and
"(c) the Company shall apply 50% of all Equity
Proceeds it receives after the first $10,000,000 to the
prepayment of the Notes and accrued interest thereon.
"In the event that there shall have been a partial prepayment of the
Notes under this section 9.8, the Company shall promptly give notice to
the holders of the Notes, accompanied by an Officers' Certificate
setting forth the principal amount of each of the Notes that was
prepaid and specifying how each such amount was determined."
1.4. AMENDMENT OF SECTION 10.1. Section 10.1 is hereby amended
by adding at the end of the first paragraph thereof the following new sentence:
2
<PAGE>
"References herein to section 10.2 shall be interpreted to be
references to section 10.2 as in effect prior to the amendments
contained in Amendment No. 4."
1.5. AMENDMENT OF SECTIONS 10.2(a), (b) AND (c). Section
10.2(a), (b) and (c) of the Note Agreement are hereby amended and restated to
read in their entirety as follows:
"10.2. FINANCIAL COVENANTS. (a) LIMITATION ON SENIOR
SECURED FUNDED DEBT. The Company will not permit the ratio of (i)
Senior Secured Funded Debt as of each date listed in the table below,
to (ii) Consolidated EBITDA for the period of four consecutive fiscal
quarters of the Company ending on such date, to be greater than the
ratio set forth opposite such date in the table below:
<TABLE>
<CAPTION>
Quarter End Date Ratio
---------------- -----
<S> <C>
September 30, 1998 3.75 to 1.0
December 31, 1998 3.00 to 1.0
March 31, 1999 3.00 to 1.0
June 30, 1999 6.50 to 1.0
September 30, 1999 3.52 to 1.0
September 30, 2000 7.10 to 1.0
December 31, 2000 3.00 to 1.0
March 31, 2001 2.50 to 1.0
and thereafter
</TABLE>
"No limitations will be applicable to the quarter-end dates December
31, 1999, March 31, 2000 or June 30, 2000. The limitation applicable to
the quarter-end date September 30, 1999, is subject to the waiver
granted by Amendment No. 3.
"(b) LIMITATION ON TOTAL FUNDED DEBT. The Company
will not permit the ratio of (i) total Funded Debt as of each date
listed in the table below, to (ii) Consolidated EBITDA for the period
of four consecutive fiscal quarters of the Company ending on such date,
to be greater than the ratio set forth opposite such date in the table
below:
<TABLE>
<CAPTION>
Quarter End Date Ratio
---------------- -----
<S> <C>
September 30, 1998 7.00 to 1.0
December 31, 1998 5.00 to 1.0
March 31, 1999 5.00 to 1.0
June 30, 1999 10.55 to 1.0
September 30, 1999 5.30 to 1.0
September 30, 2000 11.00 to 1.0
December 31, 2000 5.00 to 1.0
March 31, 2001 3.50 to 1.0
and thereafter
</TABLE>
3
<PAGE>
"No limitations will be applicable to the quarter-end dates December
31, 1999, March 31, 2000 or June 30, 2000. The limitation applicable to
the quarter-end date September 30, 1999, is subject to the waiver
granted by Amendment No. 3.
"(c) MINIMUM INTEREST COVERAGE. The Company will not
permit the ratio of (i) Consolidated EBITDA for the period of four
consecutive fiscal quarters of the Company ending on each date listed
in the table below, to (ii) Interest Expense for such period, to be
less than the ratio set forth opposite such date in the table below:
<TABLE>
<CAPTION>
Quarter End Date Ratio
---------------- -----
<S> <C>
September 30, 1998 1.60 to 1.0
December 31, 1998 2.00 to 1.0
March 31, 1999 2.50 to 1.0
June 30, 1999 1.10 to 1.0
September 30, 1999 2.33 to 1.0
September 30, 2000 1.25 to 1.0
December 31, 2000 and thereafter 2.50 to 1.0
</TABLE>
"No limitations will be applicable to the quarter-end dates December
31, 1999, March 31, 2000 or June 30, 2000. The limitation applicable to
the quarter-end date September 30, 1999, is subject to the waiver
granted by Amendment No. 3."
1.6. AMENDMENT OF SECTION 10.2(d). Section 10.2(d) of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"(d) LIMITATION ON CAPITAL EXPENDITURES. The Company
will not make or commit to make any Capital Expenditure if the amount
thereof, taken together with all other Capital Expenditures made by the
Company during the then fiscal year, would exceed (i) $1,000,000 in the
case of fiscal year 2000 and (ii) $17,500,000 in the case of all fiscal
years thereafter."
1.7. ADDITION OF SECTION 10.2(e). The Note Agreement is hereby
amended by adding new section 10.2(e) immediately following section 10.2(d)
thereof:
"(e) MINIMUM EBITDA. The Company shall not permit
Consolidated EBITDA for each of the quarters ending on the dates set
forth below to be less than the amount indicated opposite each such
date:
4
<PAGE>
<TABLE>
<CAPTION>
Quarter End Date Minimum EBITDA
---------------- --------------
<S> <C>
December 31, 1999 $ (2,000,000.00)
March 31, 2000 $ (2,000,000.00)
June 30, 2000 $ 2,700,000.00
September 30, 2000 $ 4,500,000.00
December 31, 2000 $ 1,000,000.00"
</TABLE>
1.8. AMENDMENT OF SECTION 10.5. Section 10.5 of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"10.5. RESTRICTED PAYMENTS. The Company will not, and
will not permit any Subsidiary to, directly or indirectly declare,
order, pay, make or set apart any sum or property for any Restricted
Payment unless, immediately after giving effect to any such proposed
action:
"(a) no condition or event shall exist which
constitutes an Event of Default or Potential Event of Default;
and
"(b) the aggregate amount of all sums and
property included in all Restricted Payments directly or
indirectly declared, ordered, paid, made or set apart by the
Company during the period from the Closing Date to and
including the date of such proposed action shall not exceed
25% (but, in the case of a deficit, 100%) of Consolidated Net
Income for such period."
1.9. ADDITION OF SECTION 10.18. The Note Agreement is hereby
amended by adding new section 10.18 immediately following section 10.17 thereof:
"10.18. ISSUANCE OF CONTINGENT SHARES. If the Company
shall have failed to prepay the Notes in full, including all accrued
interest thereon, on or prior to April 3, 2000, the Company shall issue
a number of shares of Common Stock (the "Contingent Shares") equal to X
in the following formula (each holder of the Notes to receive its PRO
RATA share of such number of shares):
"X=[the greater of Y and Z] x (P1/P2)
"where
"Y=1,000,000 (adjusted for splits, combinations and
the like to the date of issuance of the
Contingent Shares);
5
<PAGE>
"Z=5% of the Common Stock on March 31, 2000,
calculated on a fully-diluted basis (giving
effect to the issuance of all shares of Common
Stock issuable upon the conversion, exchange or
exercise of all outstanding securities of the
Company convertible into or exchangeable or
exercisable for shares of Common Stock);
"P(1)=the principal amount of the Notes outstanding on
March 31, 2000; and
"P(2)=the original principal amount of the Notes."
1.10. ADDITION OF SECTION 10.19. The Note Agreement is hereby
amended by adding new section 10.19 immediately following new section 10.18:
"10.19. SALE OF EQUITY SECURITIES. Without the
consent of the holders of at least 60% in principal amount of the Notes
at the time outstanding, the Company will not, and will not permit any
Subsidiary to, issue or sell any shares of its capital (other than
pursuant to the exercise of employee stock options and warrants) or
securities convertible into or exchangeable or exercisable for shares
of its capital stock, except that any Subsidiary may issue such shares
or other securities to the Company. At a minimum (but without
limitation), the holders of the Notes will require that, concurrently
with the issuance of any such shares or other securities, the Company
(a) repay the loan outstanding under the Loan and Security Agreement
between the Company and Coast Business Credit, (b) pay in advance the
interest payment to become due on the Notes on February 25, 2000, and
(c) pay the fees and disbursements of the Noteholders' special counsel
incurred in connection with the transactions contemplated by Amendment
No. 3 and Amendment No. 4."
1.11. ADDITION OF SECTION 10.20. The Note Agreement is hereby
amended by adding new section 10.20 immediately following new section 10.19:
"10.20. REGULATED HOLDERS. If any Regulated Holder
shall advise the Company that the receipt by such Regulated Holder of
Warrant Shares or Contingent Shares, as the case may be, would cause
such Regulated Holder to violate any provision of Applicable Law with
respect to its ownership of securities of the Company, then at the
option of such Regulated Holder (i) the Company shall cooperate in any
reasonable efforts by such Regulated Holder to dispose of Warrant
Shares or Contingent Shares, as the case may be, to an extent and in a
manner sufficient in the written
6
<PAGE>
opinion of counsel to such Regulated Holder (which may be internal
counsel) to prevent such violation; such efforts to include providing
(and authorizing such Regulated Holder to provide) financial and other
information concerning the Company to any prospective purchaser of
such securities (subject to an appropriate confidentiality agreement);
or (ii) the Company shall use its best efforts (including using its
best efforts to cause its Certificate to be amended) to create an
Equivalent Nonvoting Security with respect to such number of Warrant
Shares or Contingent Shares, as the case may be, as such Regulated
Holder may specify, and such Regulated Holder shall be entitled to
receive upon such exercise or exchange, in lieu of such number of
Warrant Shares or Contingent Shares otherwise receivable by such
Regulated Holder, the same number of shares or other units of such
Equivalent Nonvoting Security."
1.12. AMENDMENT TO SECTION 11(c). Section 11(c) of the Note
Agreement is hereby amended and restated to read in its entirety as follows:
"(c) if the Company shall default in the performance
of or compliance with any term contained in sections 10.2, 10.5, 10.7,
10.18 or 10.19."
1.13. ADDITIONAL DEFINITIONS. The following defined terms are
hereby added to section 14 of the Note Agreement in the appropriate alphabetical
order:
"AMENDMENT NO. 3: Amendment No. 3 to this Agreement,
dated as of November 12, 1999.
"AMENDMENT NO. 4: Amendment No. 4 to this Agreement,
dated as of December 21, 1999.
"AMENDMENT SHARES: the 402,208 shares of Common Stock
issued by the Company to the Noteholders pursuant to section 3.2 of
Amendment No. 4.
"APPLICABLE LAW: all provisions of laws, statutes,
ordinances, rules, regulations, permits or certificates of any
Governmental Authority applicable to any Person or any of its assets or
property, and all judgments, injunctions, orders and decrees of all
courts, arbitrators or Governmental Authorities in proceedings or
actions in which any such Person is a party or by which any of its
assets or properties are bound.
"CERTIFICATE: the Articles of Incorporation of the
Company, as amended from time to time.
7
<PAGE>
"CONTINGENT SHARES: the meaning specified therefor in
section 10.18.
"EQUITY PROCEEDS: as of any date of determination,
the aggregate amount of the net cash proceeds received by the Company
or any of its Subsidiaries from the sale of shares of its capital stock
(other than pursuant to the exercise of employee stock options or
warrants) or securities convertible into or exchangeable or exercisable
for shares of its capital stock, during the period from the date of
Amendment No. 4 to and including the date of determination; PROVIDED,
however, that the first $5,000,000 of net cash proceeds received by the
Company from the sale of equity securities in compliance with section
10.19 shall be excluded from any determination of Equity Proceeds.
"EQUIVALENT NONVOTING SECURITY: with respect to any
security issued or to be issued by any Person, a security of such
Person that is identical in rights and benefits to such first security,
except that (a) the equivalent security shall not be entitled to vote
on any matter on which holders of voting securities of such Person are
entitled to vote, other than as required by Applicable Law or with
respect to any amendment or repeal of any provision of the
Organizational Documents of such Person or any other agreement or
instrument pursuant to which the equivalent security was issued which
provision specifically affects such equivalent security, (b) subject to
such reasonable restrictions as any affected Regulated Holder may
request (including any restriction necessary to prevent the violation
by such Regulated Holder of any provision of Applicable Law with
respect to its ownership of voting securities), the equivalent security
shall be convertible on a one-to-one ratio into the first security and
(c) the terms of the equivalent security shall include such provisions
requested by any affected Regulated Holder as are reasonable and
equitable to ensure that (i) the equivalent security is treated
comparably to the first security with respect to dividends,
distributions, stock or unit splits, reclassifications, capital
reorganizations, mergers, consolidations and other similar events and
transactions, (ii) the conversion right provided in clause (b) above is
equitably protected and (iii) the acquisition of the equivalent
security will not cause such Regulated Holder to violate Applicable
Law.
"GOVERNMENTAL AUTHORITY: any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, or any court, in each case whether of the
United States of America or foreign.
8
<PAGE>
"ORGANIZATIONAL DOCUMENTS: with respect to any
Person, each instrument or other document that (a) defines the
existence of such Person, including its articles or certificate of
incorporation or certificate of formation, as filed or recorded with an
applicable Governmental Authority or (b) governs the internal affairs
of such Person, including its bylaws, operating agreement, regulations
or partnership agreement, in each case as amended, supplemented or
restated.
"OTHER SECURITIES: any stock (other than Common
Stock) and other securities of the Company or any other Person
(corporate or otherwise) which the holders of the Warrants at any time
shall be entitled to receive, or shall have received, upon the exercise
of the Warrants, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock or Other Securities pursuant to section
3 of the Warrants or otherwise.
"REGULATED HOLDER: any holder (i) that directly, or
indirectly because of its ownership by an entity that is subject to
Regulation Y, is subject to the provisions of Regulation Y and (ii)
that holds shares of Common Stock or Warrants.
"REGULATION Y: Regulation Y of the Board of Governors
of the Federal Reserve System, 12 C.F.R. Part 225, or any successor
thereto.
"WARRANT SHARES: (a) any shares of Common Stock or
Other Securities issued or issuable upon exercise of the Warrants and
(b) any securities issued or issuable with respect to any Common Stock
or Other Securities referred to in subdivision (a) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or
otherwise."
1.14. AMENDMENT OF CERTAIN DEFINITIONS. The following defined
terms used in the definition of "Make Whole Premium" are hereby amended and
restated to read in their entirety as follows:
"CALLED PRINCIPAL: with respect to any Note, the
principal of such Note that is declared to be immediately due and
payable pursuant to section 11.
"SETTLEMENT DATE: with respect to the Called
Principal of any Note, the date on which such Called Principal is
declared to be immediately due and payable pursuant to section 11."
9
<PAGE>
1.15. REFERENCES TO "WARRANTS". From and after the
effectiveness of this Amendment No. 4 and the execution and delivery of the
amended Warrants as contemplated by section 3.1, any reference to the "Warrants"
in the Note Agreement shall be deemed to refer to the Warrants as amended
pursuant to this Amendment No. 4.
1.16. AMENDMENT OF SCHEDULES AND EXHIBITS. Each of Schedules
A, C and D and Exhibit B to the Note Agreement is hereby amended and restated to
read in its entirety as set forth in Annexes 1, 2, 3 and 4, respectively,
attached to this Amendment No. 4.
2. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants that:
2.1. ORGANIZATION, STANDING, ETC. The Company and each of its
Subsidiaries listed in Annex 2 is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
and the Company has all requisite corporate power and authority (a) to own and
operate its properties; (b) to carry on its business as now conducted and as
proposed to be conducted; (c) to enter into and carry out the terms of this
Amendment No. 4; (d) to issue the shares issued or to be issued as contemplated
by sections 1.9 and 3.2 of this Amendment No. 4; and (e) to issue, and carry out
the terms of, the Warrants (as amended as contemplated hereby).
2.2. CAPITAL STOCK AND RELATED MATTERS. The authorized
capital stock of the Company consists of 50,000,000 shares of Common Stock
and 5,000,000 shares of Preferred Stock, par value $.005. After giving effect
to the transactions contemplated hereby (but excluding the shares to be
issued as contemplated by section 1.9 of this Amendment No. 4), 18,322,963
shares of Common Stock and no shares of Preferred Stock will be issued and
outstanding. All of the outstanding shares of capital stock of the Company
and each of its Subsidiaries are validly issued, fully paid and
non-assessable, and all such shares indicated in Annex 2 as owned by the
Company or by any other Subsidiary are so owned beneficially and of record by
the Company or by such other Subsidiary free and clear of any Lien except
such as are of the character permitted by section 10.3 of the Note Agreement.
The shares of Common Stock issuable upon the exercise of the Warrants, as
amended as contemplated by this Amendment No. 4, have been duly authorized
and validly reserved for issuance upon such exercise and, when so issued,
will be validly issued, fully paid and non-assessable. As of the date hereof,
the Company will not have outstanding securities convertible into or
exchangeable for any shares of its capital stock, nor will it have
outstanding any rights to subscribe for or to purchase, or any options for
the purchase of, or any
10
<PAGE>
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, any shares of its
capital stock or any securities convertible into or exchangeable for any
shares of its capital stack, other than those listed on Annex 3.
2.3. NO DEFAULTS. As of the date hereof, no condition or
event exists which constitutes an Event of Default or Potential Event of
Default.
3. CONDITIONS TO EFFECTIVENESS. The effectiveness of the
waivers, amendments and other agreements contemplated hereby is subject to the
fulfillment, to the satisfaction of the Purchasers, of the following conditions:
3.1. AMENDED WARRANTS. The Company shall have executed and
delivered to each of the Purchasers an amended and restated Warrant,
substantially in the form set out in Annex 4 hereto, for the purchase by the
Purchasers of an aggregate of 662,461 shares of Common Stock, against surrender
by each such Purchaser of the original Warrants for cancellation.
3.2. ISSUANCE OF SHARES OF COMMON STOCK. As consideration for
the agreement of the Purchasers to amend certain covenants and to forego
prepayment premiums and the other agreements of the Purchasers contained herein,
the Company shall have issued to each of the Purchasers the number of shares of
Common Stock specified opposite such Purchaser's name in Annex 1 attached hereto
under the heading "Number of Shares of Common Stock", and the Company shall have
delivered to such Purchaser certificates representing such shares.
3.3. REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed and delivered to each of the Purchasers the Registration Rights
Agreement, substantially in the form of Annex 5.
3.4. NO DEFAULT. The Company shall have delivered to each of
the Purchasers an Officer's Certificate stating that as of the date hereof, and
after giving effect to the transactions contemplated hereby, no Event of Default
or Potential Event of Default has occurred and is continuing.
3.5. CONSENTS, AGREEMENTS. The Company shall have obtained
all other consents and waivers necessary in connection with the transactions
contemplated hereby, and such consents and waivers shall be in full force and
effect on the date hereof. A complete and correct copy of each of such
consents and waivers shall have been delivered to the Purchasers.
11
<PAGE>
3.6. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this
Agreement and all documents and instruments incident to such transactions
shall be satisfactory to the Purchasers and their special counsel, and the
Purchasers and their special counsel shall have received all such counterpart
originals or certified or other copies of such documents as it or they may
reasonably request.
3.7. OPINION OF COUNSEL. The Purchasers shall have received
from Latham & Watkins, counsel for the Company, and from Fitzgerald, Schorr,
Barmettler & Brennan, P.C., Nebraska counsel for the Company, favorable
opinions substantially in the form set forth in Annex 6-A and 6-B,
respectively, addressed to the Purchasers, dated the effective date of this
Amendment No. 4 and otherwise satisfactory in substance and form to the
Purchasers.
4. INTENT OF PURCHASERS. Each Purchaser represents that (A)
it is acquiring the shares of Common Stock and amended Warrants hereunder for
its own account, not with a view to the distribution thereof or with any
present intention of distributing or selling any of such shares or amended
Warrants except in compliance with the Securities Act and any applicable
state securities laws, PROVIDED that the disposition of each Purchaser's
property shall at all times be within its control and (B) it is an
"accredited investor" within the meaning of Rule 502 of the Securities Act.
5. RATIFICATION. Except as amended hereby, all of the
provisions of the Note Agreement shall remain in full force and effect.
6. MISCELLANEOUS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, whether so expressed or not. THIS AGREEMENT
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK. The headings in this Agreement are for purposes of
12
<PAGE>
reference only and shall not limit or otherwise affect the meaning hereof. This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
13
<PAGE>
If the Purchasers are in agreement with the foregoing,
please sign the form of agreement on the accompanying counterparts of this
letter and return one of the same to the Company, whereupon this letter shall
become a binding agreement between the Purchasers and the Company.
Very truly yours,
ECO SOIL SYSTEMS, INC.
By:
--------------------------
The foregoing Amendment is
hereby agreed to as of the
date hereof.
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC,
its General Partner
By:
-------------------------
Name: Peter C. Gummeson
Title: Senior Vice President
PARIBAS CAPITAL FUNDING LLC
By:
-------------------------
Name: Jeff Youle
Title: Managing Director
14
<PAGE>
ECO SOIL SYSTEMS, INC.
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
Dated as of January 21, 2000
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED ANNEX 1
Amendment No. 5 to
Note and Warrant Purchase Agreement
Amendment No. 1 to
Registration Rights Agreement
-----------------------------
Ladies and Gentlemen:
Reference is made to the Note and Warrant Purchase
Agreement, dated as of August 25, 1998, as amended by letter agreements dated
March 31, 1999, June 30, 1999, November 12, 1999, and December 21, 1999 (as
so amended, the "Note Agreement"), among Eco Soil Systems, Inc., a Nebraska
corporation (the "Company"), and Albion Alliance Mezzanine Fund, L.P. and
Paribas Capital Funding LLC (collectively, the "Purchasers"); and to the
Registration Rights Agreement, dated as of December 21, 1999 (the
"Registration Rights Agreement"), among the Company and each of the
Purchasers. The Purchasers hold 100% of the Notes outstanding under the Note
Agreement. Capitalized terms used herein without definition have the meanings
specified therefor in the Note Agreement.
The Company requests the consent of the Purchasers to
certain transactions and to certain amendments of the Note Agreement and the
Registration Rights Agreement, and the Purchasers are willing to consent to
such transactions and amendments, on the terms and subject to the conditions
set forth herein.
The parties agree as follows:
1. CONSENT TO INCURRENCE OF DEBT. The Purchasers hereby
consent to the incurrence today by the Company of $4,500,000 principal amount
of Debt pursuant to the 7% Debentures. The Purchasers acknowledge and agree
for the benefit of the holder or holders of the 7% Debentures from time to
time that the Debt of the Company outstanding thereunder (notwithstanding any
restriction in the Note Agreement that would have prohibited the incurrence
of such Debt in the absence of
<PAGE>
this consent) is "Superior Debt" for all purposes of section 13 of the Note
Agreement. The Purchasers have reviewed the 7% Debentures, the Convertible
Debentures and Warrants Purchase Agreement pursuant to which the 7%
Debentures are being issued, and the related ancillary documentation, and
such instruments and documents are satisfactory to the Purchasers.
2. AMENDMENTS TO THE NOTE AGREEMENT. 2.1. AMENDMENT OF
SECTION 10.19. Section 10.19 of the Note Agreement is hereby amended and
restated to read in its entirety as follows:
"10.19. SALE OF EQUITY SECURITIES. Without the
consent of the holders of at least 60% in principal amount of the Notes
at the time outstanding, the Company will not, and will not permit any
Subsidiary to, issue or sell any shares of its capital stock (other
than pursuant to (i) the exercise of employee stock options and
warrants and (ii) Earn Out Obligations) or securities convertible into
or exchangeable or exercisable for shares of its capital stock, except
that without such consent (a) any Subsidiary may issue such shares or
other securities to the Company and (b) the Company may sell shares of
Common Stock at a price of not less than $2.50 per share with warrant
coverage of up to 40% (I.E., with warrants attached permitting the
purchase, for an exercise price of not less than $2.50 per share, of a
number of additional shares not exceeding 40% of the number of shares
of Common Stock so issued) for aggregate proceeds of up to $3,500,000."
2.2. ADDITIONAL DEFINITIONS. The following defined terms are
hereby added to section 14 of the Note Agreement in the appropriate alphabetical
order:
"AMENDMENT NO. 5: Amendment No. 5 to this Agreement,
dated as of January 21, 2000.
"7% DEBENTURES: the 7% Senior Secured Convertible
Debentures due January 21, 2001 of the Company, to be issued on January
21, 2000 in the principal amount of $4,500,000."
2.3. AMENDMENT OF CERTAIN DEFINITIONS. The following defined
term is hereby amended and restated to read in its entirety as follows:
"EQUITY PROCEEDS: as of any date of determination,
the aggregate amount of the net cash proceeds received by the Company
or any of its Subsidiaries from the sale of shares of its capital stock
(other than pursuant to the exercise of employee stock options or
warrants) or securities convertible into or exchangeable or exercisable
for shares of its capital stock, during the period from the
2
<PAGE>
date of Amendment No. 4 to and including the date of determination;
PROVIDED that the first $8,000,000 of net cash proceeds received by
the Company from the sale of equity securities (including the 7%
Debentures) in compliance with section 10.19 shall be excluded from
any determination of Equity Proceeds."
3. AMENDMENTS TO THE REGISTRATION RIGHTS AGREEMENT. 3.1.
ADDITION OF SECTION 2.8. The Registration Rights Agreement is hereby amended by
adding new section 2.8 immediately following section 2.7 thereof:
"2.8. ADDITIONAL HOLDBACK AGREEMENTS. The holders of
Registrable Securities agree, for the benefit of the holders of the 7%
Debentures, that they will not effect any public sale or distribution
of any of the Registrable Securities, except as permitted by the
following provisions of this section 2.8, until the earlier of (a)
January 21, 2001 and (b) the date on which there shall no longer exist
any "7% Debentures Registrable Securities" (as defined in section 1).
The holders of Registrable Securities may include pursuant to section
2.1 up to 402,208 shares of Common Stock held by them in any
registration initiated by the holders of the 7% Debentures, PROVIDED
that such shares will not be sold or distributed pursuant to such
registration except in accordance with the following schedule:
"(i) 100,000 of such shares may be sold or
distributed at any time after the date such registration is
declared effective by the Commission (the "Effective Date");
"(ii) an additional 100,000 of such shares
may be sold or distributed at any time after the day that is
ninety days after the Effective Date;
"(iii) an additional 100,000 of such shares
may be sold or distributed at any time after the day that is
one hundred eighty days after the Effective Date; and
"(iv) all of such shares may be sold or
distributed at any time after the day that is two hundred
seventy days after the Effective Date.
"Each holder of Registrable Securities hereunder may sell or distribute up to
its PRO RATA share of each aggregate amount permitted by the foregoing clauses
to be sold or distributed."
3
<PAGE>
3.2. ADDITIONAL DEFINITION. The following defined terms are
hereby added to section 1 of the Registration Rights Agreement in the
appropriate alphabetical order:
"AMENDMENT NO. 5: Amendment No. 5 to the Note
Agreement, dated as of January 21, 2000, among the Company and the
Investors.
"7% DEBENTURES REGISTRABLE SECURITIES: "Registrable
Securities" as defined in the registration rights agreement pursuant
to which the holders of the 7% Debentures have registration rights."
3.2. AMENDMENT OF DEFINITION. The following defined term is
hereby amended and restated to read in its entirety as follows:
"AMENDMENT SHARES: the 402,208 Shares and the 200,000
Shares issued pursuant to section 4.2 of Amendment No. 4 and section
5.1 of Amendment No. 5, respectively, to the Investors on a pro rata
basis."
4. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants that:
4.1. ORGANIZATION, STANDING, ETC. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own and operate its properties
and to carry on its business as now conducted and as proposed to be
conducted; and the Company has all requisite power and authority to enter
into and carry out the terms of this Amendment No. 5 and the transactions
contemplated by this Amendment No. 5.
4.2. NO DEFAULTS. As of the date hereof, no condition or
event exists which constitutes an Event of Default or Potential Event of
Default.
5. CONDITIONS TO EFFECTIVENESS. The effectiveness of the
waivers, amendments and other agreements contemplated hereby is subject to
the fulfillment, to the satisfaction of the Purchasers, of the following
conditions:
5.1. ISSUANCE OF SHARES OF COMMON STOCK. As consideration
for the agreement of the Purchasers to consent to the incurrence of Debt
under the 7% Debentures and the other agreements of the Purchasers contained
herein, the Company shall have issued to each of the Purchasers the number of
shares of Common Stock specified opposite such Purchaser's name in Annex 1
4
<PAGE>
attached hereto under the heading "Number of Shares of Common Stock to be
Issued in Connection with Amendment No. 5", and the Company shall have
delivered to such Purchaser certificates representing such shares.
5.2. CONSENTS, AGREEMENTS. The Company shall have obtained
all consents and waivers necessary in connection with the transactions
contemplated hereby, and such consents and waivers shall be in full force and
effect on the date hereof.
5.3. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this
Amendment No. 5 and all documents and instruments incident to such
transactions shall be satisfactory to the Purchasers and their special
counsel, and the Purchasers and their special counsel shall have received all
such counterpart originals or certified or other copies of such documents as
it or they may reasonably request.
5.4. PAYMENT OF INTEREST. The Company shall have paid in
advance the interest payment to become due on the Notes on February 25, 2000.
5.5. LEGAL FEES. The Company shall have paid the fees and
disbursements of the Purchasers' special counsel incurred in connection with
the transactions contemplated by Amendments Nos. 3, 4 and 5 and set forth in
a statement delivered to the Company on or prior to the date hereof.
6. INTENT OF PURCHASERS. Each Purchaser represents that (a)
it is acquiring the shares of Common Stock hereunder for its own account, not
with a view to the distribution thereof or with any present intention of
distributing or selling any of such shares except in compliance with the
Securities Act and any applicable state securities laws, PROVIDED that the
disposition of each Purchaser's property shall at all times be within its
control and (b) it is an "accredited investor" within the meaning of Rule 502
of the Securities Act.
7. RATIFICATION. Except as amended hereby, all of the
provisions of the Note Agreement shall remain in full force and effect.
8. MISCELLANEOUS. This Amendment No. 5 shall be binding
upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not.
THIS AMENDMENT NO. 5 SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The headings in this Amendment
No. 5 are for purposes of reference only and shall not limit or
5
<PAGE>
otherwise affect the meaning hereof. This Amendment No. 5 may be executed in
any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
6
<PAGE>
If the Purchasers are in agreement with the foregoing,
please sign the form of agreement on the accompanying counterparts of this
Amendment No. 5 and return one of the same to the Company, whereupon this
Amendment No. 5 shall become a binding agreement between the Purchasers and
the Company.
Very truly yours,
ECO SOIL SYSTEMS, INC.
By:
--------------------------
The foregoing Amendment is
hereby agreed to as of the
date hereof.
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC,
its General Partner
By:
-------------------------
Name: Peter C. Gummeson
Title: Senior Vice President
PARIBAS CAPITAL FUNDING LLC
By:
-------------------------
Name: Jeff Youle
Title: Managing Director
7
<PAGE>
- --------------------------------------------------------------------------------
ECO SOIL SYSTEMS, INC.
------------------------------
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
------------------------------
Expiring August 25, 2005
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Exercise of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1. Manner of Exercise. . . . . . . . . . . . . . . . . . . . . . . .1
1.2. When Exercise Deemed Effected . . . . . . . . . . . . . . . . . .2
1.3. Delivery of Stock Certificates, etc.. . . . . . . . . . . . . . .2
1.4. Company to Reaffirm Obligations . . . . . . . . . . . . . . . . .3
1.5. Payment by Application of the Notes . . . . . . . . . . . . . . .3
2. Adjustment of Common Stock Issuable Upon Exercise.. . . . . . . . . . . . . .4
2.1. Number of Shares; Warrant Price.. . . . . . . . . . . . . . . . .4
2.2. Adjustment of Warrant Price . . . . . . . . . . . . . . . . . . .4
2.2.1. Issuance of Additional Shares of Common Stock. . . . . . .4
2.2.2. Extraordinary Dividends and Distributions. . . . . . . . .5
2.3. Treatment of Options and Convertible Securities . . . . . . . . .6
2.4. Treatment of Stock Dividends, Stock Splits, etc.. . . . . . . . .9
2.5. Computation of Consideration. . . . . . . . . . . . . . . . . . .9
2.6. Adjustments for Combinations, etc.. . . . . . . . . . . . . . . 11
2.7. Dilution in Case of Other Securities. . . . . . . . . . . . . . 11
2.8. Minimum Adjustment of Warrant Price . . . . . . . . . . . . . . 12
3. Consolidation, Merger, Sale of Assets, Reorganization, etc. . . . . . . . . 12
4. Other Dilutive Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. No Dilution or Impairment . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Accountants' Report as to Adjustments . . . . . . . . . . . . . . . . . . . 14
7. Notices of Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . 15
8. Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.1. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . 16
8.2. Notice of Proposed Transfer; Opinions of Counsel. . . . . . . . 16
8.3. Termination of Restrictions . . . . . . . . . . . . . . . . . . 18
9. Registration under Securities Act, etc.. . . . . . . . . . . . . . . . . . . 18
10. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . 18
11. Reservation of Stock, etc.. . . . . . . . . . . . . . . . . . . . . . . . . 18
i
<PAGE>
12. Listing on Securities Exchange. . . . . . . . . . . . . . . . . . . . . . . 19
13. Ownership, Transfer and Substitution of Warrants. . . . . . . . . . . . . . 19
13.1. Ownership of Warrants . . . . . . . . . . . . . . . . . . . . . 19
13.2. Transfer and Exchange of Warrants . . . . . . . . . . . . . . . 19
13.3. Replacement of Warrants . . . . . . . . . . . . . . . . . . . . 19
14. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16. No Rights or Liabilities as Stockholder . . . . . . . . . . . . . . . . . . 26
17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
18. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
19. Expiration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
Form of Subscription
Form of Notice
Schedule of Outstanding Options
ii
<PAGE>
Amended and Restated
Common Stock Purchase Warrant
Expiring August 25, 2005
New York, New York
August 25, 1998
PPN# 278858 1 1 3
No. W-3
ECO SOIL SYSTEMS, INC., a Nebraska corporation (the "Company"), for
value received, hereby certifies that ALBION ALLIANCE MEZZANINE FUND, L.P.,
or registered assigns, is entitled to purchase from the Company 353,313 duly
authorized, validly issued, fully paid and nonassessable shares of Common
Stock, par value $.005 per share, of the Company (the "Common Stock") at the
purchase price per share of $.01, at any time or from time to time on or
after December 21, 1999 and prior to 3 P.M., New York City time, on August
25, 2005 (or such later date as may be determined pursuant to section 20),
all subject to the terms, conditions and adjustments set forth below in this
Amended and Restated Warrant.
This Warrant is one of the Amended and Restated Common Stock
Purchase Warrants (the "Warrants", such term to include all Warrants issued
in substitution therefor) originally issued in connection with the issue and
sale by the Company of $15,000,000 aggregate principal amount of its 12.00%
Notes due August 25, 2003 (together with all notes issued in substitution
therefor, the "Notes"), pursuant to the Note and Warrant Purchase Agreements
(collectively, the "Purchase Agreement"), each dated as of August 25, 1998
and amended from time to time, between the Company and the institutional
investors named therein; and amended and restated on December 21, 1999. The
Warrants originally so issued evidenced rights to purchase an aggregate of
262,500 shares of Common Stock and the Warrants as so amended and restated
evidence rights to purchase an additional 399,961 shares of Common Stock, for
an aggregate of 662,461 shares; all subject to adjustment as provided herein.
Certain capitalized terms used in this Warrant are defined in section 14.
1. EXERCISE OF WARRANT. 1.1. MANNER OF EXERCISE. This Warrant may
be exercised by the holder hereof, in whole or in part, during normal business
hours on
<PAGE>
any Business Day by surrender of this Warrant, with the form of subscription
at the end hereof (or a reasonable facsimile thereof) duly executed by such
holder, to the Company at its principal office (or, if such exercise shall be
in connection with an underwritten Public Offering of shares of Common Stock
(or Other Securities) subject to this Warrant, at the location at which the
Company shall have agreed to deliver the shares of Common Stock (or Other
Securities) subject to such offering), accompanied by payment, in cash or by
certified or official bank check payable to the order of the company or by
the application of Notes in the manner provided in section 1.5 (or by any
combination of such methods), in the amount obtained by multiplying (A) the
number of shares of Common Stock (without giving effect to any adjustment
therein) designated in such form of subscription by (B) $.01 and such holder
shall thereupon be entitled to receive the number of duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) determined as provided in sections 2 through 4.
1.2. WHEN EXERCISE DEEMED EFFECTED. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant shall have been
surrendered to the Company as provided in section 1.1, and at such time the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock (or Other Securities) shall be issuable upon such
exercise as provided in section 1.3 shall be deemed to have become the holder
or holders of record thereof.
1.3. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable
after the exercise of this Warrant, in whole or in part, and in any event
within five Business Days thereafter (unless such exercise shall be in
connection with an underwritten Public Offering of shares of Common Stock (or
Other Securities) subject to this Warrant, in which event concurrently with
such exercise), the Company at its expense (including the payment by it of
any applicable taxes other than transfer taxes) will cause to be issued in
the name of and delivered to the holder hereof or, subject to section 8, as
such holder (upon payment by such holder of any applicable transfer taxes)
may direct,
(a) a certificate or certificates for the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock (or
Other
2
<PAGE>
Securities) to which such holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such holder would otherwise
be entitled, cash in an amount equal to the same fraction of the Market
Price per share of such Common Stock (or Other Securities) on the Business
Day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or Warrants
of like tenor, calling in the aggregate on the face or faces thereof for
the number of shares of Common Stock equal (without giving effect to any
adjustment therein) to the number of such shares called for on the face of
this Warrant minus the number of such shares designated by the holder upon
such exercise as provided in section 1.1.
1.4. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the
time of or at any time after each exercise of this Warrant, upon the request
of the holder hereof or of any shares of Common Stock (or Other Securities)
issued upon such exercise, acknowledge in writing its continuing obligation
to afford to such holder all rights (including, without limitation, any right
of registration of any shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant pursuant to the Registration Rights Agreement)
to which such holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant, PROVIDED that if any such holder
shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
1.5. PAYMENT BY APPLICATION OF THE NOTES. Upon any exercise of
this Warrant, the holder hereof may, at its option, instruct the Company, by
so specifying in the form of subscription submitted therewith as provided in
section 1.1, to apply to the payment required by section 1.1 all or any part
of the principal amount then unpaid and of the interest on such principal
amount then accrued on any one or more Notes at the time held by such holder,
in which case the Company will accept the aggregate amount of principal and
accrued interest on such principal specified in such form of subscription in
satisfaction of a like amount of such payment. In case less than the entire
unpaid principal amount of any Note shall be so specified, the principal
amount so specified shall be credited, as of the date of such exercise,
against the installments of principal then
3
<PAGE>
remaining unpaid on such Note either in the inverse order of their maturity
dates or in the direct order of their maturity dates as such holder shall
instruct in such form of subscription. Within five days after receipt of any
such notice, the Company will pay to the holder of the Notes submitting such
form of subscription, in the manner provided in such Notes and the Purchase
Agreement, all unpaid interest accrued to the date of exercise of such
Warrant on the principal amount so specified in such form of subscription
that is not applied to the payment required by section 1.1 under this section
1.5. In the event that the entire unpaid principal amount of any Note is
applied to the payment required by section 1.1 under this section 1.5, such
Note shall be promptly surrendered and canceled in accordance with the
provisions of section 15 of the Purchase Agreement.
2. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE. 2.1.
NUMBER OF SHARES; WARRANT PRICE. The number of shares of Common Stock which
the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common
Stock which would otherwise (but for the provisions of this section 2) be
issuable upon such exercise, as designated by the holder hereof pursuant to
section 1.1, by a fraction of which (I) the numerator is $.01 and (II) the
denominator is the Warrant Price in effect on the date of such exercise. The
"Warrant Price" shall initially be $.01 per share, shall be adjusted and
readjusted from time to time as provided in this section 2 and, as so
adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by this section 2.
2.2. ADJUSTMENT OF WARRANT PRICE. 2.2.1. ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In case the Company, at any time or from time to
time after August 25, 1998 (the "Initial Date"), shall issue or sell
Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to section 2.3 or 2.4) without
consideration or for a consideration per share less than the Base Price in
effect, in each case, on the date of and immediately prior to such issue or
sale, then, and in each such case, subject to section 2.8, such Warrant Price
shall be reduced, concurrently with such issue or sale, to a price
(calculated to the nearest .001 of a cent) determined by multiplying such
Warrant Price by a fraction,
4
<PAGE>
(a) the numerator of which shall be (I) the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus (II)
the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of
Common Stock so issued or sold would purchase at the Base Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale,
PROVIDED that, for the purposes of this section 2.2.1, (X) immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding,
and (Y) treasury shares shall not be deemed to be outstanding.
2.2.2. EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case the Company
at any time or from time to time after the Initial Date shall declare, order,
pay or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on any Common Stock, other than (A) a dividend
payable in Additional Shares of Common Stock or in Options for Common Stock or
(B) a regular, periodic dividend payable in cash and declared out of the earned
surplus of the Company as at the date hereof as increased by any credits (other
than credits resulting from a revaluation of property) and decreased by any
debits made thereto after such date, then, and in each such case, subject to
section 2.8, the Warrant Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of any class
of securities entitled to receive such dividend or distribution shall be
reduced, effective as of the close of business on such record date, to a price
(calculated to the nearest .001 of a cent) determined by multiplying such
Warrant Price by a fraction,
(i) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, less
the value of such dividend or distribution (as determined in good faith by
the Board of Directors of
5
<PAGE>
the Company) applicable to one share of Common Stock, and
(ii) the denominator of which shall be such Current Market Price.
2.3. TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES. In case the
Company at any time or from time to time after the Initial Date shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to, any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be issued for
purposes of section 2.2.1 as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the
close of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), PROVIDED that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to section 2.5) of such shares would be less than the Base Price in
effect, in each case, on the date of and immediately prior to such issue,
sale, grant or assumption or immediately prior to the close of business on
such record date (or, if the Common Stock trades on an ex-dividend basis, on
the date prior to the commencement of ex-dividend trading), as the case may
be, and PROVIDED, FURTHER, that in any such case in which Additional Shares
of Common Stock are deemed to be issued,
(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Additional Shares of Common Stock or
Convertible Securities upon the exercise of such Options or the conversion
or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the
6
<PAGE>
exercise, conversion or exchange thereof (by change of rate or otherwise),
the Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options, or
the rights of conversion or exchange under such Convertible Securities,
which are outstanding at such time;
(c) upon the expiration of any such Options or of the rights of
conversion or exchange under any such Convertible Securities which shall
not have been exercised (or upon purchase by the Company and cancellation
or retirement of any such Options which shall not have been exercised or of
any such Convertible Securities the rights of conversion or exchange under
which shall not have been exercised), the Warrant Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence
of the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or of Convertible
Securities, the only Additional Shares of Common Stock issued or sold were
the Additional Shares of Common Stock, if any, actually issued or sold upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor was (X) an
amount equal to (A) the consideration actually received by the Company for
the issue, sale, grant or assumption of all such Options, whether or not
exercised, plus (B) the consideration actually received by the Company upon
such exercise, minus (C) the consideration paid by the Company for any
purchase of such Options which were not exercised, or (Y) an amount equal
to (A) the consideration actually received by the Company for the issue,
sale, grant or assumption of all such Convertible Securities
7
<PAGE>
which were actually converted or exchanged, plus (B) the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, minus (C) the consideration paid by the Company
for any purchase of such Convertible Securities the rights of conversion
or exchange under which were not exercised, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the exercise
of such Options were issued at the time of the issue, sale, grant or
assumption of such Options, and the consideration received by the Company
for the Additional Shares of Common Stock deemed to have then been issued
was an amount equal to (X) the consideration actually received by the
Company for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus (Y) the consideration deemed to have been
received by the Company (pursuant to section 2.5) upon the issue or sale of
the Convertible Securities with respect to which such Options were actually
exercised, minus (Z) the consideration paid by the Company for any purchase
of such Options which were not exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Warrant Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above.
In case at any time after the Initial Date the Company shall be
required to increase the number of Additional Shares of Common Stock subject
to any Option or into which any Convertible Securities (other than the
Warrants) are convertible or exchangeable pursuant to the operation of
anti-dilution provisions applicable thereto,
8
<PAGE>
such Additional Shares shall be deemed to be issued for purposes of section
2.1 as of the time of such increase.
2.4. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the
Company at any time or from time to time after the Initial Date shall declare
or pay any dividend or other distribution on any class of stock of the
Company payable in Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in
Common Stock) , then, and in each such case, Additional Shares of Common
Stock shall be deemed to have been issued (A) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (B) in the case of any such subdivision, at the close of
business on the day immediately prior to the day upon which such corporate
action becomes effective.
2.5. COMPUTATION OF CONSIDERATION. For the purposes of this
section 2:
(a) The consideration for the issue or sale of any Additional Shares
of Common Stock or for the issue, sale, grant or assumption of any Options
or Convertible Securities, irrespective of the accounting treatment of such
consideration, shall
(i) insofar as it consists of cash, be computed at the amount of
cash received by the Company, after deducting any expenses paid or
incurred by the Company or any commissions or compensation paid or
concessions or discounts allowed to underwriters, dealers or others
performing similar services and any accrued interest or dividends in
connection with such issue or sale,
(ii) insofar as it consists of consideration (including
securities) other than cash, be computed at the Fair Value thereof at
the time of such issue or sale, after deducting any expenses paid or
incurred by the Company for any commissions or compensation paid or
concessions or discounts allowed to underwriters, dealers or others
performing similar services and any accrued
10
<PAGE>
interest or dividends in connection with such issue or sale, and
(iii) in case Additional Shares of Common Stock are issued or
sold or Convertible Securities are issued, sold, granted or assumed
together with other stock or securities or other assets of the Company
for a consideration which covers both, be the proportion of such
consideration so received, computed as provided in subdivisions (i)
and (ii) above, allocable to such Additional Shares of Common Stock or
Convertible Securities, as the case may be, all as determined in good
faith by the Board of Directors of the Company.
(b) All Options issued, sold, granted or assumed together with other
stock or securities or other assets of the Company for a consideration
which covers both, all Additional Shares of Common Stock, Options or
Convertible Securities issued in payment of any dividend or other
distribution on any class of stock of the Company and all Additional Shares
of Common Stock issued to effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common
Stock) shall be deemed to have been issued without consideration.
(c) Additional Shares of Common Stock deemed to have been issued for
consideration pursuant to section 2.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise in full of such Options or
the conversion or exchange of such Convertible Securities or, in the
case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the
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conversion or exchange of such Convertible Securities, in each case
computing such consideration as provided in the foregoing
subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
(d) Additional Shares of Common Stock issued or deemed to have been
issued pursuant to the operation of anti-dilution provisions applicable to
Convertible Securities (other than the Warrants), Options or other
securities of the Company (either as a result of the adjustments provided
for by the Warrants or otherwise) shall be deemed to have been issued
without consideration.
2.6. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock, the Warrant
Price in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.7. DILUTION IN CASE OF OTHER SECURITIES. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale
upon the conversion or exchange of any stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other Person referred to in
section 3) or to subscription, purchase or other acquisition pursuant to any
Options issued or granted by the Company (or any such other issuer or Person)
for a consideration such as to dilute, on a basis consistent with the
standards established in the other provisions of this section 2, the purchase
rights granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this section 2
with respect to the Warrant Price shall be made as nearly as possible in the
manner so provided and applied to determine
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the amount of Other Securities from time to time receivable upon the exercise
of the Warrants, so as to protect the holders of the Warrants against the
effect of such dilution.
2.8. MINIMUM ADJUSTMENT OF WARRANT PRICE. If the amount of any
adjustment of the Warrant Price required pursuant to this section 2 would be
less than one one-hundredth (.01) of a cent, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least one
one-hundredth (.01) of a cent.
3. CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC..
In case the Company, after the Initial Date, (A) shall consolidate with or
merge into any other Person and shall not be the continuing or surviving
corporation of such consolidation or merger, or (B) shall permit any other
Person to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such consolidation
or merger, Common Stock or Other Securities shall be changed into or
exchanged for cash, stock or other securities of any other Person or any
other property, or (C) shall transfer all or substantially all of its
properties and assets to any other Person, or (D) shall effect a capital
reorganization or reclassification of Common Stock or Other Securities (other
than a capital reorganization or reclassification resulting in the issue of
Additional Shares of Common Stock for which adjustment in the Warrant Price
is provided in section 2.2.1 or 2.2.2), then, and in the case of each such
transaction, the Company shall give written notice thereof to each holder of
any Warrant not less than 30 days prior to the consummation thereof and
proper provision shall be made so that, upon the basis and the terms and in
the manner provided in this section 3, the holder of this Warrant, upon the
consummation of such transaction, shall be entitled to receive, at the
aggregate Warrant Price in effect at the time of such consummation for all
Common Stock (or Other Securities) issuable upon such exercise immediately
prior to such consummation, in lieu of the Common Stock (or Other Securities)
issuable upon such exercise prior to such consummation, the highest amount of
cash, securities or other property to which such holder would actually have
been entitled as a shareholder upon such consummation if such holder had
exercised this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as
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nearly equivalent as possible to the adjustments provided for in section 2
and this section 3, PROVIDED that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of Common Stock under
circumstances in which, upon completion of such purchase, tender or exchange
offer, the maker thereof, together with members of any group (within the
meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a
part, and together with any affiliate or associate of such maker (within the
meaning of Rule 12b-2 under the Exchange Act) and any members of any such
group of which any such affiliate or associate is a part, own beneficially
(within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of
the outstanding shares of Common Stock, and if the holder of this Warrant so
designates in such notice given to the Company, the holder of this Warrant
shall be entitled to receive the highest amount of cash, securities or other
property to which such holder would actually have been entitled as a
shareholder if the holder of this Warrant had exercised this Warrant prior to
the expiration of such purchase, tender or exchange offer, accepted such
offer and all of the Common Stock held by such holder had been purchased
pursuant to such purchase, tender or exchange offer, subject to adjustments
(from and after the consummation of such purchase, tender or exchange offer)
as nearly equivalent as possible to the adjustments provided for in section 2
and this section 3.
4. OTHER DILUTIVE EVENTS. In case any event shall occur as to
which the provisions of section 2 or section 3 are not strictly applicable
but the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent
and principles of such sections, then, in each such case, the Company shall
appoint a firm of independent public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described therein.
5. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer
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of assets, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (A) will not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such exercise, (B) will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock upon the exercise
of all of the Warrants from time to time outstanding, (C) will not take any
action which results in any adjustment of the Warrant Price if the total
number of shares of Common Stock (or Other Securities) issuable after the
action upon the exercise of all of the Warrants would exceed the total number
of shares of Common Stock (or other Securities) then authorized by the
Company's certificate of incorporation and available for the purpose of issue
upon such exercise and, (D) will not issue any capital stock of any class
which has the right to more than one vote per share or which is preferred as
to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless such stock is sold
for a cash consideration at least equal to the amount of its preference upon
voluntary or involuntary dissolution, liquidation or winding-up and the
rights of the holders thereof shall be limited to a fixed percentage (not
exceeding 15%) of such cash consideration in respect of participation in
dividends.
6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of the Warrants, the Company at its
expense will promptly compute such adjustment or readjustment in accordance
with the terms of the Warrants and cause independent public accountants of
recognized national standing selected by the Company (which may be the
regular auditors of the Company) to verify such computation and prepare a
report setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including without limitation a
statement of (a) the consideration received or to be
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received by the Company for any Additional Shares of Common Stock issued or
sold or deemed to have been issued, (b) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (c) the Warrant Price in effect
immediately prior to such issue or sale and as adjusted and readjusted (if
required by section 2) on account thereof. The Company will forthwith mail a
copy of each such report to each holder of a Warrant and will, upon the
written request at any time of any holder of a Warrant, furnish to such
holder a like report setting forth the Warrant Price at the time in effect
and showing in reasonable detail how it was calculated. The Company will
also keep copies of all such reports at its principal office and will cause
the same to be available for inspection at such office during normal business
hours by any holder of a Warrant or any prospective purchaser of a Warrant
designated by the holder thereof.
7. NOTICES OF CORPORATE ACTION. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a regular periodic dividend
payable in cash out of earned surplus) or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the Company to any other
Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of
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which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
the securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
20 days prior to the date therein specified, in the case of any date referred
to in the foregoing subdivision (i), and at least 90 days prior to the date
therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
8. RESTRICTIONS ON TRANSFER. 8.1. RESTRICTIVE LEGENDS. Except
as otherwise permitted by this section 8, each Warrant originally issued
pursuant to the Purchase Agreement and each Warrant issued upon direct or
indirect transfer or in substitution for any Warrant pursuant to section 13
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933 and may
not be transferred in the absence of such registration or an exemption
therefrom under such Act."
Except as otherwise permitted by this section 8, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant and each
certificate issued upon the direct or indirect transfer of any such Common
Stock (or Other Securities) shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be transferred in the absence
of such registration or an exemption therefrom under such Act. Such shares
are also subject to certain restrictions on transferability imposed by
Common Stock Purchase Warrants expiring August 25, 2005, a copy of which is
on file at the offices of the Company."
8.2. NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to any
transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act (other than a transfer
pursuant to Rule 144 or any comparable rule under such Act), the holder thereof
will give written notice to the Company
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of such holder's intention to effect such transfer and to comply in all other
respects with this section 8.2. Each such notice (a) shall describe the
manner and circumstances of the proposed transfer in sufficient detail to
enable counsel to render the opinions referred to below, and (b) shall
designate counsel for the holder giving such notice (who may be in-house
counsel for such holder). The holder giving such notice will submit a copy
thereof to the counsel designated in such notice. The following provisions
shall then apply:
(i) If in the opinion of counsel for the holder the proposed transfer
may be effected without registration, such holder shall thereupon be
entitled to transfer such Restricted Securities in accordance with the
terms of the notice delivered by such holder to the Company. Each Warrant
or certificate, if any, issued upon or in connection with such transfer
shall bear the appropriate restrictive legend set forth in section 8.1
unless, in the opinion of such counsel, such legend is no longer required
to insure compliance with the Securities Act.
(ii) If the opinion of such counsel for the holder is not to the
effect that the proposed transfer may legally be effected without
registration of such Restricted Securities under the Securities Act, such
holder shall not be entitled to transfer such Restricted Securities (other
than in a transfer pursuant to Rule 144 or any comparable rule under the
Securities Act) until the conditions specified in subdivision (i) above
shall be satisfied or until registration of such Restricted Securities
under the Securities Act has become effective.
Notwithstanding the foregoing provisions of this section 8.2, the holder of
any Restricted Securities shall be permitted to transfer any such Restricted
Securities pursuant to Rule 144A under the Securities Act, PROVIDED that each
transferee agrees in writing to be bound by all the restrictions on transfer
of such Restricted Securities contained in this section 8.2. The Company
will pay the reasonable fees and disbursements of counsel (other than
in-house counsel) for any holder of Restricted Securities and of counsel for
the Company in connection with all opinions rendered by them pursuant to this
section 8.2 and pursuant to section 8.3.
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8.3. TERMINATION OF RESTRICTIONS. The restrictions imposed by
this section 8 upon the transferability of Restricted Securities shall cease
and terminate as to any particular Restricted Securities (a) when such
securities shall have been effectively registered under the Securities Act
and disposed of in accordance with the registration statement covering such
Restricted Securities, (b) when, in the opinions of both counsel for the
holder thereof and counsel for the Company, such restrictions are no longer
required in order to insure compliance with the Securities Act, or (c) when
such securities have been beneficially owned, by a person who has not been an
affiliate of the Company for at least three months, for a period of at least
two years, all as determined under Rule 144 under the Securities Act.
Whenever such restrictions shall terminate as to any Restricted Securities,
as soon as practicable thereafter and in any event within five days, the
holder thereof shall be entitled to receive from the Company, without expense
(other than transfer taxes, if any), new securities of like tenor not bearing
the applicable legend set forth in section 8.1 hereof.
9. REGISTRATION UNDER SECURITIES ACT, ETC. The shares issuable
upon exercise of this Warrant shall be entitled to the registration rights
set forth in the Registration Rights Agreement.
10. AVAILABILITY OF INFORMATION. The Company will cooperate with
each holder of any Restricted Securities in supplying such information as may
be necessary for such holder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to each holder of any
Warrants, promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its stockholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by
the Company with any securities exchange or with the Commission.
11. RESERVATION OF STOCK, ETC. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to
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time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case of
shares, fully paid and nonassessable with no liability on the part of the
holders thereof.
12. LISTING ON SECURITIES EXCHANGE. The Company will list on each
national securities exchange on which any Common Stock may at any time be
listed, subject to official notice of issuance upon exercise of the Warrants,
and will maintain such listing of, all shares of Common Stock from time to
time issuable upon exercise of the Warrants. The Company will also so list
on each national securities exchange, and will maintain such listing of, any
other securities if at the time any securities of the same class shall be
listed on such national securities exchange by the Company.
13. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS. 13.1.
OWNERSHIP OF WARRANTS. The Company may treat the person in whose name any
Warrant is registered on the register kept at the principal office of the
Company as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat the
bearer thereof as the owner of such Warrant for all purposes, notwithstanding
any notice to the contrary. Subject to section 8, a Warrant, if properly
assigned, may be exercised by a new holder without first having a new Warrant
issued.
13.2. TRANSFER AND EXCHANGE OF WARRANTS. Upon the surrender of
any Warrant, properly endorsed, for registration of transfer or for exchange
at the principal office of the Company, the Company at its expense will
(subject to compliance with section 8, if applicable) execute and deliver to
or upon the order of the holder thereof a new Warrant or Warrants of like
tenor, in the name of such holder or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate
on the face or faces thereof for the number of shares of Common Stock called
for on the face or faces of the Warrant or Warrants so surrendered.
13.3. REPLACEMENT OF WARRANTS. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the
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case of any such loss, theft or destruction of any Warrant held by a Person
other than any institutional investor, upon delivery of indemnity reasonably
satisfactory to the Company in form and amount or, in the case of any such
mutilation, upon surrender of such Warrant for cancellation at the principal
office of the Company, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.
14. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
ACQUIRING PERSON: the continuing or surviving corporation of a
consolidation or merger with the Company (if other than the Company), the
transferee of substantially all of the properties and assets of the Company,
the corporation consolidating with or merging into the Company in a
consolidation or merger in connection with which the Common Stock is changed
into or exchanged for stock or other securities of any other Person or cash
or any other property, or, in the case of a capital reorganization or
reclassification, the Company.
ACQUISITION PRICE: as applied to the Common Stock, with respect to
any transaction to which section 3 applies, (a) the price per share equal to
the greater of the following, determined in each case as of the date
immediately preceding the date of consummation of such transaction: (i) the
Market Price of the Common Stock and (ii) the highest amount of cash plus the
Fair Value of the highest amount of securities or other property which the
holder of this Warrant would have been entitled as a shareholder to receive
upon such consummation if such holder had exercised this Warrant immediately
prior thereto, or (b) if a purchase, tender or an exchange offer is made by
the Acquiring Person (or by any of its affiliates) to the holders of the
Common Stock and such offer is accepted by the holders of more than 50% of
the outstanding shares of Common Stock, the greater of (i) the price
determined in accordance with the foregoing, subdivision (a) and (ii) the
price per share equal to the greater of the following, determined in each
case as of the date immediately preceding the acceptance of such offer by the
holders of more than 50% of the outstanding shares of Common Stock: (x) the
Market Price of the Common Stock and (y) the highest amount of cash plus the
Fair Value of the highest amount of securities or other property which the
holder of this Warrant would be
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entitled as a shareholder to receive pursuant to such offer if such holder
had exercised this Warrant immediately prior to the expiration of such offer
and accepted the same.
ADDITIONAL SHARES OF COMMON STOCK: all shares (including treasury
shares) of Common Stock issued or sold (or, pursuant to section 2.3 or 2.4,
deemed to be issued) by the Company after the Initial Date hereof, whether or
not subsequently reacquired or retired by the Company, other than (a) shares
of Common Stock issued upon the exercise of Warrants and (b) the Options
listed on Schedule A hereto.
BASE PRICE: as of any date of determination, the lesser of (a)
$4.00 and (b) the Current Market Price as of such date.
BUSINESS DAY: any day other than a Saturday or a Sunday or a day
on which commercial banking institutions in the City of New York are
authorized by law to be closed, PROVIDED that, in determining the period
within which certificates or Warrants are to be issued and delivered pursuant
to section 1.3 at a time when shares of Common Stock (or Other Securities)
are listed or admitted to trading on any national securities exchange or in
the over-the-counter market and in determining the Market Price of any
securities listed or admitted to trading on any national securities exchange
or in the over-the-counter market, "Business Day" shall mean any day when the
principal exchange in which securities are then listed or admitted to trading
is open for trading or, if such securities are traded in the over-the-counter
market in the United States, such market is open for trading, and PROVIDED,
FURTHER, that any reference to "days" (unless Business Days are specified)
shall mean calendar days.
COMMISSION: the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act or the Exchange
Act, whichever is the relevant statute for the particular purpose.
COMMON STOCK: the Company's Common Stock, par value $.005 per
share, as constituted on the date hereof, any stock into which such Common
Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the
right, without limitation as to amount,
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either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference.
COMPANY: Eco Soil Systems, Inc., a Nebraska corporation.
CONVERTIBLE SECURITIES: any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
CURRENT MARKET PRICE: on any date specified herein, (a) with
respect to Common Stock, (i) the lesser of (x) the average daily Market Price
during the period of the most recent 20 consecutive Business Days ending on
such date and (y) the Market Price on the Business Day immediately preceding
such date, or (ii) if shares of Common Stock are not then listed or admitted
to trading on any national securities exchange and if the closing bid and
asked prices thereof are not then quoted or published in the over-the-counter
market, the Market Price on such date; and (b) with respect to any other
securities, the Market Price on such date.
EXCHANGE ACT: the Securities Exchange Act of 1934, or any similar
Federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934 shall include a reference to
the comparable section, if any, of any such similar Federal statute.
FAIR VALUE: with respect to any securities or other property, the
Fair Value thereof as of a date which is within 15 days of the date as of
which the determination is to be made (a) determined by an agreement between
the Company and the Requisite Holders of Warrants or (b) if the Company and
the Requisite Holders of Warrants fail to agree, determined jointly by an
independent investment banking firm retained by the Company and by an
independent investment banking firm retained by the Requisite Holders of
Warrants, either of which firms may be an independent investment banking firm
regularly retained by the Company or any such holder or (c) if the Company or
such holders shall fail so to retain an independent investment banking firm
within five Business Days of the retention of such firm by such holders
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or the Company, as the case may be, determined solely by the firm so retained
or (d) if the firms so retained by the Company and by such holders shall be
unable to reach a joint determination within 15 Business Days of the
retention of the last firm so retained, determined by another independent
investment banking firm which is not a regular investment banking firm of the
Company or any such holder chosen by the first two such firms.
INITIAL DATE: the meaning specified in section 2.2.
MARKET PRICE: on any date specified herein, (a) with respect to
Common Stock, the amount per share equal to (i) the last sale price of shares
of such security, regular way, on such date or, if no such sale takes place
on such date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national
securities exchange on which the same are then listed or admitted to trading,
or (ii) if no shares of such security are then listed or admitted to trading
on any national securities exchange but such security is designated as a
national market system security by the NASD, the last trading price of such
security on such date, or if such security is not so designated, the average
of the reported closing bid and asked prices thereof on such date as shown by
the NASD automated quotation system or, if no shares thereof are then quoted
in such system, as published by the National Quotation Bureau, Incorporated
or any successor organization, and in either case as reported by any member
firm of the New York Stock Exchange selected by the Company, or (iii) if no
shares of such security are then listed or admitted to trading on any
national exchange or designated as a national market system security and if
no closing bid and asked prices thereof are then so quoted or published in
the over-the-counter market, the higher of (x) the book value thereof as
determined by agreement between the Company and the Requisite Holders of
Warrants, or if the Company and the Requisite Holders of Warrants fail to
agree, by any firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company, as of the last day of any
month ending within 60 days preceding the date as of which the determination
is to be made or (y) the fair value thereof determined in good faith by the
Board of Directors of the issuer thereof as of a date which is within 15 days
of the date as of which the determination is to be made; and (b) with respect
to any other securities, the fair value thereof determined in good
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faith by the Board of Directors of the Company as of a date which is within
15 days of the date as of which the determination is to be made.
NASD: the National Association of Securities Dealers.
NOTES: the meaning specified in the opening paragraphs of this
Warrant.
OPTIONS: rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
securities.
OTHER SECURITIES: any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
section 3 or otherwise.
PARENT: as to any Acquiring Person, any corporation which (a)
controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to include the Acquiring Person in its
consolidated financial statements under generally accepted accounting
principles and (c) is not itself included in the consolidated financial
statements of any other Person (other than its consolidated subsidiaries).
PERSON: an individual, a partnership, an association, a joint
venture, a corporation, a limited liability company, a business, a trust, an
unincorporated organization or a government or any department, agency or
subdivision thereof.
PUBLIC OFFERING: any offering of Common Stock to the public
pursuant to an effective registration statement under the Securities Act.
PURCHASE AGREEMENT: the meaning specified in the opening
paragraphs of this Warrant.
REGISTRATION RIGHTS AGREEMENT: that certain Registration Rights
Agreement, dated December 21, 1999,
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among the Company, Albion Alliance Mezzanine Fund, L.P. and Paribas Capital
Funding LLC.
REQUISITE HOLDERS OF WARRANTS: the holders of at least 60% of all
the Warrants at the time outstanding determined on the basis of the number of
shares of Common Stock or Other Securities deliverable upon exercise thereof.
RESTRICTED SECURITIES: (a) any Warrants bearing the applicable
legend set forth in section 8.1, (b) any shares of Common Stock (or Other
Securities) which have been issued upon the exercise of Warrants and which
are evidenced by a certificate or certificates bearing the applicable legend
set forth in such section, and (c) unless the context otherwise requires, any
shares of Common Stock (or Other Securities) which are at the time issuable
upon the exercise of Warrants and which, when so issued, will be evidenced by
a certificate or certificates bearing the applicable legend set forth in such
section.
SECURITIES ACT: the Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933 shall include a reference to the comparable
section, if any, of any such similar Federal statute.
SUBSIDIARY: any corporation, association or other business entity
at least 50% (by number of votes) of the Voting Common Stock of which is at
the time owned by the Company or by one or more Subsidiaries or by the
Company and one or more Subsidiaries.
TRANSFER: unless the context otherwise requires, any sale,
assignment, pledge or other disposition of any security, or of any interest
therein, which could constitute a "sale" as that term is defined in section
2(3) of the Securities Act.
VOTING COMMON STOCK: with respect to any corporation, association
or other business entity, stock of any class or classes (or equivalent
interest) , if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies,
entitled to vote for the election of a majority of the directors (or persons
performing similar functions) of such corporation, association or business
entity, even if the
25
<PAGE>
right so to vote has been suspended by the happening of such a contingency.
WARRANT PRICE: the meaning specified in section 2.1.
WARRANTS: the meaning specified in the opening paragraphs of this
Warrant.
15. REMEDIES. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of
this Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
16. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in
this Warrant shall be construed as conferring upon the holder hereof any
rights as a stockholder of the Company or as imposing any liabilities on such
holder to purchase any securities or as a stockholder of the Company, whether
such liabilities are asserted by the Company or by creditors or stockholders
of the Company or otherwise.
17. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be delivered by hand, facsimile
transmission or courier service, or mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant or
any holder of any Common Stock (or Other Securities), at the registered
address of such holder as set forth in the register kept at the principal
office of the Company, or (b) if to the Company, to the attention of its
Chief Financial Officer, at its principal office, PROVIDED that the exercise
of any Warrant shall be effected in the manner provided in section 1.
18. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. The agreements of the Company contained
in this Warrant, other than those applicable
26
<PAGE>
solely to the Warrants and the holders thereof, shall inure to the benefit of
and be enforceable by any holder or holders at the time of any Common Stock
(or Other Securities) issued upon the exercise of Warrants, whether so
expressed or not. This Warrant shall be construed and enforced in accordance
with and governed by the laws of the State of New York. The section headings
in this Warrant are for purposes of convenience only and shall not constitute
a part hereof.
[SIGNATURE APPEARS ON THE FOLLOWING PAGE]
27
<PAGE>
19. EXPIRATION. The right to exercise this Warrant shall expire at 3
P.M., New York City time, on August 25, 2005.
ECO SOIL SYSTEMS, INC.
By:
---------------------
Title:
28
<PAGE>
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To _________________
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, ____________
(1) shares of Common Stock of ECO SOIL SYSTEMS, INC., a Nebraska corporation,
and herewith makes payment of $________ therefor [by application pursuant to
section 1.5 of such Warrant of $________ aggregate principal amount of Notes
(as defined in such Warrant) plus $________ accrued interest thereon],(2) and
requests that the certificates for such shares be issued in the name of, and
delivered to ________ whose address is ________.
[The undersigned hereby instructs you to credit the principal amount
of each Note so applied against the installments of principal remaining unpaid
on such Note in the ________ order of their maturity dates.]
Dated: ______________
---------------------
(Signature must conform in all respects to name of
holder as specified on the face of this Warrant)
[insert address]
- ---------------------
(1) Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this
Warrant, may be delivered upon exercise. In the case of a partial exercise,
a new warrant or Warrants will be issued and delivered, representing the
unexercised portion of this Warrant, to the holder surrendering the same.
(2) Delete inapplicable language in brackets.
<PAGE>
FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto ________ the right
represented by such Warrant to purchase ________ shares of Common Stock of
ECO SOIL SYSTEMS, INC., a Nebraska corporation, to which such Warrant
relates, and appoints ________ Attorney to make such transfer on the books
of ________ maintained for such purpose, with full power of substitution in
the premises.
Dated: _____________
--------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of this Warrant)
[insert address]
Signed in the presence of:
- ----------------------------
30
<PAGE>
- ------------------------------------------------------------------------------
ECO SOIL SYSTEMS, INC.
------------------------------
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
------------------------------
Expiring August 25, 2005
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Exercise of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1. Manner of Exercise. . . . . . . . . . . . . . . . . . . . . . . .1
1.2. When Exercise Deemed Effected . . . . . . . . . . . . . . . . . .2
1.3. Delivery of Stock Certificates, etc.. . . . . . . . . . . . . . .2
1.4. Company to Reaffirm Obligations . . . . . . . . . . . . . . . . .3
1.5. Payment by Application of the Notes . . . . . . . . . . . . . . .3
2. Adjustment of Common Stock Issuable Upon Exercise.. . . . . . . . . . . . . .4
2.1. Number of Shares; Warrant Price.. . . . . . . . . . . . . . . . .4
2.2. Adjustment of Warrant Price . . . . . . . . . . . . . . . . . . .4
2.2.1. Issuance of Additional Shares of Common Stock. . . . . . .4
2.2.2. Extraordinary Dividends and Distributions. . . . . . . . .5
2.3. Treatment of Options and Convertible Securities . . . . . . . . .6
2.4. Treatment of Stock Dividends, Stock Splits, etc.. . . . . . . . .9
2.5. Computation of Consideration. . . . . . . . . . . . . . . . . . .9
2.6. Adjustments for Combinations, etc.. . . . . . . . . . . . . . . 11
2.7. Dilution in Case of Other Securities. . . . . . . . . . . . . . 12
2.8. Minimum Adjustment of Warrant Price . . . . . . . . . . . . . . 12
3. Consolidation, Merger, Sale of Assets, Reorganization, etc. . . . . . . . . 12
4. Other Dilutive Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. No Dilution or Impairment . . . . . . . . . . . . . . . . . . . . . . . . . 14
6. Accountants' Report as to Adjustments . . . . . . . . . . . . . . . . . . . 15
7. Notices of Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . 15
8. Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.1. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . 16
8.2. Notice of Proposed Transfer; Opinions of Counsel. . . . . . . . 17
8.3. Termination of Restrictions . . . . . . . . . . . . . . . . . . 18
9. Registration under Securities Act, etc.. . . . . . . . . . . . . . . . . . . 19
10. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Reservation of Stock, etc.. . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
12. Listing on Securities Exchange. . . . . . . . . . . . . . . . . . . . . . . 19
13. Ownership, Transfer and Substitution of Warrants. . . . . . . . . . . . . . 20
13.1. Ownership of Warrants . . . . . . . . . . . . . . . . . . . . . 20
13.2. Transfer and Exchange of Warrants . . . . . . . . . . . . . . . 20
13.3. Replacement of Warrants . . . . . . . . . . . . . . . . . . . . 20
14. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16. No Rights or Liabilities as Stockholder . . . . . . . . . . . . . . . . . . 27
17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
18. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
19. Expiration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
Form of Subscription
Form of Notice
Schedule of Outstanding Options
ii
<PAGE>
Amended and Restated
Common Stock Purchase Warrant
Expiring August 25, 2005
New York, New York
August 25, 1998
PPN# 278858 1 1 3
No. W-4
ECO SOIL SYSTEMS, INC., a Nebraska corporation (the "Company"), for
value received, hereby certifies that PARIBAS CAPITAL FUNDING LLC, or
registered assigns, is entitled to purchase from the Company 309,148 duly
authorized, validly issued, fully paid and nonassessable shares of Common
Stock, par value $.005 per share, of the Company (the "Common Stock") at the
purchase price per share of $.01, at any time or from time to time on or
after December 21, 1999 and prior to 3 P.M., New York City time, on August
25, 2005 (or such later date as may be determined pursuant to section 20),
all subject to the terms, conditions and adjustments set forth below in this
Amended and Restated Warrant.
This Warrant is one of the Amended and Restated Common Stock
Purchase Warrants (the "Warrants", such term to include all Warrants issued
in substitution therefor) originally issued in connection with the issue and
sale by the Company of $15,000,000 aggregate principal amount of its 12.00%
Notes due August 25, 2003 (together with all notes issued in substitution
therefor, the "Notes"), pursuant to the Note and Warrant Purchase Agreements
(collectively, the "Purchase Agreement"), each dated as of August 25, 1998
and amended from time to time, between the Company and the institutional
investors named therein; and amended and restated on December 21, 1999. The
Warrants originally so issued evidenced rights to purchase an aggregate of
262,500 shares of Common Stock and the Warrants as so amended and restated
evidence rights to purchase an additional 399,961 shares of Common Stock, for
an aggregate of 662,461 shares; all subject to adjustment as provided herein.
Certain capitalized terms used in this Warrant are defined in section 14.
1. EXERCISE OF WARRANT. 1.1. MANNER OF EXERCISE. This Warrant
may be exercised by the holder hereof, in whole or in part, during normal
business hours on
<PAGE>
any Business Day by surrender of this Warrant, with the form of subscription
at the end hereof (or a reasonable facsimile thereof) duly executed by such
holder, to the Company at its principal office (or, if such exercise shall be
in connection with an underwritten Public Offering of shares of Common Stock
(or Other Securities) subject to this Warrant, at the location at which the
Company shall have agreed to deliver the shares of Common Stock (or Other
Securities) subject to such offering), accompanied by payment, in cash or by
certified or official bank check payable to the order of the company or by
the application of Notes in the manner provided in section 1.5 (or by any
combination of such methods), in the amount obtained by multiplying (a) the
number of shares of Common Stock (without giving effect to any adjustment
therein) designated in such form of subscription by (b) $.01 and such holder
shall thereupon be entitled to receive the number of duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) determined as provided in sections 2 through 4.
1.2. WHEN EXERCISE DEEMED EFFECTED. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant shall have been
surrendered to the Company as provided in section 1.1, and at such time the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock (or Other Securities) shall be issuable upon such
exercise as provided in section 1.3 shall be deemed to have become the holder
or holders of record thereof.
1.3. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable
after the exercise of this Warrant, in whole or in part, and in any event
within five Business Days thereafter (unless such exercise shall be in
connection with an underwritten Public Offering of shares of Common Stock (or
Other Securities) subject to this Warrant, in which event concurrently with
such exercise), the Company at its expense (including the payment by it of
any applicable taxes other than transfer taxes) will cause to be issued in
the name of and delivered to the holder hereof or, subject to section 8, as
such holder (upon payment by such holder of any applicable transfer taxes)
may direct,
(a) a certificate or certificates for the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock (or
Other
2
<PAGE>
Securities) to which such holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such holder would otherwise
be entitled, cash in an amount equal to the same fraction of the Market
Price per share of such Common Stock (or Other Securities) on the Business
Day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or Warrants
of like tenor, calling in the aggregate on the face or faces thereof for
the number of shares of Common Stock equal (without giving effect to any
adjustment therein) to the number of such shares called for on the face of
this Warrant minus the number of such shares designated by the holder upon
such exercise as provided in section 1.1.
1.4. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the
time of or at any time after each exercise of this Warrant, upon the request
of the holder hereof or of any shares of Common Stock (or Other Securities)
issued upon such exercise, acknowledge in writing its continuing obligation
to afford to such holder all rights (including, without limitation, any right
of registration of any shares of Common Stock (or Other Securities) issuable
upon exercise of this Warrant pursuant to the Registration Rights Agreement)
to which such holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant, PROVIDED that if any such holder
shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
1.5. PAYMENT BY APPLICATION OF THE NOTES. Upon any exercise of
this Warrant, the holder hereof may, at its option, instruct the Company, by
so specifying in the form of subscription submitted therewith as provided in
section 1.1, to apply to the payment required by section 1.1 all or any part
of the principal amount then unpaid and of the interest on such principal
amount then accrued on any one or more Notes at the time held by such holder,
in which case the Company will accept the aggregate amount of principal and
accrued interest on such principal specified in such form of subscription in
satisfaction of a like amount of such payment. In case less than the entire
unpaid principal amount of any Note shall be so specified, the principal
amount so specified shall be credited, as of the date of such exercise,
against the installments of principal then
3
<PAGE>
remaining unpaid on such Note either in the inverse order of their maturity
dates or in the direct order of their maturity dates as such holder shall
instruct in such form of subscription. Within five days after receipt of any
such notice, the Company will pay to the holder of the Notes submitting such
form of subscription, in the manner provided in such Notes and the Purchase
Agreement, all unpaid interest accrued to the date of exercise of such
Warrant on the principal amount so specified in such form of subscription
that is not applied to the payment required by section 1.1 under this section
1.5. In the event that the entire unpaid principal amount of any Note is
applied to the payment required by section 1.1 under this section 1.5, such
Note shall be promptly surrendered and canceled in accordance with the
provisions of section 15 of the Purchase Agreement.
2. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE. 2.1.
NUMBER OF SHARES; WARRANT PRICE. The number of shares of Common Stock which
the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common
Stock which would otherwise (but for the provisions of this section 2) be
issuable upon such exercise, as designated by the holder hereof pursuant to
section 1.1, by a fraction of which (i) the numerator is $.01 and (ii) the
denominator is the Warrant Price in effect on the date of such exercise. The
"Warrant Price" shall initially be $.01 per share, shall be adjusted and
readjusted from time to time as provided in this section 2 and, as so
adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by this section 2.
2.2. ADJUSTMENT OF WARRANT PRICE. 2.2.1. ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In case the Company, at any time or from time to
time after August 25, 1998 (the "Initial Date"), shall issue or sell
Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to section 2.3 or 2.4) without
consideration or for a consideration per share less than the Base Price in
effect, in each case, on the date of and immediately prior to such issue or
sale, then, and in each such case, subject to section 2.8, such Warrant Price
shall be reduced, concurrently with such issue or sale, to a price
(calculated to the nearest .001 of a cent) determined by multiplying such
Warrant Price by a fraction,
4
<PAGE>
(a) the numerator of which shall be (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale plus (ii)
the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of
Common Stock so issued or sold would purchase at the Base Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale,
PROVIDED that, for the purposes of this section 2.2.1, (x) immediately after
any Additional Shares of Common Stock are deemed to have been issued pursuant
to section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding.
2.2.2. EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case the
Company at any time or from time to time after the Initial Date shall
declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of other or additional stock or other
securities or property or Options by way of dividend or spin-off,
reclassification, recapitalization or similar corporate rearrangement) on any
Common Stock, other than (a) a dividend payable in Additional Shares of
Common Stock or in Options for Common Stock or (b) a regular, periodic
dividend payable in cash and declared out of the earned surplus of the
Company as at the date hereof as increased by any credits (other than credits
resulting from a revaluation of property) and decreased by any debits made
thereto after such date, then, and in each such case, subject to section 2.8,
the Warrant Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of securities
entitled to receive such dividend or distribution shall be reduced, effective
as of the close of business on such record date, to a price (calculated to
the nearest .001 of a cent) determined by multiplying such Warrant Price by a
fraction,
(i) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, less
the value of such dividend or distribution (as determined in good faith by
the Board of Directors of
5
<PAGE>
the Company) applicable to one share of Common Stock, and
(ii) the denominator of which shall be such Current Market Price.
2.3. TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES. In case the
Company at any time or from time to time after the Initial Date shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to, any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be issued for
purposes of section 2.2.1 as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the
close of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), PROVIDED that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to section 2.5) of such shares would be less than the Base Price in
effect, in each case, on the date of and immediately prior to such issue,
sale, grant or assumption or immediately prior to the close of business on
such record date (or, if the Common Stock trades on an ex-dividend basis, on
the date prior to the commencement of ex-dividend trading), as the case may
be, and PROVIDED, FURTHER, that in any such case in which Additional Shares
of Common Stock are deemed to be issued,
(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Additional Shares of Common Stock or
Convertible Securities upon the exercise of such Options or the conversion
or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the
6
<PAGE>
exercise, conversion or exchange thereof (by change of rate or otherwise),
the Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options, or the
rights of conversion or exchange under such Convertible Securities, which
are outstanding at such time;
(c) upon the expiration of any such Options or of the rights of
conversion or exchange under any such Convertible Securities which shall
not have been exercised (or upon purchase by the Company and cancellation
or retirement of any such Options which shall not have been exercised or of
any such Convertible Securities the rights of conversion or exchange under
which shall not have been exercised), the Warrant Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence
of the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or of Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received therefor
was (x) an amount equal to (a) the consideration actually received by
the Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus (b) the consideration actually
received by the Company upon such exercise, minus (c) the
consideration paid by the Company for any purchase of such Options
which were not exercised, or (y) an amount equal to (a) the
consideration actually received by the Company for the issue, sale,
grant or assumption of all such Convertible Securities
7
<PAGE>
which were actually converted or exchanged, plus (b) the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, minus (c) the consideration paid by the
Company for any purchase of such Convertible Securities the rights
of conversion or exchange under which were not exercised, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consideration received
by the Company for the Additional Shares of Common Stock deemed to
have then been issued was an amount equal to (x) the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus (y)
the consideration deemed to have been received by the Company
(pursuant to section 2.5) upon the issue or sale of the Convertible
Securities with respect to which such Options were actually
exercised, minus (z) the consideration paid by the Company for any
purchase of such Options which were not exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Warrant Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above.
In case at any time after the Initial Date the Company shall be
required to increase the number of Additional Shares of Common Stock subject
to any Option or into which any Convertible Securities (other than the
Warrants) are convertible or exchangeable pursuant to the operation of
anti-dilution provisions applicable thereto,
8
<PAGE>
such Additional Shares shall be deemed to be issued for purposes of section
2.1 as of the time of such increase.
2.4. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the
Company at any time or from time to time after the Initial Date shall declare
or pay any dividend or other distribution on any class of stock of the
Company payable in Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in
Common Stock) , then, and in each such case, Additional Shares of Common
Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of
business on the day immediately prior to the day upon which such corporate
action becomes effective.
2.5. COMPUTATION OF CONSIDERATION. For the purposes of this
section 2:
(a) The consideration for the issue or sale of any Additional Shares
of Common Stock or for the issue, sale, grant or assumption of any Options
or Convertible Securities, irrespective of the accounting treatment of such
consideration, shall
(i) insofar as it consists of cash, be computed at the amount
of cash received by the Company, after deducting any expenses paid
or incurred by the Company or any commissions or compensation paid
or concessions or discounts allowed to underwriters, dealers or
others performing similar services and any accrued interest or
dividends in connection with such issue or sale,
(ii) insofar as it consists of consideration (including
securities) other than cash, be computed at the Fair Value thereof
at the time of such issue or sale, after deducting any expenses
paid or incurred by the Company for any commissions or compensation
paid or concessions or discounts allowed to underwriters, dealers
or others performing similar services and any accrued
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interest or dividends in connection with such issue or sale, and
(iii) in case Additional Shares of Common Stock are issued or
sold or Convertible Securities are issued, sold, granted or assumed
together with other stock or securities or other assets of the
Company for a consideration which covers both, be the proportion of
such consideration so received, computed as provided in
subdivisions (i) and (ii) above, allocable to such Additional
Shares of Common Stock or Convertible Securities, as the case may
be, all as determined in good faith by the Board of Directors of
the Company.
(b) All Options issued, sold, granted or assumed together with other
stock or securities or other assets of the Company for a consideration
which covers both, all Additional Shares of Common Stock, Options or
Convertible Securities issued in payment of any dividend or other
distribution on any class of stock of the Company and all Additional Shares
of Common Stock issued to effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common
Stock) shall be deemed to have been issued without consideration.
(c) Additional Shares of Common Stock deemed to have been issued for
consideration pursuant to section 2.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption
of the Options or Convertible Securities in question, plus the
minimum aggregate amount of additional consideration (as set forth
in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise in full of
such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the
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conversion or exchange of such Convertible Securities, in each case
computing such consideration as provided in the foregoing
subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(d) Additional Shares of Common Stock issued or deemed to have been
issued pursuant to the operation of anti-dilution provisions applicable to
Convertible Securities (other than the Warrants), Options or other
securities of the Company (either as a result of the adjustments provided
for by the Warrants or otherwise) shall be deemed to have been issued
without consideration.
2.6. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of shares of Common Stock, the Warrant
Price in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.7. DILUTION IN CASE OF OTHER SECURITIES. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale
upon the conversion or exchange of any stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other Person referred to in
section 3) or to subscription, purchase or other acquisition pursuant to any
Options issued or granted by the Company (or any such other issuer or Person)
for a consideration such as to dilute, on a basis consistent with the
standards established in the other provisions of this section 2, the purchase
rights granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this section 2
with respect to the Warrant Price shall be made as nearly as possible in the
manner so provided and applied to determine
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the amount of Other Securities from time to time receivable upon the exercise
of the Warrants, so as to protect the holders of the Warrants against the
effect of such dilution.
2.8. MINIMUM ADJUSTMENT OF WARRANT PRICE. If the amount of any
adjustment of the Warrant Price required pursuant to this section 2 would be
less than one one-hundredth (.01) of a cent, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least one
one-hundredth (.01) of a cent.
3. CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC..
In case the Company, after the Initial Date, (a) shall consolidate with or
merge into any other Person and shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) shall permit any other
Person to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such consolidation
or merger, Common Stock or Other Securities shall be changed into or
exchanged for cash, stock or other securities of any other Person or any
other property, or (c) shall transfer all or substantially all of its
properties and assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of Common Stock or Other Securities (other
than a capital reorganization or reclassification resulting in the issue of
Additional Shares of Common Stock for which adjustment in the Warrant Price
is provided in section 2.2.1 or 2.2.2), then, and in the case of each such
transaction, the Company shall give written notice thereof to each holder of
any Warrant not less than 30 days prior to the consummation thereof and
proper provision shall be made so that, upon the basis and the terms and in
the manner provided in this section 3, the holder of this Warrant, upon the
consummation of such transaction, shall be entitled to receive, at the
aggregate Warrant Price in effect at the time of such consummation for all
Common Stock (or Other Securities) issuable upon such exercise immediately
prior to such consummation, in lieu of the Common Stock (or Other Securities)
issuable upon such exercise prior to such consummation, the highest amount of
cash, securities or other property to which such holder would actually have
been entitled as a shareholder upon such consummation if such holder had
exercised this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as
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nearly equivalent as possible to the adjustments provided for in section 2
and this section 3, PROVIDED that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of Common Stock under
circumstances in which, upon completion of such purchase, tender or exchange
offer, the maker thereof, together with members of any group (within the
meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a
part, and together with any affiliate or associate of such maker (within the
meaning of Rule 12b-2 under the Exchange Act) and any members of any such
group of which any such affiliate or associate is a part, own beneficially
(within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of
the outstanding shares of Common Stock, and if the holder of this Warrant so
designates in such notice given to the Company, the holder of this Warrant
shall be entitled to receive the highest amount of cash, securities or other
property to which such holder would actually have been entitled as a
shareholder if the holder of this Warrant had exercised this Warrant prior to
the expiration of such purchase, tender or exchange offer, accepted such
offer and all of the Common Stock held by such holder had been purchased
pursuant to such purchase, tender or exchange offer, subject to adjustments
(from and after the consummation of such purchase, tender or exchange offer)
as nearly equivalent as possible to the adjustments provided for in section 2
and this section 3.
4. OTHER DILUTIVE EVENTS. In case any event shall occur as to
which the provisions of section 2 or section 3 are not strictly applicable
but the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent
and principles of such sections, then, in each such case, the Company shall
appoint a firm of independent public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described therein.
5. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer
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of assets, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such exercise, (b) will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock upon the exercise
of all of the Warrants from time to time outstanding, (c) will not take any
action which results in any adjustment of the Warrant Price if the total
number of shares of Common Stock (or Other Securities) issuable after the
action upon the exercise of all of the Warrants would exceed the total number
of shares of Common Stock (or other Securities) then authorized by the
Company's certificate of incorporation and available for the purpose of issue
upon such exercise and, (d) will not issue any capital stock of any class
which has the right to more than one vote per share or which is preferred as
to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless such stock is sold
for a cash consideration at least equal to the amount of its preference upon
voluntary or involuntary dissolution, liquidation or winding-up and the
rights of the holders thereof shall be limited to a fixed percentage (not
exceeding 15%) of such cash consideration in respect of participation in
dividends.
6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of the Warrants, the Company at its
expense will promptly compute such adjustment or readjustment in accordance
with the terms of the Warrants and cause independent public accountants of
recognized national standing selected by the Company (which may be the
regular auditors of the Company) to verify such computation and prepare a
report setting forth such adjustment or readjustment and showing in
reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including without limitation a
statement of (a) the consideration received or to be
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received by the Company for any Additional Shares of Common Stock issued or
sold or deemed to have been issued, (b) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (c) the Warrant Price in effect
immediately prior to such issue or sale and as adjusted and readjusted (if
required by section 2) on account thereof. The Company will forthwith mail a
copy of each such report to each holder of a Warrant and will, upon the
written request at any time of any holder of a Warrant, furnish to such
holder a like report setting forth the Warrant Price at the time in effect
and showing in reasonable detail how it was calculated. The Company will
also keep copies of all such reports at its principal office and will cause
the same to be available for inspection at such office during normal business
hours by any holder of a Warrant or any prospective purchaser of a Warrant
designated by the holder thereof.
7. NOTICES OF CORPORATE ACTION. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a regular periodic dividend
payable in cash out of earned surplus) or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the Company to any other
Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place and
the time, if any such time is to be fixed, as of
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which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
the securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
20 days prior to the date therein specified, in the case of any date referred
to in the foregoing subdivision (i), and at least 90 days prior to the date
therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
8. RESTRICTIONS ON TRANSFER. 8.1. RESTRICTIVE LEGENDS. Except
as otherwise permitted by this section 8, each Warrant originally issued
pursuant to the Purchase Agreement and each Warrant issued upon direct or
indirect transfer or in substitution for any Warrant pursuant to section 13
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933 and may
not be transferred in the absence of such registration or an exemption
therefrom under such Act."
Except as otherwise permitted by this section 8, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant and each
certificate issued upon the direct or indirect transfer of any such Common Stock
(or Other Securities) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be transferred in the absence
of such registration or an exemption therefrom under such Act. Such shares
are also subject to certain restrictions on transferability imposed by
Common Stock Purchase Warrants expiring August 25, 2005, a copy of which is
on file at the offices of the Company."
8.2. NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act (other than a
transfer pursuant to Rule 144 or any comparable rule under such Act), the
holder thereof will give written notice to the Company
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of such holder's intention to effect such transfer and to comply in all other
respects with this section 8.2. Each such notice (a) shall describe the
manner and circumstances of the proposed transfer in sufficient detail to
enable counsel to render the opinions referred to below, and (b) shall
designate counsel for the holder giving such notice (who may be in-house
counsel for such holder). The holder giving such notice will submit a copy
thereof to the counsel designated in such notice. The following provisions
shall then apply:
(i) If in the opinion of counsel for the holder the proposed transfer
may be effected without registration, such holder shall thereupon be
entitled to transfer such Restricted Securities in accordance with the
terms of the notice delivered by such holder to the Company. Each Warrant
or certificate, if any, issued upon or in connection with such transfer
shall bear the appropriate restrictive legend set forth in section 8.1
unless, in the opinion of such counsel, such legend is no longer required
to insure compliance with the Securities Act.
(ii) If the opinion of such counsel for the holder is not to the
effect that the proposed transfer may legally be effected without
registration of such Restricted Securities under the Securities Act, such
holder shall not be entitled to transfer such Restricted Securities (other
than in a transfer pursuant to Rule 144 or any comparable rule under the
Securities Act) until the conditions specified in subdivision (i) above
shall be satisfied or until registration of such Restricted Securities
under the Securities Act has become effective.
Notwithstanding the foregoing provisions of this section 8.2, the holder of
any Restricted Securities shall be permitted to transfer any such Restricted
Securities pursuant to Rule 144A under the Securities Act, PROVIDED that each
transferee agrees in writing to be bound by all the restrictions on transfer
of such Restricted Securities contained in this section 8.2. The Company
will pay the reasonable fees and disbursements of counsel (other than
in-house counsel) for any holder of Restricted Securities and of counsel for
the Company in connection with all opinions rendered by them pursuant to this
section 8.2 and pursuant to section 8.3.
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8.3. TERMINATION OF RESTRICTIONS. The restrictions imposed by
this section 8 upon the transferability of Restricted Securities shall cease
and terminate as to any particular Restricted Securities (a) when such
securities shall have been effectively registered under the Securities Act
and disposed of in accordance with the registration statement covering such
Restricted Securities, (b) when, in the opinions of both counsel for the
holder thereof and counsel for the Company, such restrictions are no longer
required in order to insure compliance with the Securities Act, or (c) when
such securities have been beneficially owned, by a person who has not been an
affiliate of the Company for at least three months, for a period of at least
two years, all as determined under Rule 144 under the Securities Act.
Whenever such restrictions shall terminate as to any Restricted Securities,
as soon as practicable thereafter and in any event within five days, the
holder thereof shall be entitled to receive from the Company, without expense
(other than transfer taxes, if any), new securities of like tenor not bearing
the applicable legend set forth in section 8.1 hereof.
9. REGISTRATION UNDER SECURITIES ACT, ETC. The shares issuable
upon exercise of this Warrant shall be entitled to the registration rights
set forth in the Registration Rights Agreement.
10. AVAILABILITY OF INFORMATION. The Company will cooperate with
each holder of any Restricted Securities in supplying such information as may
be necessary for such holder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to each holder of any
Warrants, promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its stockholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by
the Company with any securities exchange or with the Commission.
11. RESERVATION OF STOCK, ETC. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to
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time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case of
shares, fully paid and nonassessable with no liability on the part of the
holders thereof.
12. LISTING ON SECURITIES EXCHANGE. The Company will list on each
national securities exchange on which any Common Stock may at any time be
listed, subject to official notice of issuance upon exercise of the Warrants,
and will maintain such listing of, all shares of Common Stock from time to
time issuable upon exercise of the Warrants. The Company will also so list
on each national securities exchange, and will maintain such listing of, any
other securities if at the time any securities of the same class shall be
listed on such national securities exchange by the Company.
13. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS. 13.1.
OWNERSHIP OF WARRANTS. The Company may treat the person in whose name any
Warrant is registered on the register kept at the principal office of the
Company as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat the
bearer thereof as the owner of such Warrant for all purposes, notwithstanding
any notice to the contrary. Subject to section 8, a Warrant, if properly
assigned, may be exercised by a new holder without first having a new Warrant
issued.
13.2. TRANSFER AND EXCHANGE OF WARRANTS. Upon the surrender of
any Warrant, properly endorsed, for registration of transfer or for exchange
at the principal office of the Company, the Company at its expense will
(subject to compliance with section 8, if applicable) execute and deliver to
or upon the order of the holder thereof a new Warrant or Warrants of like
tenor, in the name of such holder or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate
on the face or faces thereof for the number of shares of Common Stock called
for on the face or faces of the Warrant or Warrants so surrendered.
13.3. REPLACEMENT OF WARRANTS. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the
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case of any such loss, theft or destruction of any Warrant held by a Person
other than any institutional investor, upon delivery of indemnity reasonably
satisfactory to the Company in form and amount or, in the case of any such
mutilation, upon surrender of such Warrant for cancellation at the principal
office of the Company, the Company at its expense will execute and deliver,
in lieu thereof, a new Warrant of like tenor.
14. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
ACQUIRING PERSON: the continuing or surviving corporation of a
consolidation or merger with the Company (if other than the Company), the
transferee of substantially all of the properties and assets of the Company,
the corporation consolidating with or merging into the Company in a
consolidation or merger in connection with which the Common Stock is changed
into or exchanged for stock or other securities of any other Person or cash
or any other property, or, in the case of a capital reorganization or
reclassification, the Company.
ACQUISITION PRICE: as applied to the Common Stock, with respect to
any transaction to which section 3 applies, (a) the price per share equal to
the greater of the following, determined in each case as of the date
immediately preceding the date of consummation of such transaction: (i) the
Market Price of the Common Stock and (ii) the highest amount of cash plus the
Fair Value of the highest amount of securities or other property which the
holder of this Warrant would have been entitled as a shareholder to receive
upon such consummation if such holder had exercised this Warrant immediately
prior thereto, or (b) if a purchase, tender or an exchange offer is made by
the Acquiring Person (or by any of its affiliates) to the holders of the
Common Stock and such offer is accepted by the holders of more than 50% of
the outstanding shares of Common Stock, the greater of (i) the price
determined in accordance with the foregoing, subdivision (a) and (ii) the
price per share equal to the greater of the following, determined in each
case as of the date immediately preceding the acceptance of such offer by the
holders of more than 50% of the outstanding shares of Common Stock: (x) the
Market Price of the Common Stock and (y) the highest amount of cash plus the
Fair Value of the highest amount of securities or other property which the
holder of this Warrant would be
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entitled as a shareholder to receive pursuant to such offer if such holder
had exercised this Warrant immediately prior to the expiration of such offer
and accepted the same.
ADDITIONAL SHARES OF COMMON STOCK: all shares (including treasury
shares) of Common Stock issued or sold (or, pursuant to section 2.3 or 2.4,
deemed to be issued) by the Company after the Initial Date hereof, whether or
not subsequently reacquired or retired by the Company, other than (a) shares
of Common Stock issued upon the exercise of Warrants and (b) the Options
listed on Schedule A hereto.
BASE PRICE: as of any date of determination, the lesser of (a)
$4.00 and (b) the Current Market Price as of such date.
BUSINESS DAY: any day other than a Saturday or a Sunday or a day
on which commercial banking institutions in the City of New York are
authorized by law to be closed, PROVIDED that, in determining the period
within which certificates or Warrants are to be issued and delivered pursuant
to section 1.3 at a time when shares of Common Stock (or Other Securities)
are listed or admitted to trading on any national securities exchange or in
the over-the-counter market and in determining the Market Price of any
securities listed or admitted to trading on any national securities exchange
or in the over-the-counter market, "Business Day" shall mean any day when the
principal exchange in which securities are then listed or admitted to trading
is open for trading or, if such securities are traded in the over-the-counter
market in the United States, such market is open for trading, and PROVIDED,
FURTHER, that any reference to "days" (unless Business Days are specified)
shall mean calendar days.
COMMISSION: the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act or the Exchange
Act, whichever is the relevant statute for the particular purpose.
COMMON STOCK: the Company's Common Stock, par value $.005 per
share, as constituted on the date hereof, any stock into which such Common
Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the
right, without limitation as to amount,
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either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference.
COMPANY: Eco Soil Systems, Inc., a Nebraska corporation.
CONVERTIBLE SECURITIES: any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
CURRENT MARKET PRICE: on any date specified herein, (a) with
respect to Common Stock, (i) the lesser of (x) the average daily Market Price
during the period of the most recent 20 consecutive Business Days ending on
such date and (y) the Market Price on the Business Day immediately preceding
such date, or (ii) if shares of Common Stock are not then listed or admitted
to trading on any national securities exchange and if the closing bid and
asked prices thereof are not then quoted or published in the over-the-counter
market, the Market Price on such date; and (b) with respect to any other
securities, the Market Price on such date.
EXCHANGE ACT: the Securities Exchange Act of 1934, or any similar
Federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934 shall include a reference to
the comparable section, if any, of any such similar Federal statute.
FAIR VALUE: with respect to any securities or other property, the
Fair Value thereof as of a date which is within 15 days of the date as of
which the determination is to be made (a) determined by an agreement between
the Company and the Requisite Holders of Warrants or (b) if the Company and
the Requisite Holders of Warrants fail to agree, determined jointly by an
independent investment banking firm retained by the Company and by an
independent investment banking firm retained by the Requisite Holders of
Warrants, either of which firms may be an independent investment banking firm
regularly retained by the Company or any such holder or (c) if the Company or
such holders shall fail so to retain an independent investment banking firm
within five Business Days of the retention of such firm by such holders
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or the Company, as the case may be, determined solely by the firm so retained
or (d) if the firms so retained by the Company and by such holders shall be
unable to reach a joint determination within 15 Business Days of the
retention of the last firm so retained, determined by another independent
investment banking firm which is not a regular investment banking firm of the
Company or any such holder chosen by the first two such firms.
INITIAL DATE: the meaning specified in section 2.2.
MARKET PRICE: on any date specified herein, (a) with respect to
Common Stock, the amount per share equal to (i) the last sale price of shares
of such security, regular way, on such date or, if no such sale takes place
on such date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national
securities exchange on which the same are then listed or admitted to trading,
or (ii) if no shares of such security are then listed or admitted to trading
on any national securities exchange but such security is designated as a
national market system security by the NASD, the last trading price of such
security on such date, or if such security is not so designated, the average
of the reported closing bid and asked prices thereof on such date as shown by
the NASD automated quotation system or, if no shares thereof are then quoted
in such system, as published by the National Quotation Bureau, Incorporated
or any successor organization, and in either case as reported by any member
firm of the New York Stock Exchange selected by the Company, or (iii) if no
shares of such security are then listed or admitted to trading on any
national exchange or designated as a national market system security and if
no closing bid and asked prices thereof are then so quoted or published in
the over-the-counter market, the higher of (x) the book value thereof as
determined by agreement between the Company and the Requisite Holders of
Warrants, or if the Company and the Requisite Holders of Warrants fail to
agree, by any firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company, as of the last day of any
month ending within 60 days preceding the date as of which the determination
is to be made or (y) the fair value thereof determined in good faith by the
Board of Directors of the issuer thereof as of a date which is within 15 days
of the date as of which the determination is to be made; and (b) with respect
to any other securities, the fair value thereof determined in good
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faith by the Board of Directors of the Company as of a date which is within
15 days of the date as of which the determination is to be made.
NASD: the National Association of Securities Dealers.
NOTES: the meaning specified in the opening paragraphs of this
Warrant.
OPTIONS: rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
securities.
OTHER SECURITIES: any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) which
the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to section 3 or otherwise.
PARENT: as to any Acquiring Person, any corporation which (a)
controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to include the Acquiring Person in its
consolidated financial statements under generally accepted accounting
principles and (c) is not itself included in the consolidated financial
statements of any other Person (other than its consolidated subsidiaries).
PERSON: an individual, a partnership, an association, a joint
venture, a corporation, a limited liability company, a business, a trust, an
unincorporated organization or a government or any department, agency or
subdivision thereof.
PUBLIC OFFERING: any offering of Common Stock to the public
pursuant to an effective registration statement under the Securities Act.
PURCHASE AGREEMENT: the meaning specified in the opening
paragraphs of this Warrant.
REGISTRATION RIGHTS AGREEMENT: that certain Registration Rights
Agreement, dated December 21, 1999,
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among the Company, Albion Alliance Mezzanine Fund, L.P. and Paribas Capital
Funding LLC.
REQUISITE HOLDERS OF WARRANTS: the holders of at least 60% of all
the Warrants at the time outstanding determined on the basis of the number of
shares of Common Stock or Other Securities deliverable upon exercise thereof.
RESTRICTED SECURITIES: (a) any Warrants bearing the applicable
legend set forth in section 8.1, (b) any shares of Common Stock (or Other
Securities) which have been issued upon the exercise of Warrants and which
are evidenced by a certificate or certificates bearing the applicable legend
set forth in such section, and (c) unless the context otherwise requires, any
shares of Common Stock (or Other Securities) which are at the time issuable
upon the exercise of Warrants and which, when so issued, will be evidenced by
a certificate or certificates bearing the applicable legend set forth in such
section.
SECURITIES ACT: the Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933 shall include a reference to the comparable
section, if any, of any such similar Federal statute.
SUBSIDIARY: any corporation, association or other business entity
at least 50% (by number of votes) of the Voting Common Stock of which is at
the time owned by the Company or by one or more Subsidiaries or by the
Company and one or more Subsidiaries.
TRANSFER: unless the context otherwise requires, any sale,
assignment, pledge or other disposition of any security, or of any interest
therein, which could constitute a "sale" as that term is defined in section
2(3) of the Securities Act.
VOTING COMMON STOCK: with respect to any corporation, association
or other business entity, stock of any class or classes (or equivalent
interest) , if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies,
entitled to vote for the election of a majority of the directors (or persons
performing similar functions) of such corporation, association or business
entity, even if the
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right so to vote has been suspended by the happening of such a contingency.
WARRANT PRICE: the meaning specified in section 2.1.
WARRANTS: the meaning specified in the opening paragraphs of this
Warrant.
15. REMEDIES. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of
this Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
16. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in
this Warrant shall be construed as conferring upon the holder hereof any
rights as a stockholder of the Company or as imposing any liabilities on such
holder to purchase any securities or as a stockholder of the Company, whether
such liabilities are asserted by the Company or by creditors or stockholders
of the Company or otherwise.
17. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be delivered by hand, facsimile
transmission or courier service, or mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant or
any holder of any Common Stock (or Other Securities), at the registered
address of such holder as set forth in the register kept at the principal
office of the Company, or (b) if to the Company, to the attention of its
Chief Financial Officer, at its principal office, PROVIDED that the exercise
of any Warrant shall be effected in the manner provided in section 1.
18. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. The agreements of the Company contained
in this Warrant, other than those applicable
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solely to the Warrants and the holders thereof, shall inure to the benefit of
and be enforceable by any holder or holders at the time of any Common Stock
(or Other Securities) issued upon the exercise of Warrants, whether so
expressed or not. This Warrant shall be construed and enforced in accordance
with and governed by the laws of the State of New York. The section headings
in this Warrant are for purposes of convenience only and shall not constitute
a part hereof.
[SIGNATURE APPEARS ON THE FOLLOWING PAGE]
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19. EXPIRATION. The right to exercise this Warrant shall expire
at 3 P.M., New York City time, on August 25, 2005.
ECO SOIL SYSTEMS, INC.
By:
---------------------------
Title:
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FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To _________________
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder,
_____________ (1) shares of Common Stock of ECO SOIL SYSTEMS, INC., a Nebraska
corporation, and herewith makes payment of $________ therefor [by application
pursuant to section 1.5 of such Warrant of $________ aggregate principal
amount of Notes (as defined in such Warrant) plus $________ accrued
interest thereon],(2) and requests that the certificates for such shares be
issued in the name of, and delivered to ________ whose address is ________.
[The undersigned hereby instructs you to credit the principal amount
of each Note so applied against the installments of principal remaining unpaid
on such Note in the ________ order of their maturity dates.]
Dated: ______________
_____________________
(Signature must conform in all respects
to name of holder as specified on the
face of this Warrant)
[insert address]
- ---------------------------
(1) Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which
this Warrant is being exercised), in either case without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of this Warrant, may be delivered upon exercise. In the case of
a partial exercise, a new warrant or Warrants will be issued and
delivered, representing the unexercised portion of this Warrant, to the
holder surrendering the same.
(2) Delete inapplicable language in brackets.
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FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto ________ the right
represented by such Warrant to purchase ________ shares of Common Stock of
ECO SOIL SYSTEMS, INC., a Nebraska corporation, to which such Warrant
relates, and appoints ________ Attorney to make such transfer on the books
of ________ maintained for such purpose, with full power of substitution in
the premises.
Dated: _____________
_________________________
(Signature must conform in all respects
to name of holder as specified on the
face of this Warrant)
[insert address]
Signed in the presence of:
_________________________
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ECO SOIL ANNOUNCES $4.5 MILLION CONVERTIBLE DEBENTURE FINANCING
RANCHO BERNARDO, Calif.--(BUSINESS WIRE)--Jan. 26, 2000--Eco Soil Systems,
Inc. (NASDAQ:ESSI - news) announced today it has completed a $4.5 million
private placement of convertible debentures and warrants to four
institutional investors.
The debentures are due in January 2001 and bear interest at a rate of 7 per
cent per annum payable quarterly beginning March 31, 2000, in cash or common
stock. The debentures are convertible into common stock at a varible price
determined at the time of conversion, but in no case will the conversion
price be higher than $3.00 or lower than $1.89. The Company may redeem the
debentures for cash at any time upon notice to the holders.
The investors received warrants to purchase an aggregate of 356,436 shares of
the company's common stock. The warrants are exercisable until January 24,
2005. The warrants have an initial exercise price of $4.49 per share.
The company has agreed to file a registration statement with the Securities
and Exchange Commission relating to the resale of the common stock issuable
upon the conversion of the debentures and upon the exercise of the warrants.
Eco Soil intends to use the proceeds of this financing for working capital
purposes.
Eco Soil develops, markets and sells proprietary biological and traditional
chemical products that provide solutions for a wide variety of turf and crop
maintenance problems in the golf and agricultural industries.
Their proprietary products evolve from the BioJect-Registered Trademark-.
These products, along with standard turf maintenance products, are sold to
nearly 40% of America's golf courses through Eco Soil's Turf Partners
subsidiary, and are sold to the agricultural market, along with irrigation
products, through its Agricultural Supply subsidiary.
Eco Soil's Internet site address is http://www.ecosoil.com.
The statements contained in this release that are not historical facts are
forward-looking statements that involve risks and uncertainties. Management
wishes to caution the reader that these forward-looking statements are only
predictions; actual events or results may differ materially as a result of
risks facing the company, including those listed under the caption "factors
that may affect future performance" in the company's Annual Report on Form
10-K filed April 13, 1999.
