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): April 27, 1997
AMERICAN BIO MEDICA CORPORATION
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(Exact name of registrant as specified in its charter)
New York 0-28666 22-3378935
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification
Number)
102 Simons Road Ancramdale, New York 12503
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (800) 227-1243
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Item 5. Other Events
On April 27, 1998, American Bio Medica Corporation (the "Company")
completed the sale in a private placement of $2.5 million of Series D
Convertible Preferred Shares and warrants to acquire 100,000 of its common
shares to a single institutional investor. The Series D preferred shares are
convertible into common shares of the Company as of specified dates at a
conversion price based on a defined formula. Proceeds from the $2.5 million
private placement are expected to be used for marketing and product development
as well as for working capital and general corporate purposes.
The private placement agreement also provides for, upon the satisfaction of
certain conditions, up to an additional $2.0 million in acquisition financing to
the same institutional investor on the same terms and conditions by the Company
through the sale of additional Series D preferred shares and warrants. The
financing was managed by Shoreline Pacific institution Finance, Division of
Financial West Group, Sausalito, CA. The foregoing information is a summary only
and is qualified in its entirety by the information contained in the documents
filed as exhibits to this Form 8-K.
The Company intends to use the proceeds from its offering to continue
market and product development efforts, as well as for general working capital.
Item 7. Financial Statements and Exhibits
(c) Exhibits
4.1 Form of Securities Purchase Agreement, (the "Subscription
Agreement"), between American Bio Medica Corporation (the
"Company") and the purchaser
4.2 Form of Registration Rights Agreement by and among the
Company, the placement agent and the purchaser
4.3 Form of Common Stock Purchase Warrant Certificate
4.4 Form of Certificate of Designation of Series D Preferred
Stock of the Company
4.5 Specimen Certificate, Series D Preferred Stock
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN BIO MEDICA CORPORATION
(Registrant)
By: /s/Stan Cipkowski
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Stan Cipkowski,
President and Principal
Executive Officer
By: /s/John F. Murray
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John F. Murray,
Treasurer and Principal
Financial Officer
Dated: April 28, 1998
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EXHIBIT INDEX
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Exhibit Description of Exhibit
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4.1 Form of Securities Purchase Agreement between American Bio Medica
Corporation (the "Company") and the purchaser
4.2 Form of Registration Rights Agreement, by and among the Company,
the placement agent and the purchaser
4.3 Form of Common Stock Purchase Warrant Certificate
4.4 Form of Certificate of Designation of Series D Preferred Stock of
the Company
4.5 Specimen Certificate, Series D Preferred Stock
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
April , 1998 by and between American Bio Medica Corporation, a New York
corporation (the "Company"), with headquarters located at 102 Simons Road,
Ancramdale, New York, 12503 and CC Investments, LDC ("Purchaser").
RECITALS
A. The Company and Purchaser are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").
B. Purchaser desires (a) to purchase, upon the terms and conditions stated
in this Agreement, up to Four Million ($4,000,000) U.S. Dollars face amount of
the Company's Series D Preferred Stock (the "Preferred Shares"), pursuant to the
Certificate of Designation attached hereto as Exhibit A, convertible into shares
of the Company's common stock, par value $0.01 per share (the "Common Stock")
and (b) to receive, in consideration for such purchase, Stock Purchase Warrants
(the "Warrants"), in the form attached hereto as Exhibit B, to acquire shares of
Common Stock. The Preferred Shares will be funded in closings (each, a
"Closing") of two tranches, with an initial closing of Two Million Five Hundred
Thousand ($2,500,000) U.S. Dollars face amount of the Preferred Shares (the
"First Closing"), and a second closing of One Million Five Hundred Thousand U.S.
Dollars face amount of Preferred Shares (the "Second Closing"), in each case
subject to the terms and conditions stated in this Agreement. The shares of
Common Stock to be issued to the Purchaser upon conversion of the Preferred
Shares are referred to herein as the "Common Shares." The shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Warrants are referred to
herein as "Warrant Shares." The Preferred Shares, the Common Shares, the
Warrants, and the Warrant Shares are collectively referred to herein as the
"Securities."
C. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement in
the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Purchaser hereby agree as
follows:
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ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Purchase of Preferred Shares. Subject to the terms and satisfaction or
waiver of the conditions of this Agreement, the issuance, sale and purchase of,
in the aggregate, Two Million Five Hundred Thousand U.S. Dollars ($2,500,000)
face amount of the Preferred Shares shall be consummated in the "First Closing."
On the date of the First Closing, subject to the satisfaction or waiver of the
conditions set forth in Article VI, the Company shall issue and sell to the
Purchaser, and Purchaser agrees to purchase from the Company, 2,500 Preferred
Shares, for an aggregate purchase price of Two Million Five Hundred Thousand
U.S. Dollars ($2,500,000) (the "Purchase Price").
Subject to the terms and satisfaction or waiver of the conditions of this
Agreement, the issuance, sale and purchase of One Million Five Hundred Thousand
U.S. Dollars ($1,500,000) face amount of the Preferred Shares shall be
consummated in the "Second Closing;" provided that, if the average of the
Closing Bid Prices (as defined in the Certificate of Designation) of the Common
Stock during the five day period ending on the date prior to the date of the
Second Closing is equal to or greater than 125% of the Closing Price (as defined
in the Certificate of Designation), the Company shall, upon written request to
Purchaser, be entitled, subject to the terms and satisfaction or waiver of the
conditions of this Agreement, to issue and sell, and the Purchaser shall
purchase, Two Million U.S. Dollars ($2,000,000) face amount of Preferred Shares
at the Second Closing. On the date of the Second Closing, subject to the
satisfaction or waiver of the conditions set forth in Article VII, the Company
shall issue and sell to the Purchaser, and Purchaser agrees to purchase from the
Company, 1,500 Preferred Shares, for an aggregate purchase price One Million
Five Hundred Thousand U.S. Dollars ($1,500,000) ; provided that, subject to the
foregoing sentence, the Company shall issue and sell, and the Purchaser shall
purchase, 2,000 Preferred Shares for an aggregate purchase price of Two Million
Dollars ($2,000,000) (either such amount, the "Additional Purchase Price").
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1.2 Form of Payment. At each of the First Closing and Second Closing,
Purchaser shall pay the Purchase Price and the Additional Purchase Price, as the
case may be, for the Preferred Shares and Warrants being purchased by Purchaser,
by wire transfer to the account designated pursuant to an Escrow Agreement by
and among the Company, Purchaser and the escrow agent ("Escrow Agent")
designated therein in the form attached hereto as Exhibit D ("Escrow Agreement")
upon delivery to the Escrow Agent of the Preferred Shares and the Warrants, all
in accordance with the terms of the Escrow Agreement, and upon satisfaction of
the other conditions to the First Closing or the Second Closing, as applicable.
1.3 Closing Dates. Subject to the satisfaction (or waiver) of the
conditions set forth in Article VI below, and further subject to the terms and
conditions of the Escrow Agreement, the date and time of the issuance, sale and
purchase of the Preferred Shares and Warrants shall be consummated at, or as
soon as possible following, the First Closing which shall be deemed to have
occured at 10:00 A.M. New York time on April 24, 1998. Subject to the
satisfaction (or waiver) of the conditions set forth in Article VII below, and
further subject to the terms and conditions of the Escrow Agreement, the date
and time of the issuance, sale and purchase of the Preferred Shares and Warrants
to be consummated at the Second Closing pursuant to this Agreement shall be upon
satisfaction (or waiver) of the terms and conditions set forth in Article VII;
provided that the Second Closing shall not occur more than 90 days following the
date of the First Closing.
1.4 Warrants. In consideration of the purchase by Purchaser of the
Preferred Shares, the Company shall at the First Closing issue Warrants to the
Purchaser to acquire One Hundred Thousand (100,000) Common Shares and, if it
shall occur, Company shall at the Second Closing issue Warrants to the Purchaser
to acquire an additional Sixty Thousand (60,000) Common Shares; provided that,
if 2,000 Preferred Shares are purchased at the Second Closing, the Purchaser
shall receive Warrants to acquire Eighty Thousand (80,000) Common Shares.
ARTICLE II
PURCHASER'S REPRESENTATIONS AND
WARRANTIES
Purchaser represents and warrants solely with respect to itself and its
purchase hereunder to the Company as of the date hereof, as set forth in this
Article II. Purchaser makes no other representations or warranties, express or
implied, to the Company in connection with the transactions contemplated hereby
and any and all prior representations and warranties, if any, which may have
been made by the Purchaser to the Company in connection with the transactions
contemplated hereby shall be deemed to have been merged in this Agreement and
any such prior representations and warranties, if any, shall not survive the
execution and delivery of this Agreement.
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2.1 Investment Purpose. Purchaser is purchasing the Preferred Shares and
the Warrants for Purchaser's own account for investment only and not with a view
toward or in connection with the public sale or distribution thereof in
violation of the applicable securities laws. Purchaser will not, directly or
indirectly, offer, sell, pledge or otherwise transfer the Preferred Shares or
Warrants or any interest therein except pursuant to transactions that are exempt
from the registration requirements of the Securities Act and/or sales registered
under the Securities Act, the rules and regulations promulgated pursuant thereto
and applicable state securities laws. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities laws or an exemption from such registration is available, and that
the Company has no present intention of registering any such Securities other
than as contemplated by the Registration Rights Agreement. By making the
representations in this Section 2.1, the Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from registration under the Securities
Act and any applicable state securities laws.
2.2 Accredited Investor Status. Purchaser is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D and Purchaser has indicated
on a duly executed Investor Questionnaire and Representation Agreement in the
form attached hereto as Exhibit E and delivered to the Company in which capacity
it so qualifies as an "accredited investor."
2.3 Reliance on Exemptions. Purchaser understands that the Preferred Shares
and Warrants are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire the Preferred Shares and Warrants.
2.4 Information. Purchaser or its counsel have been furnished all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been specifically
requested by Purchaser, as well as the Company's Annual Report on Form 10-KSB/A
for the Year ended April 30, 1997; Quarterly Report on Form 10-Q for the period
ended July 31, 1997; Quarterly Report on Form 10-QSB for the period ended
October 31, 1997; Current Reports on Form 8-K filed with the SEC on October 16,
1997 and October 25, 1997; and Proxy Statement filed with the Securities and
Exchange Commission ("SEC") on September 5, 1997 (such documents collectively,
the "SEC Documents"). Purchaser has been afforded the opportunity to ask
questions of the Company and has received what Purchaser believes to be complete
and satisfactory answers to any such inquiries. Neither such inquiries nor any
other due diligence investigation conducted by Purchaser or any of its
representatives nor any other disclosures or documents (including without
limitation the SEC Documents) shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in this Agreement
or in any Exhibit hereto or in any certificate issued in connection herewith or
therewith. Purchaser understands that Purchaser's investment in the Securities
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involves a high degree of risk, including without limitation the risks and
uncertainties disclosed in the SEC Documents and the Prospectus (as defined
below). Subject to the foregoing, Purchaser acknowledges the disclosures
presented under the caption "Risk Factors" in the Company's Form 10-K/A for the
year ended April 30, 1997 and in the Prospectus, and the incorporation of those
disclosures by reference herein; provided that such Risk Factors shall not limit
the Company's representations and warranties contained herein.
2.5 Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
2.6 Transfer or Resale. Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be offered, sold, pledged or otherwise transferred unless subsequently
registered thereunder or an exemption from such registration is available (which
exemption the Company expressly agrees may be established as contemplated in
clauses (b) and (c) of Section 5.1 hereof); (ii) any sale of such Securities
made in reliance on Rule 144 under the Securities Act (or a successor rule)
("Rule 144") may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such Securities without
registration under the Securities Act under circumstances in which the seller
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC thereunder, and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder (in each case, other than
pursuant to this Agreement or the Registration Rights Agreement).
2.7 Legends. Purchaser understands that, subject to Article V hereof, the
certificates for the Preferred Shares and Warrants and, until such time as the
Common Shares and Warrant Shares have been registered under the Securities Act
as contemplated by the Registration Rights Agreement or otherwise may be sold by
Purchaser pursuant to Rule 144 (subject to and in accordance with the procedures
specified in Article V hereof), the certificates for the Common Shares and
Warrant Shares, will bear a restrictive legend (the "Legend") in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
After registration of the Common Shares and Warrant Shares, or sales
pursuant to Rule 144 (subject to and in accordance with the procedures specified
in Article V hereof), certificates for such shares will be issued without a
restrictive legend.
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2.8 Authorization: Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their respective terms, except (i) to the extent
that such validity or enforceability may be subject to or affected by any
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights or
remedies of creditors generally, or by other equitable principles of general
application, and (ii) as rights to indemnity and contribution under the
Registration Rights Agreement may be limited by Federal or state securities
laws.
2.9 Residency. Purchaser is a resident of the jurisdiction set forth under
Purchaser's name on the signature page hereto executed by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the date hereof
and as of each Closing as set forth in this Article III. The Company makes no
other representations or warranties, express or implied, to the Purchaser in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by the Company
to the Purchaser in connection with the transactions contemplated hereby shall
be deemed to have been merged in this Agreement and any such prior
representations and warranties, if any, shall not survive the execution and
delivery of this Agreement; provided, however, that the foregoing does not limit
any material misstatement or omission by any officer of the Company in
connection with the Purchaser's due diligence and does not limit the rights or
remedies pursuant thereto or in connection with any violations of securities
laws.
3.1 Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
where the failure so to qualify or be in good standing would have a Material
Adverse Effect. "Material Adverse Effect" means any effect which, individually
or in the aggregate with all other effects, is or could reasonably be expected
to be materially adverse to the business, operations, properties, assets or
liabilities, financial condition, operating results or prospects of the Company
and its subsidiaries, taken as a whole on a consolidated basis or on the
transactions contemplated hereby or on any of the Securities.
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3.2 Authorization: Enforcement. (a) The Company has the requisite corporate
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, and to issue, sell and perform its obligations
with respect to the Preferred Shares and Warrants in accordance with the terms
hereof and the terms of the Preferred Shares and Warrants, and to issue the
Common Shares and Warrant Shares upon conversion of the Preferred Shares and
exercise of the Warrants, respectively, in accordance with the terms and
conditions of the Preferred Shares and Warrants, respectively; (b) the
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the issuance of
the Preferred Shares and the Warrants, and the issuance and reservation for
issuance of the Common Shares and the Warrant Shares) have been duly authorized
by all necessary corporate action and, except as set forth on Schedule 3.2
hereof, no further consent or authorization of the Company, its board of
directors, or its stockholders or any other person, body or agency, and no
filing with any person, body or agency, is required with respect to any of the
transactions contemplated hereby or thereby (whether under rules of the American
Stock Exchange ("AMEX"), the National Association of Securities Dealers
("NASD"), Nasdaq or otherwise); (c) this Agreement, the Registration Rights
Agreement, certificates for the Preferred Shares, and the Warrants have been
duly executed and delivered by the Company; and (d) this Agreement, the
Registration Rights Agreement, the Preferred Shares, and the Warrants constitute
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except (i) to the extent that
such validity or enforceability may be subject to or affected by any bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights or remedies of
creditors generally, or by other equitable principles of general application,
and (ii) as rights to indemnity and contribution under the Registration Rights
Agreement may be limited by Federal or state securities laws.
3.3 Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Shares or the Warrants)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants is set forth on Schedule 3.3.
All of such outstanding shares of capital stock have been, or upon issuance will
be, validly issued, fully paid and nonassessable. No shares of capital stock of
the Company (including the Common Shares and the Warrant Shares) are, and no
such shares will be, subject to preemptive rights or any other similar rights of
the stockholders of the Company or of any other person or entity or any liens or
encumbrances. Except as disclosed in Schedule 3.3, as of the date of this
Agreement and as of the date of the applicable Closing, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
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of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries, and (ii) issuance of the Securities will not
trigger antidilution or similar rights or any other rights or remedies for any
other present or future outstanding or authorized securities of the Company, and
(iii) there are no agreements or arrangements under which the Company or any of
its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
The Company has furnished to Purchaser true and correct copies of the Company's
Certificate of Incorporation as in effect on the date hereof ("Certificate of
Incorporation"), and the Company's By-laws as in effect on the date hereof (the
"By-laws"). The Company has set forth on Schedule 3.3 all instruments and
agreements (other than the Certificate of Incorporation and By-laws) governing
or concerning securities convertible into or exercisable or exchangeable for
Common Shares of the Company (and the Company shall provide to Purchaser copies
thereof upon the request of Purchaser). The Company shall provide Purchaser with
a written update of this representation signed by the Chief Executive Officer or
Chief Financial Officer of the Company as of the date of the applicable Closing.
3.4 Issuance of Shares. The Common Shares and Warrant Shares are duly
authorized and reserved for issuance, and, upon conversion of the Preferred
Shares and exercise of the Warrants in accordance with the terms thereof, as
applicable, will be validly issued, fully paid and nonassessable, and free from
all taxes, liens, claims and encumbrances directly or indirectly imposed or
suffered by the Company or any of its subsidiaries, will be entitled to all
rights and preferences accorded to a holder of Common Stock, shall be entitled
to be traded on the same markets and exchanges as the other shares of Common
Stock of the Company are traded, and will not be subject to preemptive rights or
other similar rights of stockholders of the Company or of any other person or
entity. The Preferred Shares and Warrants are duly authorized and validly
issued, fully paid and nonassessable, and free from all liens, claims and
encumbrances directly or indirectly imposed or suffered by the Company or any of
its subsidiaries or affiliates and will not be subject to preemptive rights or
other similar rights of stockholders of the Company or of any other person or
entity.
3.5 No Conflicts. The execution, delivery and performance of this
Agreement, the Preferred Shares, the Warrants and the Registration Rights
Agreement by the Company, and the consummation by the Company of transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Preferred Shares, Common Shares,
Warrants, and Warrant Shares) will not (a) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including, without
limitation, U.S. federal and state securities laws and regulations and the rules
and regulations of Nasdaq) applicable to the Company or any of its subsidiaries,
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or by which any property or asset of the Company or any of its subsidiaries, is
bound or affected (except for such possible conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect or that are
related to any inaccuracies or omissions in any representation or warranty of
the Purchaser set forth herein), or (b) result in a violation of the Certificate
of Incorporation or By-laws. Neither the Company nor any of its subsidiaries is
in violation of its Certificate of Incorporation, By-laws or other
organizational documents, and neither the Company nor any of its subsidiaries is
in default (and no event has occurred which has not been waived which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted, and shall not be conducted so long as
Purchaser (or any direct or indirect transferee, assignee or participant of
Purchaser or of such transferee, assignee or participant in a transaction of the
type referred to in Section 5.1(b) below ("Purchaser Transferee")) owns any of
the Securities, in violation of any law, ordinance, rule, regulation, order,
judgment or decree of any governmental entity, court or arbitrator, except for
possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect. Except as set forth on
Schedule 3.5, or except (A) such as may be required under the Securities Act in
connection with the performance of the Company's obligations under the
Registration Rights Agreement, (B) filing of a Form D with the SEC, and (C)
compliance with the state securities or Blue Sky laws of applicable
jurisdictions, the Company is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement, the Preferred
Shares, the Warrants or the Registration Rights Agreement or to perform its
obligations in accordance with the terms hereof or thereof. The Company is not
in violation of the listing requirements of Nasdaq, does not know of or
anticipate any event which could be grounds for such delisting and does not
reasonably anticipate that the Common Shares will be delisted by Nasdaq for the
foreseeable future.
3.6 SEC Documents. The Common Stock is registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and has been so
registered since September 21, 1996. Except as disclosed in Schedule 3.6, since
April 30, 1997, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Exchange Act and any other material filings
required to be made with the SEC (collectively the "Filed SEC Documents"). The
Company has delivered to Purchaser true and complete copies of the SEC
Documents, except for exhibits, schedules and incorporated documents. As of
their respective dates, the Filed SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to the Filed SEC Documents, and
none of the Filed SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
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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. None of the statements made in any such Filed SEC Documents which is
required to be updated or amended under applicable law has not been so updated
or amended. The financial statements of the Company included in the Filed SEC
Documents have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, and the rules and regulations of
the SEC 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 do not include footnotes or are condensed
or summary statements) and, fairly present in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal, immaterial year-end audit adjustments). Except as set
forth in the financial statements or the notes thereto of the Company included
in the SEC Documents, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
consistent with past practice subsequent to the date of such financial
statements and (ii) obligations under contracts and commitments incurred in the
ordinary course of business consistent with past practice and (iii) liabilities
not required under generally accepted accounting principles to be reflected in
such financial statements, in each case of clause (i), (ii) and (iii) next above
which, individually or in the aggregate, are not material to the financial
condition, business, operations, properties, operating results or prospects of
the Company and its subsidiaries or to the transactions contemplated hereby or
to the Securities. To the extent required by the rules of the SEC applicable
thereto, the Filed SEC Documents contain a complete and accurate list of all
material undischarged written or oral contracts, agreements, leases or other
instruments and there are no other material Contracts in effect to which the
Company or any subsidiary is a party or by which the Company or any subsidiary
is bound or to which any of the properties or assets of the Company or any
subsidiary is subject (each a "Contract") existing as of the respective date of
each such Filed SEC Document (or such other date required by the rules of the
SEC). Except as set forth in Schedule 3.6, none of the Company, its subsidiaries
or, to the best knowledge of the Company, any of the other parties thereto, is
in breach or violation of any Contract, which breach or violation would have a
Material Adverse Effect. No event, occurrence or condition exists which, with
the lapse of time, the giving of notice, or both, would become a default by the
Company or its subsidiaries thereunder which would have a Material Adverse
Effect. The Company has not provided and will not provide to Purchaser any
material non-public information or any other information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed as of the date of this Agreement and
the date of the applicable Closing.
3.7 Absence of Certain Changes. Since April 30, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3.7 or clearly evident in the
SEC Documents.
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3.8 Absence of Litigation. Except as disclosed in Schedule 3.8 or in the
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, or self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such, which could reasonably be expected to result in an
unfavorable decision, ruling or finding which would have a Material Adverse
Effect or would adversely affect the transactions contemplated by this Agreement
or any of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
There are no facts known to the Company which, if known by a potential claimant
or governmental authority, could reasonably be expected to give rise to a claim
or proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
3.9 Disclosure. No information, statement or representation relating to
or concerning the Company or any of its subsidiaries set forth in this Agreement
or provided to Purchaser in connection with the transactions contemplated hereby
contains an untrue statement of a material fact. No information relating to or
concerning the Company or any of its subsidiaries set forth in any of the SEC
Documents contains a statement of material fact that was untrue as of the date
such SEC Document was filed with the SEC. The Company has not omitted to state a
material fact necessary in order to make the statements and representations made
herein or therein, in light of the circumstances under which they were made, not
misleading. Except for the execution and performance of this Agreement, no
material fact (within the meaning of the federal securities laws of the United
States and of applicable state securities laws) exists with respect to the
Company or any of its subsidiaries which has not been publicly disclosed.
3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company or any of its subsidiaries (or in any
similar capacity) with respect to this Agreement or the transactions
contemplated hereby, that this Agreement and the transaction contemplated
hereby, and the relationship between the Purchaser and the Company, are
"arms-length", and that any statement made by Purchaser, or any of its
representatives or agents, in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon as advice or recommendations in any way by the Company, its officers or
directors or other representatives. The Company further represents to Purchaser
that the Company's decision to enter into this Agreement and the transactions
contemplated hereby have been based solely on an independent evaluation by the
Company and its representatives.
3.11 SB-2 Registration. The Company is currently eligible to register the
resale of its Common Stock on a registration statement on Form SB-2 under the
Securities Act.
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3.12 No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as described in Rule 502(c) under
Regulation D, with respect to any of the Securities being offered hereby.
3.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would either require registration of
any of the Securities under the Act or prevent the parties hereto from
consummating, or delay or interfere with the consummation of, the transactions
contemplated hereby pursuant to an exemption from the registration under the
Securities Act pursuant to the provisions of Regulation D. The transactions
contemplated hereby are exempt from the registration requirements of the
Securities Act, assuming the accuracy of the relevant representations and
warranties herein contained of the Purchaser and of Shoreline Pacific
Institutional Finance, the Institutional Division of Financial West Group
("Shoreline") in their letter to the Company dated as of April 24 1998 (a copy
of which is attached as Schedule 3.13 hereto) to the extent relevant for such
determination. To the Company's knowledge, such representations and warranties
of Shoreline are accurate.
3.14 No Brokers. The Company has taken no action, directly or indirectly,
which would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments by Purchaser relating to this Agreement or the
transactions contemplated hereby, except for dealings with Shoreline the fees of
which shall be paid in full by the Company. The Company will indemnify the
Purchaser from and against any fees and expenses (including without limitation
reasonable attorneys fees and expenses) sought or other claims made by
Shoreline.
3.15 Intellectual Property. Except as disclosed in the SEC Documents, each
of the Company and its subsidiaries owns, is licensed to use, or possesses
adequate and enforceable rights to use all material 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") used or necessary for the conduct of its
business as now being conducted or as currently contemplated to be conducted and
as described in the Company's Annual Report on Form 10-K/A (as modified by any
Form 10-Q or Form 8-K filed prior to the date hereof) for its most recently
ended fiscal year. To the Company's best knowledge, except as disclosed in the
SEC Documents, neither the Company nor any subsidiary of the Company infringes
on or is in conflict with any right of any other person with respect to any
Intangibles nor is there any claim of infringement made by a third party against
or involving the Company or any of its subsidiaries, which infringement,
conflict or claim, individually or in the aggregate, could reasonably be
expected to result in an unfavorable decision, ruling or finding which would
have a Material Adverse Effect.
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3.16 Key Employees. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in Schedule 3.16. No Key Employee,
to the best of the knowledge of the Company and its subsidiaries, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best of the knowledge of the
Company and its subsidiaries, any intention to terminate his employment with, or
services to, the Company or any of its subsidiaries and the Company has no
present intention to terminate the employment of any Key Employee. "Key
Employee" means each person identified as such on Schedule 3.16.
3.17 Shareholder Rights Plan. The Company does not have in effect a
shareholders rights plan or similar plan in the nature of a "poison pill."
3.18 Dilution. The number of Common Shares and Warrant Shares may increase
substantially in certain circumstances (subject to the limitations on issuance
of Common Shares in certain circumstances set forth in Article V of the
Certificate of Designation), including the circumstances where the trading price
of the Company's Common Stock declines. The Company's executive officers and
directors have studied and fully understand the nature of the securities being
sold hereunder and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded in its good faith business
judgement that such issuance is in the best interests of the Company. The
Company acknowledges that its obligation to issue Common Shares and Warrant
Shares upon conversion of the Preferred Shares and exercise of the Warrants is
(subject to the limitation on issuance of Common Shares set forth in Sections V
of the Certificate of Designation) absolute and unconditional, regardless of the
dilution that such issuance may have on other shareholders of the Company.
3.19 Certain Transactions. Except as disclosed in the SEC Documents and
except for arm's length transactions pursuant to which the Company or any of its
direct or indirect subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its direct or
indirect subsidiaries could obtain from third parties, none of the officers,
directors, or employees of the Company is presently a party to any transaction
(including, without limitation, any lease or license arrangement) with the
Company or any of its direct or indirect subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
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3.20 Permits; Compliance. The Company and each of its direct and indirect
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits
except for such Company Permits the failure of which to possess, or the
cancellation or suspension of which, would not, individually or in the
aggregate, have a Material Adverse Effect. Neither the Company nor any of its
direct or indirect subsidiaries is in conflict with, or in default or violation
of, any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since April 30, 1997, neither the
Company nor any of its direct or indirect Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
3.21 Insurance. The Company and each of its direct and indirect
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its direct and indirect subsidiaries are engaged. Neither the Company nor any
such direct or indirect subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.
ARTICLE IV
COVENANTS
4.1 Best Efforts. The parties shall use their best efforts to timely
satisfy each of the conditions described in Articles VI and VII of this
Agreement.
4.2 Securities Laws. The Company agrees to timely file a Form D with
respect to the Securities with the SEC as required under Regulation D and to
provide a copy thereof to Purchaser on or prior to the First Closing. The
Company agrees to file a Form 8-K (with this Agreement and all Exhibits hereto
attached thereto) disclosing this Agreement and the transactions contemplated
hereby with the SEC within three (3) business days following the date of the
First Closing. The Company shall, on or prior to the date of each Closing, take
such action as is necessary to qualify the Securities for sale to the Purchaser
in compliance with applicable securities laws of the states of the United States
or obtain exemption therefrom, and shall provide evidence of any such action so
taken to the Purchaser on or prior to the date of each Closing. Without limiting
any of the Company's obligations under this Agreement, the Registration Rights
Agreement or the Certificate of Designation, from and after the date of the
First Closing, neither the Company nor any person acting on its behalf shall
take any action which would adversely affect any exemptions from registration
under the Securities Act with respect to the transactions contemplated hereby.
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4.3 Reporting Status. The Company will become eligible to register the
resale of its Common Stock on form S-3 on or prior to July 31, 1998, and
acknowledges that Company's failure to become so eligible, and to maintain such
eligibility in accordance with the following sentence, would have a material
adverse effect on the rights of the Holder with respect to its shares of
Preferred Stock So long as the Purchaser or an affiliate thereof beneficially
owns any of the Securities, (a) the Company shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination, and (b) the Company will maintain its ability and
eligibility to register its Common Shares on Form SB-2, or, upon becoming
eligible to register its Common Shares on Form S-3, will thereafter maintain
such ability and eligibility.
4.4 Information. The Company agrees to send the following reports to the
Purchaser and Purchaser's Transferee until the Purchaser and Purchaser's
Transferee transfers, assigns or sells all of its Securities in transactions in
which the transferee is (unless such transferee is an affiliate) not subject to
securities law resale restrictions: (a) within three (3) business days after the
filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q, any proxy statements and any Current Reports on Form 8-K;
and (b) within one (1) business day after release, copies of all press releases
issued by the Company or any of its subsidiaries. The Company further agrees to
promptly provide to the Purchaser and Purchaser's Transferee any information
with respect to the Company, its properties, or its business or Purchaser's
investment as the Purchaser and Purchaser's Transferee may reasonably request;
provided, however, that the Company shall not be required to give the Purchaser
any material nonpublic information. If any information requested by the
Purchaser from the Company contains material nonpublic information, the Company
shall inform the Purchaser in writing that the information requested contains
material nonpublic information and shall in no event provide such information to
Purchaser without the express written consent of the Purchaser after being so
informed.
4.5 Restriction on Below Market Issuance of Securities. (a) For a period of
one hundred and seventy (170) days following the date of the First Closing,
neither the Company nor any subsidiary of the Company ("Subsidiary") shall issue
or agree to issue, (except (i) to Purchaser pursuant to this Agreement, (ii)
pursuant to any employee stock option, stock purchase or restricted stock plan
of the Company in effect on the date hereof, or any such plan established after
the date hereof and approved by the Board of Directors of the Company, up to the
aggregate amounts set forth in Schedule 3.3 hereto (iii) pursuant to any
existing security, option, warrant, scrip, call or commitment or right in each
case or disclosed on Schedule 3.3 hereof or (iv) pursuant to a strategic joint
venture or partnership entered in to by the Company or any Subsidiary,
undertaken at the reasonable discretion of the Board of Directors of the
Company, the primary purpose of which is not to raise equity capital), any
equity securities of the Company or any Subsidiary (or any security convertible
into or exercisable or exchangeable, directly or indirectly, for equity
securities of the Company or any Subsidiary) if such securities are issued at a
price (or in the case of securities convertible into or exercisable or
exchangeable, directly or indirectly, for Common Stock such securities provide
for a conversion, exercise or exchange price) which may be less than the then
current market price for Common Stock on the date of issuance (in the case of
Common Stock) or the date of conversion, exercise or exchange (in the case of
securities convertible into or exercisable or exchangeable, directly or
indirectly, for Common Stock). During such period neither the Company nor any
Subsidiary shall issue or agree to issue any security convertible into or
exercisable or exchangable for, directly or indirectly, equity securities of the
Company or any such Subsidiary based on a variable conversion exercise or
exchange price or formula.
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4.6 Right of First Offer. From the date hereof until the day which is one
year following the date of the First Closing, the Company shall not issue or
sell, or agree to issue or sell any equity or debt securities of the Company or
any of its subsidiaries (or any security convertible into or exercisable or
exchangeable, directly or indirectly, for equity or debt securities of the
Company or any of its subsidiaries) ("Future Offerings") unless the Company
shall have first delivered to Purchaser at least fifteen (15) business days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof, and
providing Purchaser and its affiliates (as defined under the Securities Act of
1933) an option during the ten (10) business day period following delivery of
such notice to purchase up to the full amount of the securities being offered in
the Future Offering on the same terms as contemplated by such Future Offering
(the limitations referred to in this sentence are collectively referred to as
the "Capital Raising Limitations"). The Capital Raising Limitations shall not
apply to any transaction involving issuances of securities in connection with a
bona fide merger or consolidation or exercise of options by employees,
consultants or directors. In addition, the Capital Raising Limitations also
shall not apply to (a) the issuance of securities upon exercise or conversion of
the Company's options, warrants or other convertible securities outstanding as
of the date hereof or (b) the grant of additional options or warrants, or the
issuance of additional securities, under any employee stock option, stock
purchase or restricted stock plan of the Company up to the aggregate amounts set
forth on, or otherwise permitted by, Schedule 4.5 hereto. This Section 4.6 shall
not limit the Company's obligations under Section 4.5 above. The Company shall
prohibit any Common Stock or other security issued subject to the Capital
Raising Limitations but not purchased by Purchaser from being converted,
exercised or resold until the day following the first anniversary of the date of
the Closing and shall take all actions necessary (including, without limitation,
the issuance of a stop transfer order) to effect such prohibition.
4.7 Listing. The Company shall continue the uninterrupted listing and
trading of its Common Stock and the Common Shares and Warrant Shares on the
Nasdaq Small Cap Market, the AMEX, the Nasdaq National Market or the New York
Stock Exchange; and comply in all material respects with the Company's
reporting, filing and other obligations under the By-laws and rules of such
Exchange or Nasdaq, as applicable. If and so long as the Common Stock and the
Common Shares and Warrant Shares are not listed on one of such Exchanges or
markets, as partial compensation for the added liquidity risk of such delisting
the Company shall be obligated to make the following additional cash payments
(the "Delisting Payments"). The Delisting Payments will be equal to one percent
(1%) of the Purchase Price (plus accrued but not unpaid interest) of any
outstanding Preferred Shares for each month (or part thereof) following the date
the Common Stock is delisted (the "Delisting Date") continuing through the date
the Common Stock is listed on one of such Exchanges or markets (the "New
Listing"). The Delisting Payments will be paid to the holder of the Preferred
Shares in cash within five (5) business days following the earlier of (i) the
end of each month following the Delisting Date, or (ii) the effective date of
the New Listing. Nothing herein shall limit the Preferred Share holder's right
to pursue actual damages for the Company's failure to maintain its listing on
such Exchange or market.
4.8 Prospectus Delivery Requirement. The Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common
Shares in connection with any sale thereof pursuant to a registration statement
under the Securities Act covering the resale by the Purchaser of the Common
Shares being sold, and the Purchaser shall comply with the applicable prospectus
delivery requirements of the Securities Act in connection with any such sale.
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4.9 Intentional Acts or Omissions. The Company shall not intentionally
perform any act which if performed, or intentionally omit to perform any act
which, if omitted to be performed, would prevent or excuse the performance of
this Agreement or any of the transactions contemplated hereby or the benefits
intended to be secured thereby by the Purchaser (including, without limitation,
pursuant to any agreements or documents obtained by the Company as a condition
to any Closing hereunder). The Company will use commercially reasonable efforts
to enforce to the fullest extent possible any proxies provided in connection
with the transactions contemplated hereunder.
4.10 Corporate Existence. So long as Purchaser or any Purchaser Transferee
beneficially owns any Preferred Shares, Warrants, Common Shares or Warrant
Shares, the Company shall maintain its corporate existence, except in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, as long as the surviving or successor entity in such transaction (i)
assumes the Company's obligations hereunder and under the agreements and
instruments (including the Preferred Shares, Warrants and Registration Rights
Agreement) entered into in connection herewith (regardless of whether or not the
Company would have had a sufficient number of shares of Common Stock authorized
and available for issuance in order to effect the conversion of all Preferred
Shares outstanding as of the date of such transaction) and (ii) is a publicly
traded corporation whose common stock is listed for trading on the Nasdaq Small
Cap Market, the Nasdaq National Market, the New York Stock Exchange or the AMEX.
4.11 Share Authorization. The Company covenants and agrees that it shall
solicit by proxy the Stockholder Approval (as defined in the Certificate of
Designation) by the stockholders of the Company and use its commercially
reasonable efforts to obtain the Stockholder Approval not later than one hundred
and twenty (l20) days following the date of the First Closing.
4.12 Hedging Transactions. The Company understands that the Purchaser is a
so-called "hedge" fund and the Company hereby expressly agrees that Purchaser
shall not in any way be prohibited or restricted from any purchases or sales of
any securities or other instruments of, or related to, the Company or any of its
securities, including, without limitation, puts, call, futures contracts, short
sales and hedging and arbitrage transactions. Purchaser acknowledges that such
purchases, sales and other transactions may be subject to various Federal and
state securities laws. Purchaser further acknowledges that it has not, within
the last 60 days, effected any short sales of the Common Stock of the Company.
4.13 Shareholder Rights Plans. The Company will not adopt a shareholders
rights plan in the nature of a "poison pill" which would be triggered by the
Securities.
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ARTICLE V
LEGEND REMOVAL, TRANSFER, CERTAIN SALES, ADDITIONAL SHARES
5.1 Removal of Legend. The Legend shall be removed and the Company shall
issue, or shall cause to be issued, a certificate without such Legend to the
holder of any Security upon which it is stamped, and a certificate for a
security shall be originally issued without the Legend, if, (a) the resale of
such Security is registered under the Securities Act, (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions and reasonably satisfactory
to the Company and its counsel (the reasonable cost of which shall be borne by
the Company if neither an effective registration statement under the Securities
Act or Rule 144 is available in connection with such sale) to the effect that a
public sale or transfer of such Security may be made without registration under
the Securities Act pursuant to an exemption from such registration requirements
or (c) such Security can be sold pursuant to Rule 144, the Holder provides the
Company with reasonable assurances that the Security can be so sold without
restriction, and a registered broker dealer provides to the Company's transfer
agent and counsel copies of (i) a "will sell" letter satisfying the guidelines
established by the SEC and its staff from time to time and (ii) a customary
seller's representation letter with respect to such a sale to be made pursuant
to Rule 144 and (iii) a Form 144 in respect of such Security executed by such
holder and filed (or mailed for filing) with the SEC or (d) such Security can be
sold pursuant to Rule 144(k). Purchaser agrees to sell all registered
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement, in accordance with the manner
of distribution described in such registration statement and to deliver a
prospectus in connection with such sale or in compliance with an exemption from
the registration requirements of the Securities Act. In the event the Legend is
removed from any Security or any Security is issued without the Legend and the
Security is to be disposed of other than pursuant to the registration statement
or pursuant to Rule 144, then prior to, and as a condition to, such disposition
such Security shall be relegended as provided herein in connection with any
disposition if the subsequent transfer thereof would be restricted under the
Securities Act. Also, in the event the Legend is removed from any Security or
any Security is issued without the Legend and thereafter the effectiveness of a
registration statement covering the resale of such Security is properly
suspended or a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance notice to Purchaser holding such
Security, the Company may require that the Legend be placed on any such Security
that cannot then be sold pursuant to an effective registration statement or Rule
144 or with respect to which the opinion referred to in clause (b) next above
has not been rendered, which Legend shall be removed when such Security may be
sold pursuant to an effective registration statement or Rule 144 or such holder
provides the opinion with respect thereto described in clause (b) next above.
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5.2 Transfer Agent Instructions. The Company shall instruct its transfer
agent to issue certificates, registered in the name of the Purchaser or its
nominee, for the Common Shares and the Warrant Shares in such amounts specified
from time to time by the Purchaser upon conversion or exercise of the Preferred
Shares and the Warrants, respectively. Such certificates shall bear the Legend
only to the extent provided by Section 5.1 above. The Company covenants that no
instruction other than such instructions referred to in this Article V, and stop
transfer instructions with respect solely to sales pursuant to any registration
statement under the Registration Rights Agreement to give effect to Section 2.6
hereof in the case of the Common Shares and Warrant Shares prior to registration
of the Common Shares and Warrant Shares under the Securities Act or "black-out"
periods as provided in the Registrations Rights Agreement between the Company
and the Purchaser, dated of such date herewith, will be given by the Company to
its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company. Nothing in this Section
shall affect in any way the Purchaser's obligations and agreement set forth in
Section 5.1 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus as required in Section 5.1 in
connection with such sale or in compliance with an exemption from the
registration requirements of applicable securities laws. Without limiting the
foregoing, if (a) the Purchaser provides the Company with an opinion of counsel,
which opinion of counsel shall be in form, substance and scope customary for
opinions of counsel in comparable transactions and reasonably satisfactory to
the Company and its counsel (the reasonable cost of which shall be borne by the
Company if neither an effective registration statement under the Securities Act
nor Rule 144 is available in connection with such sale), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) the Purchaser transfers Securities to an
affiliate which is an accredited investor (within the meaning of Regulation D
under the Securities Act) and which delivers to the Company in written form the
same representations, warranties and covenants made by Purchaser hereunder or
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Common Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denomination as
specified by the Purchaser. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to Purchaser by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Article V will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Article V, that
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
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ARTICLE VI
CONDITIONS TO THE FIRST CLOSING
6.1 Conditions to Company's Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Preferred Shares and Warrants to the
Purchaser at the First Closing is subject to the satisfaction, as of the date of
the First Closing, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
(i) The Purchaser shall have executed the signature page to this Agreement,
the Registration Rights Agreement and the Escrow Agreement and delivered the
same to the Company and Shoreline. The Purchaser shall have completed and
executed the Investor Questionnaire and Representation Agreement and delivered
the same to the Company and Shoreline.
(ii) The Purchaser shall have wired to the account of the Escrow Agent
pursuant to the Escrow Agreement the Purchase Price.
(iii) The representations and warranties of the Purchaser shall be true and
correct as of the date when made and as of the First Closing as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date), and the Purchaser shall have performed, satisfied and complied with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchaser at or prior to the First Closing.
(iv) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
by this Agreement.
6.2 Conditions to the Purchaser's Obligation to Purchase. The obligation of
the Purchaser hereunder to purchase the Preferred Shares and Warrants to be
purchased by it on the date of the First Closing is subject to the satisfaction
as of the date of the First Closing, of each of the following conditions,
provided that these conditions are for the Purchaser's sole benefit and may be
waived by the Purchaser at any time in the Purchaser's sole discretion:
(i) The Company shall have executed the signature page to this Agreement,
the Registration Rights Agreement and the Escrow Agreement and delivered the
same to Purchaser and Shoreline.
(ii) The Company shall have delivered to the Escrow Agent duly issued
Preferred Shares being so purchased by Purchaser and certificates for the
Warrants being issued to the Purchaser at the First Closing in such number and
denominations as are reasonably requested by Purchaser.
(iii) The Common Shares shall be listed on Nasdaq Small Cap Market and
trading in the Common Shares shall not have been suspended or limited by Nasdaq
or the SEC or other regulatory authority, and no such proceeding seeking
suspension shall be pending.
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(iv) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the First Closing as though made at
that time and the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the First Closing.
Purchaser shall have received a certificate, executed by the Chief Executive
Officer or Chief Financial Officer of the Company, dated as of the First Closing
to the foregoing effect.
(v) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(vi) Purchaser shall have received the officer's certificate described in
Section 3.3.
(vii) Purchaser shall have received an opinion of Joel Pensley, Esq., dated
as of the First Closing, in the form attached hereto as Exhibit E
(viii) The Company shall have delivered to the transfer agent irrevocable
instructions in the form attached hereto as Exhibit E.
(ix) The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of New York and a copy thereof
certified by the Secretary of State of New York shall have been delivered to
Purchaser.
ARTICLE VII
CONDITIONS TO SECOND CLOSING
7.1 Conditions to Company's Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Preferred Shares and Warrants to the
Purchaser at the Second Closing is subject to the satisfaction, as of the date
of the Second Closing, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
(i) The Purchaser shall have wired to the account of the Escrow Agent
pursuant to the Escrow Agreement the Additional Purchase Price.
(ii) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
by this Agreement.
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7.2 Conditions to the Purchaser's Obligation to Purchase. The obligation of
the Purchaser hereunder to purchase the Preferred Shares and Warrants to be
purchased by it on the date of the Second Closing is subject to the satisfaction
as of the date of the Second Closing, of each of the following conditions,
provided that these conditions are for the Purchaser's sole benefit and may be
waived by the Purchaser at any time in the Purchaser's sole discretion:
(i) The Company shall have executed the signature page to this Agreement,
the Registration Rights Agreement and the Escrow Agreement and delivered the
same to Purchaser and Shoreline.
(ii) The Company shall have delivered to the Escrow Agent duly issued
Preferred Shares being so purchased by Purchaser and certificates for the
Warrants being issued to the Purchaser at the Second Closing in such number and
denominations as are reasonably requested by Purchaser.
(iii) The Common Shares shall be listed on Nasdaq Small Cap Market and
trading in the Common Shares shall not have been suspended or limited by Nasdaq
or the SEC or other regulatory authority, and no such proceeding seeking
suspension shall be pending.
(iv) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Second Closing as though made at
that time, the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Second Closing, the
Company shall not be in default of any obligation hereunder or under the other
Transaction Documents (as defined below), and no event or circumstance that with
the giving of notice or passing of time would constitute a Redemption Event
shall have occurred. Purchaser shall have received a certificate, executed by
the Chief Executive Officer or Chief Financial Officer of the Company, dated as
of the Second Closing to the foregoing effect.
(v) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(vi) Purchaser shall have received the officer's certificate described in
Section 3.3.
(vii) Purchaser shall have received an opinion of Joel Pensley, Esq. dated
as of the Second Closing, in substantially the form attached hereto as Exhibit
E.
(viii) Company shall have either prior to the Second Closing or
simultaneously therewith completed a Qualifying Acquisition and Purchaser shall
have received a certificate signed by the Chief Executive Officer or Chief
Financial Officer of the Company as of the date of the Second Closing stating
that a Qualifying Acquisition has been completed (or will be completed
simultaneously with the Second Closing), together with backup documentation
reasonably acceptable to the Purchaser. For purposes of this Agreement, a
Qualifying Acquisition shall mean the purchase of certain assets of a company
where:
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(a) the product generated at least $1,000,000 in revenue in its most recent
four fiscal quarters;
(b) the product had at least a 50% gross margin in its most recent four
fiscal quarters;
(c) the product would have had, on a pro-forma basis, a net contribution to
the company of at least 25% in the selling company's most recent four fiscal
quarters, where "net contribution" means revenues, minus cost of goods sold,
minus allocated selling, general and administrative costs;
(d) the purchase price for the target company or product is not greater
than $2,000,000; and
(e) the calculations of the factors specified in subsections (a) through
(c) of this Section 7.2(viii) have been reviewed, based solely upon agreed upon
procedures specified by, and the underlying data provided by, the Company, by an
independent certified public accountant, and such accountant shall have provided
a letter to the Purchaser (subject to such accountant's receipt from the
Purchaser of any representation letter customarily required by such accountant
in connection with performance of such reviews) that it has made such review.
The Company will exercise commercially reasonable efforts to have such
calculations reviewed by the accounting firm currently retained by the Company
to audit its financial statements;
(ix) No event or circumstance constituting a Material Adverse Change (as
defined in the Certificate of Designations) shall have occurred and be
continuing; or
(x) No more than 90 days shall have passed since the First Closing.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law: Jurisdiction. This Agreement shall be governed by and
construed in accordance with the New York Business Corporation Law (in respect
of matters of corporation law) and the laws of the State of New York (in respect
of all other matters) applicable to contracts made and to be performed in the
State of New York. The parties hereto irrevocably consent to the jurisdiction of
the United States federal courts and state courts located in the County of New
York in the State of New York in any suit or proceeding based on or arising
under this Agreement or the transactions contemplated hereby and irrevocably
agree that all claims in respect of such suit or proceeding may be determined in
such courts. The Company and Purchaser each irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding in such forum.
The Company and Purchaser each further agrees that service of process upon the
Company or such Purchaser, as applicable, mailed by the first class mail in
accordance with Section 8.6 shall be deemed in every respect effective service
of process upon the Company or such Purchaser in any suit or proceeding arising
hereunder. Nothing herein shall affect any Purchaser's right to serve process in
any other manner permitted by law. The parties hereto agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner. THE PARTIES HERETO IRREVOCABLY WAIVE ANY RIGHT TO TRIAL BY JURY
UNDER APPLICABLE LAW.
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8.2 Counterparts. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall promptly cause
additional original executed signature pages to be delivered to the other
parties.
8.3 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
8.5 Entire Agreement: Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Purchaser.
8.6 Notice. Any notice herein required or permitted to be given shall be in
writing and may be personally served or delivered by nationally-recognized
overnight courier or by facsimile machine confirmed telecopy, and shall be
deemed delivered at the time and date of receipt (which shall include telephone
line facsimile transmission). The addresses for such communications shall be:
If to the Company:
American Bio Medica Corporation
102 Simons Road
Ancramdale, NY 12503
Telephone: (518) 329-4485
Telecopy: (518) 329-4156
Attention: Mr. Stan Cipkowski, President
with a copy to:
Joel Pensley, Esq.
Attorney-at-Law
276 Fifth Avenue, Suite 715
New York, NY 10001
Telephone: (212) 725-7110
Fax: (212) 725-7527
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If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
333 West Wacker Drive
Suite 1410
Chicago, IL 60606
Attn: Portfolio Manager
Telephone: (312) 544-2771
Telecopy: (312) 435-2636
and with a copy to:
Peter Lieberman, Esq.
Altheimer & Gray
10 S. Wacker Drive
Suite 4000
Chicago, IL 60606
Telephone:(312) 715-4000
Telecopy:(312) 715-4150
in each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
Each party shall provide notice to the other party of any change in address
or contact information.
8.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Neither the
Company nor the Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, the Purchaser may subject to and in compliance
with Section 5.2 hereof, assign all or part of its rights and obligations
hereunder to any of its "affiliates," as that term is defined under the
Securities Act, without the consent of the Company so long as such affiliate is
an accredited investor (within the meaning of Regulation D under the Securities
Act) and agrees in writing to be bound by this Agreement. This provision shall
not limit the Purchaser's right to transfer the Securities pursuant to the terms
of this Agreement or to assign the Purchaser's rights hereunder to any such
transferee pursuant to the terms of this Agreement. In addition, and
notwithstanding anything to the contrary contained in this Agreement, the
Certificate of Designation, the Warrants or the Registration Rights Agreement
(the "Transaction Documents"), the Securities may be pledged, and all rights of
Purchaser under this Agreement or any other agreement or document related to the
transaction contemplated hereby may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with Purchaser's margin or
brokerage accounts.
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8.8 Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
8.9 Survival. The representations and warranties of the Company and the
Purchaser and the agreements and covenants set forth herein shall survive the
closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Company or any Purchaser as the case may be. The Company
agrees to indemnify and hold harmless any Purchaser and each of such Purchaser's
respective officers, directors, employees, partners, agents and affiliates for
loss or damage or expenses (including reasonable attorneys fees) arising as a
result of or related to (a) any breach or alleged breach by the Company of any
of its representations or covenants set forth herein, including advancement of
expenses as they are incurred, (b) any cause of action, suit or claim brought or
made against Purchaser and arising out of or resulting from the execution,
delivery, performance or enforcement of the Transaction Documents or the
Certificate of Designations or any other certificate, instrument or document
contemplated hereby or thereby, (c) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities or (d) the status of such Purchaser or holder of the
Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the indemnified liabilities which is permissible under applicable law.
8.10 Public Filings: Publicity. As soon as practicable following each
Closing, the Company shall issue a press release with respect to the
transactions contemplated hereby. The Company and the Purchaser shall have the
right to approve before issuance any press releases, SEC or Nasdaq or other
exchange filings, or any other public statements with respect to the
transactions contemplated hereby (which approval shall not be unreasonably
withheld or delayed); provided, however, that the Company shall be entitled,
without the prior approval of the Purchaser, to make any press release or SEC,
AMEX, Nasdaq or other exchange filings with respect to such transactions as is
required by applicable law and regulations (although the Company shall make all
reasonable efforts to consult with the Purchaser in connection with any such
press release prior to its release and shall provide the Purchaser with a copy
thereof as provided in Section 4.4 hereof).
8.11 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 Remedies. No provision of this Agreement, the other Transaction
Documents or any other transactions contemplated herein or therein providing for
any remedy to Purchaser shall limit any remedy which would otherwise be
available to such Purchaser at law or in equity. Nothing in this Agreement or
any other transactions contemplated herein shall limit any rights Purchaser may
have under any applicable federal or state securities laws with respect to the
investment contemplated hereby. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to Purchaser. Accordingly,
the Company acknowledges that the remedy at law for a material breach of its
obligations under this Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this
Agreement, that Purchaser shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
compliance, without the necessity of showing economic loss and without any bond
or other security being required.
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8.13 Termination. In the event that the First Closing shall not have
occurred within forty-eight (48) hours of the execution of the Agreement, unless
the parties agree otherwise, this Agreement shall terminate.
8.14 Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchaser hereunder or pursuant to the Certificate of
Designations or Warrants or the Purchaser enforces or exercises its rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person or entity under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
8.15 Scope of Agreement: Amendments. Except as specifically set forth
herein, Purchaser makes no representation, warranty, covenant or undertaking
with respect to the transactions contemplated hereby. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and
Purchaser.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER:
CC INVESTMENTS, LDC
Residency: Cayman Islands
By:
John Ziegelman
Director, CSS Corporation Ltd.
Secretary, CC Investments, LDC
AMERICAN BIO MEDICA CORPORATION
By:
Stan Cipkowski
President
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April , 1998 (the
"Agreement"), is made by and between American Bio Medica Corporation, a New York
corporation (the "Company"), and CC Investments, LDC (the "Initial Investor").
W I T N E S S E T H :
WHEREAS, in connection with the Securities Purchase Agreement dated April
24, 1998 between the Initial Investor and the Company (the "Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of said Purchase Agreement, to issue and sell to the Initial Investor
Four Million ($4,000,000) U.S. Dollars face amount of the Company's Series D
Preferred Stock (the "Preferred Shares"), convertible into shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), together
with Stock Purchase Warrants (the "Warrants") to purchase additional shares of
Common Stock. The shares of Common Stock of the Company into which the Preferred
Shares are convertible and the Warrants are exercisable for are collectively
referred to herein as the "Common Shares." In connection with the sale of the
Preferred Shares to the Initial Investor, the Company has offered Preferred
Shares to other investors as part of the same offering of securities (the
"Offering"), and each of the other investors will be entitled to registration
rights as set forth in this Agreement.
WHEREAS, to induce the Initial Investor to execute and deliver the Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws with respect to the Common Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Purchase Agreement.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Holders" are stockholders of the Company who, by virtue of agreements
with the Company, are entitled to include their securities in certain
Registration Statements filed by the Company.
(b) "Investors" means the Initial Investor and any transferees or assignees
of the Initial Investor who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
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(c) "Registrable Securities" means the Common Shares (including any Common
Shares issuable with respect to conversion default payments under the
Certificate of Designation) issued or issuable with respect to the Preferred
Stock and the Warrants (without regard to any limitations on conversion or
exercise) and any shares of capital stock issued or issuable, from time to time
(with any adjustments), on or in exchange for or otherwise with respect to the
Common Stock or any other Registrable Securities.
(d) "Registration Period" means the period between the date of this
Agreement and the earlier of (i) the date on which all of the Registrable
Securities have been sold and no further Registrable Securities may be issued in
the future, or (ii) the date on which all the Registrable Securities (in the
opinion of Investors' counsel) may be immediately sold without registration and
without restriction as to the number of Registrable Securities to be sold
pursuant to Rule 144 or otherwise.
(e) "Registration Statement" means a registration statement filed with the
Securities and Exchange Commission (the "SEC") under the 1933 Act.
(f) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415") and applicable rules and regulations thereunder, and the
declaration or ordering of effectiveness of such Registration Statement by the
SEC.
2. Registration.
(a) Mandatory Registration. The Company will file a Registration Statement
on Form SB-2 or Form S-3 (or if Form SB-2 or Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration only of all Registrable Securities, and no other securities (other
than shares of Common Stock issuable upon exercise of warrants issued to
Shoreline (as defined below) in connection with the transactions contemplated
hereby and under the Securities Purchase Agreement), subject to the consent of
the Investors and determined pursuant to Section 12 hereof) with the SEC
registering the Registrable Securities for resale within twenty (20) business
days of the closing of the purchase of the Preferred Shares (the "Closing
Date"). Upon becoming eligible to use Form S-3, the Company shall promptly
convert its Registration Statement to Form S-3, unless instructed otherwise by
the Investors. To the extent allowable under the 1933 Act, the Registration
Statement shall include the Common Shares and such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Preferred Shares and exercise of the Warrants (i) to prevent dilution resulting
from stock splits, stock dividends or similar transactions, or (ii) by reason of
changes in the conversion price of the Preferred Shares or the exercise price of
the Warrants in accordance with the terms thereof. The number of shares of
Common Stock initially included in such Registration Statement shall be no less
than two (2) times the number of Common Shares that are issuable upon conversion
of the Preferred Shares and exercise of the Warrants. The Company shall use its
best efforts to cause such Registration Statement to be declared effective by
the SEC as soon as practicable after filing and in any event no later than the
ninetieth (90th) day following the Closing Date (the "Required Effective Date").
Such best efforts shall include, but not be limited to, promptly responding to
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all comments received from the staff of the SEC. Should the Company receive
notification from the SEC that the Registration Statement will receive no action
or no review from the SEC, the Company shall cause such Registration Statement
to become effective within five (5) business days of such SEC notification. Once
declared effective by the SEC, the Company shall cause such Registration
Statement to remain effective throughout the Registration Period. If at any time
after effectiveness of the Registration Statement sales cannot be made
thereunder for any reason for a period of more than twenty (20) days during any
twelve (12) month period, the Company will thereafter make cash payments to the
Investor as partial compensation for such delay in an amount equal to two
percent (2%) of the purchase price paid for the unconverted Preferred Shares for
the first month that sales cannot be made under the effective Registration
Statement, and three percent (3%) of said purchase price for each month
thereafter, continuing through the date that sales can be made under the
effective Registration Statement. Such payments will be prorated on a daily
basis for partial months and will be paid to the Investor in cash within five
(5) business days following the end of each month following the twentieth (20th)
day that sales could not be made.
(c) Late Registration Payments. If the Registration Statement required
pursuant to Section 2(a) above has not been declared effective by the Required
Effective Date, the Company will make cash payments to the Investor as partial
compensation for such delay (the "Late Registration Payments"). The Late
Registration Payments will be equal to one percent (1%) of the purchase price
paid for the Preferred Shares for the first month following the Required
Effective Date, two percent (2%) of the said purchase price for the second month
following the Required Effective Date, and three percent (3%) of said purchase
price for each month thereafter, continuing through the date the Registration
Statement is declared effective by the SEC. The Late Registration Payments will
be prorated on a daily basis for partial months and will be paid to the Initial
Investor in cash within five (5) business days following the earlier of: (i) the
end of each month following the Required Effective Date, or (ii) the effective
date of the Registration Statement. Nothing herein shall limit the Investor's
right to pursue actual damages for the Company's failure to file a Registration
Statement or to have it declared effective by the SEC on or prior to the
Required Effective Date in accordance with the terms of this Agreement.
(d) Piggyback Registrations. If, at any time prior to the expiration of the
Registration Period, the Company decides to register any of its securities for
its own account or for the account of others (excluding registrations for the
Company on Form S-4 or S-8 or their equivalents relating to equity securities to
be issued solely in connection with an acquisition of any entity or business or
equity securities isssuable in connection with stock option or other employee
benefit plans), the Company will promptly give the Investors written notice
thereof, and will use its best efforts to include in such registration all or
any part of the Registrable Securities so requested by such Investors (excluding
any Registrable Securities previously included in a Registration Statement).
Each Investor's request for registration must be given to the Company in writing
within fifteen (15) days after receipt of the notice from the Company. If the
registration for which the Company gives notice is a public offering involving
an underwriting, the Company will so advise the Investors as part of the
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above-described written notice. In such event, if the managing underwriter(s) of
the public offering impose a limitation on the number of shares of Common Stock
which may be included in the Registration Statement because, in such
underwriter(s)' judgment, such limitation would be necessary to effect an
orderly public distribution, then the Company will be obligated to include only
such limited portion, if any, of the Registrable Securities with respect to
which such Investors have requested inclusion hereunder. Any exclusion of
Registrable Securities shall be made pro-rata among all Holders of the Company's
securities seeking to include shares of Common Stock in proportion to the number
of shares of Common Stock sought to be included by such Holders; provided,
however, that the Company will not exclude any Registrable Securities unless the
Company has first excluded all outstanding securities the Holders of which are
not entitled by right to inclusion of securities in such Registration Statement
or are not entitled pro rata inclusion with the Registrable Securities. No right
to registration of Registrable Securities under this Section 2(d) shall be
construed to limit in any way the registration required under Section 2(a)
above. The obligations of the Company under this Section 2(d) will expire upon
the earlier of: (i) the effectiveness of the Registration Statement filed
pursuant to Section 2(a) above; (ii) after the Company has afforded the
opportunity for the Investors to exercise registration rights under this Section
2(d) for two registrations; provided, however, that any Investor who shall have
had any Registrable Securities excluded from any Registration Statement in
accordance with this Section 2(d) shall be entitled to include in any additional
Registration Statement filed by the Company the Registrable Securities so
excluded; or (iii) when all of the Registrable Securities held by any Investor
may be sold by such Investor under Rule 144 under the 1933 Act without being
subject to any volume restrictions.
(e) Eligibility for Form S-3. The Company represents and warrants that it
meets the requirements for the use of Form SB-2 for registration of the sale by
the Investors of the Registrable Securities. The Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
become eligible for the use of Form S-3, and agrees to become eligible to use
Form S-3 on or prior to July 31, 1998.
3. Additional Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall have the following
additional obligations:
(a) The Company shall keep the Registration Statement effective pursuant to
Rule 415 under the 1933 Act at all times during the Registration Period as
defined in Section 1(d) above.
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(b) The Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) filed by the Company shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The Company
shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to permit
sales pursuant to the Registration Statement at all times during the
Registration Period, and, during such period, shall comply with the provisions
of the 1933 Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until the termination of the
Registration Period, or if earlier, such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement. In the event the number of shares available under a Registration
Statement filed pursuant to this Agreement is, for any three (3) consecutive
trading days (the last of such three (3) trading days being the "Registration
Trigger Date"), insufficient to cover one hundred fifty percent (150%) of the
Registrable Securities issued or issuable upon conversion of the Preferred Stock
held by any Investor, the Company shall amend, if permissible, the Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover two hundred percent (200%) of
the Registrable Securities issued or issuable to such Investor, in each case, as
soon as practicable, but in any event within five (5) days in the case of an
amendment and ten (10) days in the case of a Registration Statement after the
Registration Trigger Date (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof.
(c) The Company shall furnish to each Investor whose Registrable Securities
are included in the Registration Statement and its legal counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC or
received by the Company, one copy of the Registration Statement and any
amendment thereto; each preliminary prospectus and final prospectus and each
amendment or supplement thereto; and, in the case of the Registration Statement
required under Section 2(a) above, each letter written by or on behalf of the
Company to the SEC and each item of correspondence from the SEC or the staff of
the SEC, in each case relating to such Registration Statement (other than any
portion of any item thereof which contains information for which the Company has
sought confidential treatment); and (ii) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements thereto,
and such other documents as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Investor.
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(d) The Company shall use its best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as each Investor who holds (or
has the right to hold) Registrable Securities being offered reasonably request,
(ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions.
Notwithstanding the foregoing provision, the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that cause material expense or
burden to the Company, or (v) make any change in its charter or bylaws, which in
each case the Board of Directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.
(e) In the event Investors who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2(a) or 3(b)
select underwriters for such offering, the Company shall enter into and perform
its obligations under an underwriting agreement in usual and customary form
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering. The Company shall
be responsible for payment of the fees of such underwriters and the attorney
fees and costs incurred by one attorney selected by such Investors to represent
their interests in the underwritten offering.
(f) The Company shall notify (by telephone and also by facsimile and
reputable overnight courier) each Investor who holds Registrable Securities
being sold pursuant to a Registration Statement of the happening of any event of
which the Company 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, in light of the circumstances under
which they were made, not misleading (a "Suspension Event"). The Company shall
make such notification as promptly as practicable after the Company becomes
aware of such Suspension Event, shall promptly use its best efforts (but in any
event within five (5) days) to prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission, and shall
deliver a number of copies of such supplement or amendment to each Investor as
such Investor may reasonably request. Notwithstanding anything contained herein
or in the Securities Purchase Agreement, in the event that the use of the
Registration Statement is suspended by the Company, the Company shall promptly
notify all Investors whose securities are covered by the Registration Statement
of such suspension, and shall promptly notify each such Investor as soon as the
use of the Registration Statement may be resumed. Notwithstanding anything to
the contrary, the Company shall cause the Transfer Agent to deliver unlegended
shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Certificate of Designation in connection with any sale of
Registrable Securities with respect to which such Investor has entered into a
contract for sale prior to receipt of notice of such suspension and for which
such Investor has not yet settled.
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(g) The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement and,
if such an order is issued, shall use its best efforts to obtain the withdrawal
of such order at the earliest possible time and to notify each Investor who
holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof.
(h) The Company shall permit a single firm of counsel designated by the
Investors who hold a majority in interest of the Registrable Securities being
sold pursuant to such registration to review the Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and shall not file any document in a form to which such counsel
reasonably objects.
(i) The Company shall make generally available to its security Holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in a form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
(j) At the request of the Investors who hold a majority in interest of the
Registrable Securities being sold pursuant to such registration, the Company
shall furnish on the date that Registrable Securities are delivered to an
underwriter for sale in connection with the Registration Statement (i) a letter,
dated such date, from the Company's independent certified public accountants in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters; and (ii) an opinion, dated such date, from counsel representing
the Company for purposes of such Registration Statement, in form and substance
as is customarily given in an underwritten public offering, addressed to the
underwriters and Investors.
(k) The Company shall make available for inspection by any Investor whose
Registrable Securities are being sold pursuant to such registration, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any such
Investor or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably deemed necessary
by each Inspector to enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information which any Inspector may reasonably request for purposes
of such due diligence; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to an Investor) of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (iii) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement (to the knowledge of the relevant
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Investor). The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein shall be deemed to
limit the Investor's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
(l) The Company shall hold in confidence and shall not make any disclosure
of information concerning an Investor provided to the Company pursuant hereto
unless (i) disclosure of such information is necessary to comply with federal or
state securities laws, (ii) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement, (iii)
the release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure and allow such Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
(m) The Company shall cause the listing and the continuation of listing of
all the Registrable Securities covered by the Registration Statement on the
Nasdaq National Market System, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange, and cause the Registrable Securities to
be quoted or listed on each additional national securities exchange or quotation
system upon which the Common Stock is then listed or quoted.
(n) The Company shall provide a transfer agent and registrar, which may be
a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.
(o) The Company shall cooperate with the Investors who hold Registrable
Securities being sold and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates to be in such
denominations or amounts as the case may be, and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request; and, within one (1) business day after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to the transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) instructions to the transfer agent to issue new stock certificates
without a legend and an opinion of such counsel that the Common Shares have been
registered.
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(p) At the request of any Investor, the Company shall promptly prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
(q) The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC).
(r) the Company shall take all other reasonable actions as any Investor or
the underwriters, if any, may reasonably request to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of each Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of the Registrable
Securities. At least twenty (20) business days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such Investor (the
"Requested Information") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If within three
(3) business days prior to the filing date the Company has not received the
Requested Information from an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor.
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(f) or 3(g),
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession (other than a limited number of file
copies), of the prospectus covering such Registrable Securities current at the
time of receipt of such notice.
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(d) Without limiting any Investor's rights under Sections 2(a) or 3(b)
hereof, no Investor may participate in any underwritten distribution hereunder
unless such Investor (i) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements approved by the Investors
entitled hereunder to approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and other fees and expenses of investment bankers and
any manager or managers of such underwriting and legal expenses of the
underwriter applicable with respect to its Registrable Securities, in each case
to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company, and the reasonable fees and disbursements of one counsel selected
by the Initial Investor pursuant to Section 3(e) hereof, shall be borne by the
Company.
6. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the 1933 Act or the
Exchange Act, any underwriter (as defined in the 1933 Act) for the Investors,
the directors, if any, of such underwriter and the officers, if any, of such
underwriter, and each person, if any, who controls any such underwriter within
the meaning of the 1933 Act or the Exchange Act (each, an "Indemnified Person"),
against any losses, claims, damages, expenses or liabilities (joint or several)
(collectively together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened in respect
thereof, "Claims") to which any of them become subject under the 1933 Act, the
Exchange Act or otherwise, insofar as such Claims arise out of or are based upon
any of the following statements, omissions or violations in the Registration
Statement, or any post-effective amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment thereof
or 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,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
Exchange Act or any other law, including without limitation any state securities
law or any rule or regulation thereunder (the matters in the foregoing clauses
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(i) through (iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6(c) with respect to the number of legal
counsel, the Company shall reimburse the Investors and each such underwriter or
controlling person and each such other Indemnified Person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (A) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (B) with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Party from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; and the Indemnified Party was promptly advised
in writing not to use the incorrect prospectus prior to the use giving rise to a
Violation and such Indemnified Party, notwithstanding such notice, used it (C)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Persons and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of the 1933 Act
or the Exchange Act, and any other stockholder selling securities pursuant to
the Registration Statement or any of its directors or officers or any person who
controls such stockholder within the meaning of the 1933 Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the 1933 Act,
the Exchange Act or otherwise, insofar as such Claim arises out of or is based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement, and subject to Section 6(c), such
Investor will promptly reimburse any legal or other expenses (promptly as such
expenses are incurred and due and payable) reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount of a Claim as does not exceed the net proceeds actually received by
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented, and the Indemnified Party failed to utilize
such corrected prospectus.
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(c) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and this indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that such Indemnified Party shall diligently pursue such
defense and that such Indemnified Party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action including both the Indemnified Person or the Indemnified Party and any
such Indemnified Person or Indemnified Party reasonably determines that there
may be legal defenses available to such Indemnified Person or Indemnified Party
which are different from or in addition to those available to such indemnifying
party. The Company shall pay for only one separate legal counsel for the
Investors; such legal counsel shall be selected by the Investors holding a
majority in interest of the Registrable Securities. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification provided for herein is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. Reports Under the Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the 1933 Act or any 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:
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(a) File with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the 1933 Act and the
Exchange Act so long as the Company remains subject to such requirements (it
being understood that nothing herein shall limit the Company's obligations under
Section 4.3 of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
(b) Furnish to each Investor so long as such Investor holds Preferred
Stock, Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the 1933 Act and the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule 144
without registration.
9. Assignment of Registration Rights. The rights of the Investors
hereunder, including the right to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to transferees or assignees of all or any portion of such securities
only if (i) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
received the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement, and (vi)
such transferee shall be an "accredited investor" as that term is defined in
Rule 501 of Regulation D promulgated under the 1933 Act.
10. Amendment of Registration Rights. Provisions of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and Investors who hold a majority interest of the
Registrable Securities (but not an Investor who no longer owns any Preferred
Stock or Registrable Securities and who is not affected by such amendment or
waiver). Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. Notwithstanding the
foregoing, no amendment or waiver shall retroactively affect any Investor
without its comment or prospectively adversely affect any Investor who no longer
owns any Preferred Stock, Warrants or Registrable Securities without its
consent. Neither Article 6 nor Article 7 hereof may be amended or waived in a
manner adverse to an Investor without its consent.
11. Third Party Beneficiary. The parties acknowledge and agree that
Shoreline Pacific Institutional Finance, the Institutional Division of Financial
West Group ("Shoreline"), shall be deemed a third party beneficiary of the
Company's agreements and representations set forth in this Agreement, entitled
to enforce the terms thereof, and to indemnification for any damages resulting
to Shoreline from any actual or threatened breach thereof by the Company, both
in Shoreline's personal capacity and, should Shoreline so elect, and provided
that Shoreline has obtained the prior written consent of the Investor, on behalf
of the Investor.
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12. Miscellaneous.
(a) Conflicting Instructions. A person or entity is deemed to be a holder
of Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (with return
receipt requested) or delivered personally or by courier (including a nationally
recognized overnight delivery service) or by facsimile transmission. Any notice
so given shall be deemed effective three days after being deposited in the U.S.
Mail, or upon receipt if delivered personally or by courier or facsimile
transmission, in each case addressed to a party at the following address or such
other address as each such party furnishes to the other in accordance with this
Section 12(b):
If to the Company:
American Bio Medica Corporation
102 Simons Road
Ancramdale, NY 12503
Telephone: (518) 329-4485
Telecopy: (518) 329-4156
Attention: Mr. Stan Cipkowski, President
with a copy to:
Joel Pensley, Esq.
Attorney-at-Law
276 Fifth Avenue, Suite 715
New York, NY 10001
Telephone: (212) 725-7110
Fax: (212) 725-7527
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
333 West Wacker Drive
Suite 1410
Chicago, IL 60606
Attn: Mr. John D. Ziegelman
Telephone: (312) 544-2771
Telecopy: (312) 435-2636
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and with a copy to:
Peter Lieberman, Esq.
Altheimer & Gray
10 S. Wacker Drive
Suite 4000
Chicago, IL 60606
Telephone:(312) 715-4000
Telecopy:(312) 715-4150
in each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
(c) Waiver. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) Governing Law. This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of New York applicable to the
agreements made and to be performed entirely within such state, without giving
effect to rules governing the conflict of laws (other than Section 5-1401, or a
similar successor provision, of the New York General Obligations Law), and any
disputes arising hereunder will be adjudicated in federal or state court
situated therein. Each party hereto consents to such venue in New York and to
the personal and subject matter jurisdiction of said courts and, to the extent
permitted by applicable law, agrees to waive any objection as to such
jurisdiction or venue, and agrees not to assert any defense based on lack of
jurisdiction or venue.
(e) Severability. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
(f) Entire Agreement. This Agreement, the Securities Purchase Agreement,
the Certificate of Designation and the Warrant (including all schedules and
exhibits thereto) constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(g) Successors and Assigns. Subject to the requirements of Section 9
hereof, this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. Notwithstanding anything
to the contrary herein, including without limitation, Section 9, the rights of
an Investor hereunder shall be assignable to and exerciseable by a bona fide
pledgee of the Registrable Securities in connection with an Investor's margin or
brokerage accounts.
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(h) Use of Pronouns. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(i) Headings. The headings and subheadings in the Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission, and
facsimile signatures shall be binding on the parties hereto.
(k) Further Acts. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(l) Consents. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made by the Initial Investor or
the Investors holding a majority of the Registrable Securities, determined as if
all shares of preferred stock of the Company issued in the Offering and all
Warrants then outstanding had been converted into or exercised for Registrable
Securities.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
COMPANY:
American Bio Medica Corporation
By:
Stan Cipkowski
President
INITIAL INVESTOR:
CC INVESTMENTS, LDC
Residency: Cayman Islands
By:
John Ziegelman
Director, CSS Corporation Ltd.
Secretary, CC Investments, LDC
16
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("SECURITIES ACT"), AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: April 24, 1998
to Purchase 100,000 Shares of Common Stock of
AMERICAN BIO MEDICA CORPORATION
American Bio Medica Corporation, a New York corporation (the "Company"),
hereby certifies that CC INVESTMENTS, LDC, its permissible transferees,
designees, successors and assigns (collectively, the "Holder"), for value
received, is entitled to purchase from the Company at any time or from time to
time commencing on April 24, 1998, and terminating on April 24, 2001 up to One
Hundred Thousand (100,000) shares (each a "Share" and collectively the "Shares")
of the Company's common stock, par value $.01 per Share (the "Common Stock"), at
an exercise price of Four Dollars and Eighty-One Cents ($4.81) U.S. per Share
(the "Exercise Price"). The number of Shares purchasable hereunder and the
Exercise Price are subject to adjustment as provided in Section 4 hereof.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock Purchase Warrant
Certificate ("Warrant Certificate" or "Certificate"), or lost etc. affidavit,
accompanied by a completed Election to Purchase in the form attached hereto as
Exhibit A (the "Election to Purchase") duly executed, at the principal office of
the Company at 102 Simons Road, Ancramdale, New York, 12503, Attn: Mr. Stan
Cipkowski, President, together with a check payable to the Company in the amount
of the Exercise Price multiplied by the number of Shares being purchased, the
Company or the Company's Transfer Agent as the case may be, shall, within two
(2) trading days of receipt of the foregoing, deliver to the Holder hereof,
certificates of fully paid and non-assessable Common Stock which in the
aggregate represent the number of Shares being purchased; provided, however,
that the Company may elect in writing to allow the Holder to utilize the
cashless exercise provisions set forth below in lieu of tendering the Exercise
Price in cash. The certificates so delivered shall be in such denominations as
may be reasonably requested by the Holder and shall be registered in the name of
the Holder or such other name as shall be designated by the Holder. All or less
than all of the Warrants represented by this Certificate may be exercised and,
in case of the exercise of less than all, the Company, upon surrender hereof,
will at the Company's expense deliver to the Holder a new Warrant Certificate or
Certificates (in such denominations as may be requested by the Holder) of like
tenor and dated the date hereof entitling said holder to purchase the number of
Shares represented by this Certificate which have not been exercised and to
receive Registration Rights with respect to such Shares, and all other rights
with respect to the shares which the Holder has on the date hereof.
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(b) Cashless Exercise. Notwithstanding the foregoing provision regarding
payment of the Exercise Price in cash, the Company may elect in writing to allow
the Holder to elect to receive a reduced number of Shares in lieu of tendering
the Exercise Price in cash. In such case, the number of Shares to be issued to
the Holder shall be computed using the following formula:
X = Y(A-B)
----------
A
where: X = the number of Shares to be issued to the Holder; Y = the number
of Shares eligible to be purchased under this Warrant Certificate; A = the
Market Value (defined below) of one share of Common Stock on the trading day
before the Election to Purchase and this Warrant Certificate are duly surrender
to the Company for or partial exercise; and B = the Exercise Price.
The term "Market Value" means, for any security as of any date, the closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holder if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market or the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the Company
and reasonably acceptable to the Holder with the costs of such appraisal to be
borne by the Company.
2. Exchange, Transfer and Replacement. (a) At any time prior to the
exercise hereof, this Certificate may be exchanged upon presentation and
surrender to the Company, alone or with other Certificates of like tenor of
different denominations registered in the name of the same Holder, for another
Certificate or Certificates of like tenor in the name of such Holder exercisable
for the aggregate number of Shares as the Certificate or Certificates
surrendered.
(b) Replacement of Warrant Certificate. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant Certificate and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant Certificate, the Company, at its
expense, will execute and deliver in lieu thereof, a new Warrant Certificate of
like tenor.
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<PAGE>
(c) Cancellation; Payment of Expenses. Upon the surrender of this Warrant
Certificate in connection with any transfer, exchange or replacement as provided
in this Section 2, this Warrant Certificate shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution and delivery of Warrant Certificates pursuant to this Section 2.
(d) Warrant Register. The Company shall maintain, at its principal
executive offices (or at the offices of the transfer agent for the Warrant
Certificate or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant Certificate (the
"Warrant Register"), in which the Company shall record the name and address of
the person in whose name this Warrant Certificate has been issued, as well as
the name and address of each permitted transferee and each prior owner of this
Warrant Certificate.
(e) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a "Big Six" independent accounting firm (selected by the
Company) via facsimile within three (3) business days of receipt of the Election
to Purchase. The accounting firm shall audit the calculations and notify the
Company and the converting Holder of the results no later than two (2) business
days from the date it receives the disputed calculations. The accounting firm's
calculation shall be deemed conclusive, absent manifest error. The Company shall
then issue the appropriate number of shares of Common Stock in accordance with
this Section.
3. Rights and Obligations of Holders of this Certificate. The Holder of
this Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some or all of the
Warrants, such holder shall, for all purposes, be deemed to have become the
holder of record of such Common Stock on the date on which this Certificate,
together with a duly executed Purchase Form, was surrendered and payment of the
aggregate Exercise Price was made, irrespective of the date of delivery of such
share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications, Recapitalizations, Etc. In the
event the Company: (i) pays a dividend in Common Stock or makes a distribution
in Common Stock, (ii) subdivides its outstanding Common Stock into a greater
number of shares, (iii) combines its outstanding Common Stock into a smaller
number of shares or (iv) increases or decreases the number of shares of Common
Stock outstanding by reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in which the
Company is the continuing corporation), then (1) the Exercise Price on the
record date of such division or distribution or the effective date of such
action shall be adjusted by multiplying such Exercise Price by a fraction, the
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<PAGE>
numerator of which is the number of shares of Common Stock outstanding
immediately before such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event, and (2) the
number of shares of Common Stock for which this Warrant Certificate may be
exercised immediately before such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the Exercise Price immediately
before such event and the denominator of which is the Exercise Price immediately
after such event.
(b) Cash Dividends and Other Distributions. In the event that at any time
or from time to time the Company shall distribute to all holders of Common Stock
(i) any dividend or other distribution of cash, evidences of its indebtedness,
shares of its capital stock or any other properties or securities or (ii) any
options, warrants or other rights to subscribe for or purchase any of the
foregoing (other than in each case, (w) the issuance of any rights under a
shareholder rights plan, (x) any dividend or distribution described in Section
4(a), (y) any rights, options, warrants or securities described in Section 4(c)
and (z) any cash dividends or other cash distributions from current earnings),
then the number of shares of Common Stock issuable upon the exercise of each
Warrant Certificate shall be increased to a number determined by multiplying the
number of shares of Common Stock issuable upon the exercise of such Warrant
Certificate immediately prior to the record date for any such dividend or
distribution by a fraction, the numerator of which shall be such Market Value
per share of Common Stock on the record date for such dividend or distribution,
and the denominator of which shall be such Market Value per share of Common
Stock on the record date for such dividend or distribution less the sum of (x)
the amount of cash, if any, distributed per share of Common Stock and (y) the
fair value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be evidenced by a board resolution, a copy of
which will be sent to the Holders upon request) of the portion, if any, of the
distribution applicable to one share of Common Stock consisting of evidences of
indebtedness, shares of stock, securities, other property, warrants, options or
subscription or purchase rights; and the Exercise Price shall be adjusted to a
number determined by dividing the Exercise Price immediately prior to such
record date by the above fraction. Such adjustments shall be made whenever any
distribution is made and shall become effective as of the date of distribution,
retroactive to the record date for any such distribution. No adjustment shall be
made pursuant to this Section 4(b) which shall have the effect of decreasing the
number of shares of Common Stock issuable upon exercise of each Warrant
Certificate or increasing the Exercise Price.
(c) Rights Issue. In the event that at any time or from time to time the
Company shall issue rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock to all holders of Common Stock
(other than in connection with the adoption of a shareholder rights plan by the
Company) without any charge, entitling such holders to subscribe for or purchase
shares of Common Stock at a price per share that as of the record date for such
issuance is less than the then Market Value per share of Common Stock, the
number of shares of Common Stock issuable upon the exercise of each Warrant
Certificate shall be increased to a number determined by multiplying the number
of shares of Common Stock theretofore issuable upon exercise of each Warrant
Certificate by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on the date of issuance of such rights, options,
warrant or securities plus the number of additional shares of Common Stock
6
<PAGE>
offered for subscription or purchase or into or for which such securities that
are issued are convertible, exchangeable or exercisable, and the denominator of
which shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, option, warrants or securities plus the total number of
shares of Common Stock which the aggregate consideration expected to be received
by the Company (assuming the exercise or conversion of all such rights, options,
warrants or securities) would purchase at the then Market Value per share of
Common Stock. In the event of any such adjustment, the Exercise Price shall be
adjusted to a number determined by dividing the Exercise price immediately prior
to such date of issuance by the aforementioned fraction. Such adjustment shall
be made immediately after such rights, options or warrants are issued and shall
become effective, retroactive to the record date for the determination of
stockholders entitled to receive such rights, options, warrants or securities.
No adjustment shall be made pursuant to this Section 4(c) which shall have the
effect of decreasing the number of shares of Common Stock purchasable upon
exercise or each Warrant Certificate or of increasing the Exercise Price.
(d) Combination; Liquidation.
(i) If the Company shall consolidate with or merge into another corporation
or reclassify its outstanding shares of Common Stock (other than by way of
subdivision or reduction of such shares) (each a "Major Transaction"), then each
Holder of a Warrant Certificate shall thereafter be entitled to receive
consideration, in exchange for such Warrant Certificate, equal to the greater
of, as determined in the sole discretion of such Holder: (1) a warrant to
purchase (at the same aggregate exercise price and on the same terms and
conditions as the Warrant Certificate surrendered) the number of shares of stock
or securities or property of the Company, or of the entity resulting from such
consolidation or merger (the "Major Transaction Consideration"), to which a
holder of the number of shares of Common Stock delivered upon exercise of such
Warrant Certificate would have been entitled upon such Major Transaction had the
Holder of such Warrant Certificate exercised (without regard to any limitations
on exercise herein contained) the Warrant Certificate on the trading date
immediately preceding the public announcement of the transaction resulting in
such Major Transaction and had such Common Stock been issued and outstanding and
had such Holder been the holder of record of such Common Stock at the time of
such Major Transaction, and the Company shall make lawful provision therefor as
a part of such consolidation, merger or reclassification; and (2) cash paid by
the Company in immediately available funds, in an amount equal to the
Black-Scholes Amount (as defined herein) times the number of shares of Common
Stock for which this Warrant Certificate was exercisable (without regard to any
limitations on exercise herein contained) on the date immediately preceding the
date of such Major Transaction. No sooner than ten (10) days nor later than five
(5) days prior to the consummation of the Major Transaction, but not prior to
the public announcement of such Major Transaction, the Company shall deliver
written notice ("Notice of Major Transaction") to each Holder of Warrant
Certificates, which Notice of Major Transaction shall be deemed to have been
delivered one (1) business day following the Company's sending such notice by
telecopy (provided that the Company sends a confirming copy of such notice on
the same day by overnight courier) of such Notice of Major Transaction. Such
Notice of Major Transaction shall indicate the amount and type of the Major
Transaction Consideration which such Holder would receive under clause (1) of
this paragraph (d). If the Major Transaction Consideration does not consist
entirely of United States currency, such Holder may elect to receive United
States currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election of the Company within five (5) days of the Holder's
receipt of the Notice of Major Transaction.
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The "Black-Scholes Amount" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (1) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (2) volatility of the Common Stock equal to the volatility of the
Common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (3) a risk free rate equal to the interest rate on the
United States treasury bill or treasury note with a maturity corresponding to
the remaining term of the Warrant Certificate on the date of the Notice of the
Major Transaction; and (4) an exercise price equal to the Exercise Price on the
date of the Notice of the Major Transaction. In the event such calculation
function is no longer available utilizing the Bloomberg online page, the Holder
shall calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(ii) Notwithstanding (i) above, in the event of (x) a Combination where
consideration to the holders of Common Stock in exchange for their shares is
payable solely in cash or (y) the dissolution, liquidation or winding-up of the
Company, the Holders shall be entitled to receive, upon surrender of their
Warrant Certificates, distributions on an equal basis with the holders of Common
Stock or other securities issuable upon exercise of the Warrant Certificates, as
if the Warrant Certificates had been exercised immediately prior to such event,
less the Exercise Price. In case of any Combination described in this Section
4(d)(ii), the surviving or acquiring Person and, in the event of any
dissolution, liquidation or winding-up of the Company, the Company, shall
deposit promptly following the consummation of such combination or at the time
of such dissolution, liquidation or winding-up with an agent or trustee for the
benefit of the Holders of the funds, if any, necessary to pay to the Holders the
amounts to which they are entitled as described above. After such funds and the
surrendered Warrant Certificates are received, the Company is required to
deliver a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such Person or Persons as it may be directed in writing by the Holders
surrendering such Warrant Certificates.
(e) Notice of Adjustment. Whenever the Exercise Price or the number of
shares of Common Stock and other property, if any, issuable upon exercise of the
Warrant Certificates is adjusted, as herein provided, the Company shall deliver
to the holders of the Warrant Certificates in accordance with Section 10 a
certificate of the Company's Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated (including a description of the basis on which
(i) the Board of Directors determined the fair value of any evidences of
indebtedness, other securities or property or warrants, options or other
subscription or purchase rights and (ii) the then Market Value of the Common
Stock was determined, if either of such determinations were required), and
specifying the Exercise Price and number of shares of Common Stock issuable upon
exercise of Warrant Certificates after giving effect to such adjustment.
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(f) Purchase Price Adjustment. In the event that the Company issues or
sells any Common Stock or securities which are convertible into or exchangeable
for its Common Stock or any convertible securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible securities (other than shares or options
issued or which may be issued pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the date of the Agreement and listed in the Company's most recent
periodic report filed under the Exchange Act) and other than the Additional
Financing (as defined in the Purchase Agreement) at an effective purchase price
per share which is less than the greater of the Purchase Price then in effect or
the Market Value of the Common Stock on the trading day next preceding such
issue or sale, then in each such case, the Exercise Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such fair market value or, Exercise Price as the case may be, then in effect;
and (y) the denominator of which shall be the number of shares of Common Stock
of the Company outstanding immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the issuance
of any convertible securities, warrants, options or other rights to subscribe
for or to purchase or exchange for, shares of Common Stock ("Convertible
Securities"), the maximum number of shares of Common Stock issuable upon
exercise, exchange or conversion of such Convertible Securities shall be deemed
to be outstanding, provided that no further adjustment shall be made upon the
actual issuance of Common Stock upon exercise, exchange or conversion of such
Convertible Securities.
If the Company in any manner issues or sells any Convertible Securities
with a fluctuating conversion or exercise price or exchange ratio (a "Variable
Rate Convertible Security"), then the price per share for which Common Stock is
issuable upon such exercise, conversion or exchange for purposes of the
calculation contemplated pursuant to this Section shall be deemed to be the
lowest price per share which would be applicable assuming that (i) all holding
period and other conditions to any discounts contained in such Convertible
Security have been satisfied, and (ii) the Market Price on the date of issuance
of such Convertible Security was 80% of the Market Price on such date (the
"Assumed Variable Market Price").
The number of shares which may be purchased hereunder shall be increased
proportionately to any reduction in Exercise Price pursuant to this paragraph
4(f), so that after such adjustments the aggregate Exercise Price payable
hereunder for the increased number of shares shall be the same as the aggregate
Exercise Price in effect just prior to such adjustment.
In the event of any such issuance for a consideration which is less than
such fair market value and also less than the Exercise Price then in effect,
than there shall be only one such adjustment by reason of such issuance, such
adjustment to be that which results in the greatest reduction of the Purchase
Price computed as aforesaid.
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(g) Notice of Certain Transactions. In the event that the Company shall
propose (a) to pay any dividend payable in securities of any class to the
holders of its Common Stock or to make any other non-cash dividend or
distribution to the holders of its Common Stock, (b) to offer the holders of its
Common Stock rights to subscribe for or to purchase any securities convertible
into shares of Common Stock or shares of stock of any class or any other
securities, rights or options, (c) to effect any capital reorganization,
reclassification, consolidation or merger affecting the class of Common Stock,
as a whole, or (d) to effect the voluntary or involuntary dissolution,
liquidation or winding-up of the Company, the Company shall, within the time
limits specified below, send to each Holder a notice of such proposed action or
offer. Such notice shall be mailed to the Holders at their addresses as they
appear in the Warrant Register (as defined in Section 2(d)), which shall specify
the record date for the purposes of such dividend, distribution or rights, or
the date such issuance or event is to take place and the date of participation
therein by the holders of Common Stock, if any such date is to be fixed, and
shall briefly indicate the effect of such action on the number of shares of
Common Stock and on the number and kind of any other shares of stock and on
other property, if any, and the number of shares of Common Stock and other
property, if any, issuable upon exercise of each Warrant Certificate and the
Exercise Price after giving effect to any adjustment pursuant to Section 4 which
will be required as a result of such action. Such notice shall be given as
promptly as possible and (x) in the case of any action covered by clause (a) or
(b) above, at least 10 days prior to the record date for determining holders of
the Common Stock for purposes of such action or (y) in the case of any other
such action, at least 20 days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of Common Stock,
whichever shall be the earlier.
(h) Other Adjustments. In the event of any other transaction of the type
contemplated by this Section 4, but not expressly provided for by the provisions
hereof, the Board of Directors of the Company will make appropriate adjustment
in the Exercise Price and the number of Shares so as to equitably protect the
rights of the Holder.
(i) No Impairment of Holder's Rights. The Company will not, by amendment of
its certificate of incorporation or bylaws or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, except as contemplated hereby, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant Certificate, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all action as may be necessary or
appropriate in order to protect the rights of the Holder against dilution or
other impairment.
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5. Certain Agreements of the Company.
(a) The Company covenants and agrees that all shares of Common Stock
issuable upon exercise of this Warrant Certificate will, upon delivery, be duly
and validly authorized and issued, fully-paid and non-assessable and free from
all taxes, liens, claims and encumbrances.
(b) The Company covenants and agrees that it will at all times reserve and
keep available an authorized number of shares of its Common Stock and other
applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including this Warrant Certificate.
(c) The Company shall promptly secure the listing of the Shares upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become listed (subject to official
notice of issuance upon exercise of this Warrant Certificate) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant Certificate; and the Company shall so list on each
national securities exchange or automated quotation system, as the case may be,
and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant Certificate if and so long as
any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) The Company has taken all necessary action and proceedings as required
and permitted by applicable law, rule and regulation, including, without
limitation, the notification of the principal market on which the Common Stock
is traded, for the legal and valid issuance of this Warrant Certificate to the
Holder under this Warrant Certificate.
(e) With a view to making available to Holder the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the Securities and
Exchange Commission ("SEC") that may at any time permit Holder to sell
securities of the Company to the public without registration, the Company agrees
to use its commercially reasonable efforts to:
(i) make and keep current public information available, as this term is
understood and defined in Rule 144 under the Securities Act, at all times;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); and
(iii) furnish to any Holder forthwith upon request a written statement by
the Company that it has complied with the reporting requirements of Rule 144 and
of the Act and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Holder to take
advantage of any rule or regulation of the SEC permitting the selling of any
such securities without registration.
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6. Registration Rights. The initial Holder is entitled to the benefit of
such registration rights in respect of the Shares as are set forth in the
Registration Rights Agreement dated as of April 23, 1998, by and between the
Company and the Holder, including the right to assign such rights to certain
assignees as set forth therein.
7. Issuance of Certificates. Within three (3) trading days of receipt of a
duly completed Election to Purchase form, together with this Certificate and
payment of the Exercise Price, the Company, at its expense, will cause to be
issued in the name of and delivered to the Holder of this Warrant, a certificate
or certificates for the number of fully paid and non-assessable shares of Common
Stock to which that Holder shall be entitled on such exercise. In the event the
shares of Common Stock are not timely delivered to the Holder, the Company
agrees to (a) indemnify Holder for all damages, including consequential and
special damages, lost profits and expenses, including legal fees, and (b)
beginning on the fifth (5th) trading day following the Company's receipt of a
duly completed Election to Purchase form, pay a default premium of 2% per day of
the value of underlying shares (based on the highest closing price during the
two (2) day period preceding the date of surrender of the Warrant Certificate).
In lieu of issuance of a fractional share upon any exercise hereunder, the
Company will pay the cash value of that fractional share, calculated on the
basis of the Exercise Price. Prior to registration of the resale of the shares
of Common Stock underlying this Warrant Certificate, all such certificates shall
bear a restrictive legend consistent with that specified in the Securities
Purchase Agreement.
8. Disposition of Warrants or Shares. The Holder of this Warrant
Certificate, each transferee hereof and any holder and transferee of any Shares,
by his or its acceptance thereof, agrees that no public distribution of Warrants
or Shares will be made in violation of the provisions of the Securities Act.
Furthermore, it shall be a condition to the transfer of the Warrants that any
transferee thereof deliver to the Company his or its written agreement to accept
and be bound by all of the relevant terms and conditions contained in this
Warrant Certificate.
9. Merger or Consolidation. The Company will not merge or consolidate with
or into any other corporation, or sell or otherwise transfer its property,
assets and business substantially as an entirety to another corporation, unless
the corporation resulting from such merger or consolidation (if not the
Company), or such transferee corporation, as the case may be, shall expressly
assume, by supplemental agreement reasonably satisfactory in form and substance
to the Holder, the due and punctual performance and observance of each and every
covenant and condition of this Warrant Certificate to be performed and observed
by the Company.
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10. Notices. Except as otherwise specified herein to the contrary, all
notices, requests, demands and other communications required or desired to be
given hereunder shall only be effective if given in writing by certified or
registered U.S. mail with return receipt requested and postage prepaid; by
private overnight delivery service (e.g. Federal Express); by facsimile
transmission (if no original documents or instruments must accompany the
notice); or by personal delivery. Any such notice shall be deemed to have been
given (a) on the business day immediately following deposit with a private
overnight delivery service if sent by said service; (b) upon receipt of
confirmation of transmission if sent by facsimile transmission; or (c) upon
personal delivery of the notice. All such notices shall be sent to the following
addresses (or to such other address or addresses as a party may have advised the
other in the manner provided in this Section 10):
If to the Company:
American Bio Medica Corporation
102 Simons Road
Ancramdale, NY 12503
Telephone: (518) 329-4485
Telecopy: (518) 329-4156
Attention: Mr. Stan Cipkowski, President
with a copy to:
Joel Pensley, Esq.
Attorney-at-Law
276 Fifth Avenue, Suite 715
New York, NY 10001
Telephone: (212) 725-7110
Fax: (212) 725-7527
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
333 West Wacker Drive
Suite 1410
Chicago, IL 60606
Attn: Portfolio Manager
Telephone: (312) 544-2771
Telecopy: (312) 435-2636
and with a copy to:
Peter Lieberman, Esq.
Altheimer & Gray
10 S. Wacker Drive
Suite 4000
Chicago, IL 60606
Telephone: (312) 715-4000
Telecopy: (312) 715-4150
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in each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
Notwithstanding the time of effectiveness of notices set forth in this
Section, an Election to Purchase shall not be deemed effectively given until it
has been duly completed and submitted to the Company together with the original
Warrant Certificate to be exercised and payment of the Exercise Price in a
manner set forth in this Section.
11. Notwithstanding anything in this Warrant Certificate to the contrary,
in no event shall the holder of this Warrant Certificate be entitled to exercise
a number of Warrant Certificates (or portions thereof) in excess of the number
of Warrant Certificates (or portions thereof) upon exercise of which the sum of
(i) the number of shares of Common Stock beneficially owned by the holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised Warrant Certificates
and unconverted shares of Preferred Stock (as defined in the Securities Purchase
Agreement)) or other securities containing restrictions on conversion or
exercise analogous to the provisions in this paragraph, and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrant Certificates (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, (x) beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13D-G thereunder, except as otherwise provided in clause (i) hereof,
and (y) a holder may waive the limitations set forth herein upon not less than
sixty-one (61) days prior written notice to the Company (with such waiver taking
effect only upon the expiration of such sixty-one (61) day notice period).
12. Governing Law. This Warrant Certificate and all rights and obligations
hereunder shall be deemed to be made under and governed by the laws of the State
of New York without giving effect to the conflicts of laws provisions. The
Holder hereby irrevocably consents to the venue and jurisdiction of the State
and Federal Courts located in the State of New York, County of New York.
13. Successors and Assigns. This Warrant Certificate shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
14. Headings. The headings of various sections of this Warrant Certificate
have been inserted for reference only and shall not affect the meaning or
construction of any of the provisions hereof.
15. Severability. If any provision of this Warrant Certificate is held to
be unenforceable under applicable law, such provision shall be excluded from
this Warrant Certificate, and the balance hereof shall be interpreted as if such
provision were so excluded.
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16. Modification and Waiver. This Warrant Certificate and any provision
hereof may be amended, waived, discharged or terminated only by an instrument in
writing signed by the Company and the Holder.
17. Specific Enforcement. The Company and the Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Warrant Certificate were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Warrant Certificate and to enforce specifically the terms
and provisions hereof, this being in addition to any other remedy to which
either of them may be entitled by law or equity.
18. Assignment. This Warrant Certificate may be transferred or assigned, in
whole or in part, at any time and from time to time by the then Holder by
submitting this Warrant to the Company together with a duly executed Assignment
in substantially the form and substance of the Form of Assignment which
accompanies this Warrant Certificate and, upon the Company's receipt hereof, and
in any event, within three (3) business days thereafter, the Company shall issue
a Warrant Certificate to the Holder to evidence that portion of this Warrant
Certificate, if any as shall not have been so transferred or assigned. In
addition, and notwithstanding anything to the contrary contained in this Warrant
Certificate, this Warrant Certificate may be pledged, and all rights of Holder
under this Warrant Certificate may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with Holder's margin or brokerage
accounts.
18. Issue Tax. The issuance of Common Stock upon the exercise of this
Warrant Certificate shall be made without charge to the holder of this Warrant
Certificate or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than the Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or by facsimile, by one of its officers thereunto duly
authorized.
AMERICAN BIO MEDICA CORPORATION
Date: April , 1998 By:
Stan Cipkowski
President
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<PAGE>
I. DESIGNATION AND AMOUNT
The designation (this "Certificate of Designation") of this series, which
consists of Four Thousand Five Hundred (4,500) shares of Preferred Stock of
American Bio Medica Corporation, a New York corporation together with any
additional shares of Preferred Stock issued as a dividend or otherwise in
payment of obligations hereunder, not to exceed, in the aggregate Six Thousand
(6,000) shares, is the Series D Preferred Stock (the "Preferred Stock" or
"Preferred Shares") and the face amount per share shall equal One Thousand U.S.
Dollars ($1,000) (the "Face Amount").
II. DIVIDENDS
A. General. The holders of the Preferred Stock shall be entitled to receive
cumulative dividends at the rate of eight percent (8%) of the Face Amount
per annum (the "Dividend"). Such cumulative Dividends shall be payable
quarterly in arrears within three Business Days of the last day of each
April, July, October and January, commencing July, 1998, in cash or
additional Preferred Shares, at the Company's option. Dividends on the
Preferred Stock shall accrue and be cumulative on a daily basis from the
date of issuance (with appropriate proration for any partial dividend
period), whether or not earned and whether or not in any dividend period
there shall be surplus or net profits of the Company legally available for
the payment of such dividends.
B. Payment of Dividend in Preferred Shares. Should the Company elect to pay
accrued but unpaid Dividends in additional shares of Preferred Stock, the
number of Preferred Shares to which the Holder shall be entitled will be
equal to the aggregate cash value of such unpaid Dividends, divided by the
Face Amount.
C. Dividend Adjustment. Following the Effective Date, if the average Closing
Bid Price of the Common Stock over any 20 consecutive trading days is
greater than 145% of the Closing Price, the Dividend will thereafter be
reduced from eight percent (8%) to five percent (5%) per annum, with
appropriate pro-ration for partial dividend periods.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall
have the following meanings:
A. "Business Day" means any day other than a Saturday, Sunday or a day on
which banks in New York, New York are permitted or required by law to be
closed.
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B. "Closing Bid Price" means, for any security as of any date, the closing bid
price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holders then
holding a majority of the then outstanding shares of Preferred Stock
("Majority Holders") if Bloomberg Financial Markets is not then reporting
closing bid prices of such security (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale price of such security in
the over-the-counter market on the electronic bulletin board of such
security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for
such security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Majority Holders, or, if they
are unable to agree on such value, it shall be determined by an investment
banking firm selected by the Company and reasonably acceptable to the
Majority Holders, with the costs of such appraisal to be borne by the
Company.
C. "Closing Date" means the date of the "First Closing" as defined in the
Securities Purchase Agreement.
D. "Closing Price" means the average Closing Bid Price of the Company's Common
Stock over the five (5) consecutive trading days immediately preceding the
Closing Date.
E. "Common Stock" means the common stock, $0.01 par value, of the Company.
F. "Conversion Price" means the lesser of (i) 95% of the Market Price and (ii)
125% of the Closing Price, except that if the 10 day average Closing Bid
Price ending on the Effective Date (the "Effective Price") is greater than
125% of the Closing Price, the maximum Conversion Price will be such
Effective Price, not to exceed, in any case, 135% of the Closing Price.
G. "Effective Date" means the date the registration statement registering the
resale of the shares of Common Stock into which the Preferred Shares are
convertible is declared effective by the Securities and Exchange
Commission.
H. "Holders" means the initial Holders of the Preferred Stock and their
transferees.
I. "Market Price" means the average of the Closing Bid Prices of the Common
Stock over any 3 trading days, selected by the Holder, in the 20 trading
days immediately preceding the Conversion Date.
J. "Material Adverse Change" means the occurrence of a material adverse change
or development in the business, properties, operations, financial
condition, results of operation or prospects of the Company.
K. "Registration Deadline" means the 90th day following the Closing Date.
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L. "Securities Purchase Agreement" means the Securities Purchase Agreement
dated as of April 24, 1998, among the Company and the purchaser named
therein, as amended from time to time in accordance with the terms thereof.
M. "Warrants" means certain stock purchase warrants to acquire shares of
Common Stock issued by the Company to the initial Holders in connection
with the transactions contemplated by the Securities Purchase Agreement.
IV. CONVERSION
A. Conversion at the Option of Holder. Beginning on the earliest to occur
of (i) the Effective Date, (ii) the Registration Deadline, (iii) the occurrence
of any event or circumstance that, with the passing of time or the giving of
notice, would constitute a Redemption Event, and (iv) any Material Adverse
Change, each Holder may, at any time and from time to time convert any or all of
its shares of Preferred Stock into a number of fully paid and nonassessable
shares of Common Stock determined by dividing the aggregate Face Amount of the
Preferred Shares being converted by the Conversion Price. The Conversion Price
is subject to adjustment as provided in Article X.
B. Mechanics of Conversion. To convert the Preferred Shares, a Holder
shall: (i) fax (or otherwise deliver by other means resulting in notice) a copy
of the fully executed Notice of Conversion in the form of Exhibit A hereto to
the Company and (ii) within three (3) Business Days surrender or cause to be
surrendered to the Company (or satisfy the provisions of Section XIII(A), if
applicable) the certificates representing the Preferred Stock being converted
(the "Preferred Stock Certificates") accompanied by duly executed stock powers
and the original executed version of the Notice of Conversion. The date of the
Company's receipt of the Notice of Conversion described in clause (i) shall be
the "Conversion Date".
C. Conversion Disputes. In the case of any dispute with respect to a
conversion, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with the other provisions of this
Article IV. If such dispute involves the calculation of the Conversion Price,
the Company shall submit the disputed calculations to an independent accounting
firm of national standing, acceptable to Holder, via facsimile within two (2)
Business Days of receipt of the Notice of Conversion. The accounting firm shall
audit the calculations and notify the Company and the Holder of the results no
later than two (2) Business Days from the date it receives the disputed
calculations. The accounting firm's calculation shall be deemed conclusive,
absent manifest error. The Company shall then issue the appropriate number of
shares of Common Stock in accordance with this Article IV.
D. Timing of Conversion. No later than the third Business Day following the
Conversion Date (the "Delivery Period"), provided that the Company has received
prior to such date the Preferred Stock Certificates (or the Holder has satisfied
the provisions of Section XIII(A), if applicable), the Company shall deliver to
the Holder (or at its direction) (x) that number of shares of Common Stock
issuable upon conversion of the number of Preferred Shares being converted and
(y) a certificate representing the number of Preferred Shares not being
converted, if any. The person or persons entitled to receive shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder of such shares at the close of business on the Conversion Date and
such shares shall be issued at such time, unless the Notice of Conversion is
revoked as provided in Section IV(D). The Delivery Period shall be extended
until the Business Day following the date of delivery to the Company of the
Preferred Stock Certificates to be converted or satisfaction of the provisions
of Section XIII(A), if applicable.
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E. Revocation of Notice of Conversion. In addition to any other remedies
which may be available to the Holder, in the event the Company fails for any
reason to effect delivery to the Holder of certificates representing the shares
of Common Stock receivable upon conversion of the Preferred Shares (or, solely
as expressly permitted pursuant to Sections V(B) and V(E), to effect a Cash
Conversion (as defined below)) by the Business Day following the expiration of
the Delivery Period (which certificates shall be unlegended after the Effective
Date), the Holder may revoke the Notice of Conversion by delivering a notice to
such effect to the Company. Upon receipt by the Company of such a revocation
notice, the Company shall immediately return the subject Preferred Stock
certificates and other conversion documents, if any, delivered by Holder, to the
Holder, and the Company and the Holder shall each be restored to their
respective positions held immediately prior to delivery of the Notice of
Conversion; provided however, that the Company shall remain liable for payment
of the amounts determined pursuant to Section VI(A) hereof for each day falling
between the trading day following the Delivery Period and the date of the
revocation notice is received by the Company, and shall also remain liable for
any damages suffered by Holder.
F. Mandatory Conversion. Notwithstanding the other provisions of this
Article IV, if on or after the Effective Date the average closing bid price of
the Common Stock over any 20 consecutive trading days is equal to or greater
than 300% of the Closing Price, all outstanding Preferred Shares will be
automatically converted into shares of Common Stock at the lowest Conversion
Price in effect on such 20th trading day, so long as, on the date of conversion
and for the 10 consecutive trading days prior to such date, (i) the shares of
Common Stock issued pursuant to such mandatory conversion are (a) authorized and
reserved for issuance, (b) registered under the Securities Act of 1933, as
amended, for resale by the Holder subject to such conversion, and registered
under the Securities Exchange Act of 1934 and (c) eligible to be traded on
either the Nasdaq National Market System, the Nasdaq Small Cap Market, the New
York Stock Exchange, the American Stock Exchange, or any successor national
exchange, (ii) no event or circumstance has occurred that, with the giving of
notice or the passage of time, would constitute a Redemption Event (as defined
below), (iii) such conversion would not result in any Holder holding shares in
excess of the 4.9% Limitation (as defined below), and (iv) the Company has not
disclosed to the Holder any material non-public information about the Company.
The Company shall give the Holders three (3) Business Days' notice of any
mandatory conversion pursuant to this Section IV(F).
G. Maturity; Required Redemption. All Preferred Shares outstanding on the
third anniversary of the Closing Date will be redeemed on such date in cash
equal to the aggregate Face Amount thereof. To the extent that the Preferred
Shares are not so redeemed in cash on such date, the Holder may continue to
convert such Preferred Shares in accordance with the other terms of this
Certificate of Designation.
H. Stamp, Documentary and Other Similar Taxes. The Company shall pay all
stamp, documentary, issuance and other similar taxes which may be imposed with
respect to the issuance and delivery of the shares of Common Stock pursuant to
conversion of the Preferred Stock; provided that the Company will not be
obligated to pay stamp, transfer or other taxes resulting from the issuance of
Common Stock to any person other than the registered holder of the Preferred
Stock.
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I. No Fractional Shares. No fractional shares of Common Stock are to be
issued upon the conversion of Preferred Stock, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Closing Bid Price on the
Conversion Date of a share of Common Stock; provided that in the event that
sufficient funds are not legally available for the payment of such cash
adjustment any fractional shares of Common Stock shall be rounded up to the next
whole number.
J. Electronic Transmission. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program (the "FAST Program"), upon request of a
Holder who shall have previously instructed such Holder's prime broker to
confirm such request to the Company's transfer agent and upon the Holder's
compliance with Section IV(B), the Company shall use its commercially reasonable
efforts to cause its transfer agent to electronically transmit the Common Stock
issuable upon conversion to the Holder by crediting the account of Holder's
prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system. Subject to the foregoing, the Company will use its commercially
reasonable efforts to maintain the eligibility of its Common Stock for the FAST
Program.
K. Five Percent Holdings. Notwithstanding anything to the contrary
contained herein, the Preferred Stock shall not be convertible by a Holder to
the extent (but only to the extent) that, if convertible by such Holder, such
Holder, or any of its affiliates (as defined under Rule 12b-2 of the Securities
Exchange Act of 1934, as amended), would beneficially own in excess of 4.9% of
the shares of Common Stock (the "4.9% Limitation"). To the extent the foregoing
limitation applies, the determination of whether Preferred Stock shall be
convertible (vis-a-vis other securities owned by such Holder) and of which
Preferred Stock shall be convertible (as among shares of Preferred Stock) shall
be in the sole discretion of the Holder and submission of the Preferred Stock
for conversion shall be deemed to be the Holder's determination of whether such
Preferred Stock is convertible (vis-a-vis other securities owned by such Holder)
and of which shares of Preferred Stock are convertible (as among shares of
Preferred Stock), subject to such aggregate percentage limitation. No prior
inability to convert Preferred Stock pursuant to this Section shall have any
effect on the applicability of the provisions of this Section with respect to
any subsequent determination of convertibility. For the purposes of this
Section, beneficial ownership and all determinations and calculations, including
without limitation, with respect to calculations of percentage ownership, shall
be made in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and regulation 13D and G thereunder. The provisions of this Section
may be implemented in a manner otherwise than in strict conformity with the
terms of this Section with the approval of the Board of Directors of the Company
and a Holder: (i) with respect to any matter to cure any ambiguity herein, to
correct this subsection (or any portion thereof) which may be defective or
inconsistent with the intended 4.9% beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such 4.9% limitation; and (ii) with respect to any other matter,
with the further consent of the holders of majority of the then outstanding
shares of Common Stock. The Provisions of this Section may be waived by a Holder
upon ninety (90) days prior written notice from such Holder to the Company,
including, without limitation, a limited waiver to increase the 4.9% limit
herein contained to any other percentage specified by Holder. The limitations
contained in this Section shall apply to a successor Holder of Preferred Stock
if, and to the extent, elected by such successor Holder concurrently with its
acquisition of such Preferred Stock, such election to be promptly confirmed in
writing to the Company (provided no transfer or series of transfers to a
successor Holder or Holders shall be used by a Holder to evade the limitations
contained herein).
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V. RESERVATION OF AUTHORIZED SHARES OF COMMON STOCK; LIMITATION ON NUMBER
OF CONVERSION SHARES
A. Reservation of Common Stock. Subject to the provisions of this Article
V, the Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Stock and the exercise of the Warrants
a sufficient number of shares of Common Stock to provide for the conversion of
all outstanding Preferred Shares upon issuance of shares of Common Stock and the
exercise of all Warrants (the "Reserved Amount"). The Reserved Amount shall be
allocated among the Holders as provided in Section V(C). If the Reserved Amount
for any three (3) consecutive trading days (the last of such three (3) trading
days being the "Authorization Trigger Date") is less than one hundred
seventy-five percent (175%) of the number of shares of Common Stock issuable on
such trading days upon conversion of the outstanding Preferred Stock and
exercise of the then outstanding Warrants (in each case without giving effect to
any limitation on conversion or exercise thereof) then the Company shall
immediately notify the Holders of such occurrence and shall immediately take all
necessary action (including stockholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to two
hundred percent (200%) of the number of shares of Common Stock issuable upon
conversion of the outstanding Preferred Stock and exercise of all outstanding
Warrants (in each case, without giving effect to any limitation on conversion or
exercise thereof).
B. Limitation on Number of Common Shares to be Issued.
(i) Unless the Stockholder Approval (as defined below) is obtained, the
Company shall not be obligated to issue, in the aggregate, more than 2,745,000
shares of Common Stock upon conversion of the Preferred Shares (the "Common
Share Limit"), such amount to be proportionally and equitably adjusted from time
to time in the event of stock splits, stock dividends, combinations, reverse
stock splits, reclassifications, capital reorganizations and similar events
relating to the Common Stock). If the Stockholder Approval has not been obtained
at any time that the Common Share Limit with respect to any Holder has been
reached, Notices of Conversion by such Holder shall be honored by payment to
such Holder of cash in an amount equal to the Closing Bid Price on the trading
day of delivery of the applicable Notice of Conversion multiplied by the number
of shares of Common Stock which would be issuable in satisfaction of the
applicable Notice of Conversion (such payment being referred to herein as a
"Cash Conversion").
(ii) If the Stockholder Approval has been obtained at any time, the Company
shall have the right, subject to delivery of the notice required by Section V(E)
below, to honor any Notices of Conversion for shares of Common Stock in excess
of the Common Share Limit by (a) delivery of shares of Common Stock or (b) by
Cash Conversion.
C. Allocation of Reserved Amount, Common Share Limit. The Reserved Amount
and the Common Share Limit shall be allocated among the Initial Holders
according to the number of Preferred Shares issued to each such Holder on the
Closing Date. Any shares of Common Stock which were initially allocated to any
Holder remaining after such Holder no longer owns any Preferred Shares shall be
allocated among the remaining Holders pro rata, based on the number of Preferred
Shares then held by such Holders.
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D. Share Authorization. The Company shall solicit by proxy the
authorization (the "Stockholder Approval") by the stockholders of the Company of
the issuance of shares of Common Stock upon conversion of shares of Preferred
Stock pursuant to the terms hereof and the exercise of the Warrants pursuant to
the terms thereof in the aggregate in excess of twenty (20) percent of the
outstanding shares of Common Stock and to eliminate any prohibitions under the
rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Company or any of
its securities on the Company's ability to issue shares of Common Stock in
excess of the Common Share Limit and use its commercially reasonable efforts to
obtain the Stockholder Approval no later than one hundred and twenty (120) days
following the date of the First Closing.
E. Obligation to Notify. If the Company has not received the Stockholder
Approval by the date that is one hundred and twenty (120) days following the
First Closing, the Company shall, on or prior to such date, notify the Holders.
The Company shall immediately notify the Holders if, at any time, the
Stockholder Approval is obtained. Following receipt of Stockholder Approval, the
Company shall have the right, by notice to all of the Holders not less than five
(5) Business Days prior to the first day of any month, to elect to honor all
Notices of Conversion solely by Cash Conversion (and not by delivery of Common
Stock1) during such month. Each such notice (a "Notice of Cash Conversion")
shall be effective only with respect to the single month designated therein, and
shall specify, as of the date of delivery of such notice, the unissued portion
of the Common Share Limit of the Holder to whom such notice is being delivered.
VI. FAILURE TO CONVERT
A. Conversion Defaults. If, at any time, (x) the Conversion Date has
occurred and the Company fails for any reason to deliver, on or prior to the
second Business Day following the expiration of the Delivery Period for such
conversion (said period of time being the "Extended Delivery Period"), such
number of shares of Common Stock to which such Holder is entitled upon such
conversion, or (y) the Company provides notice (including by way of public
announcement) to any Holder at any time of its intention not to issue shares of
Common Stock upon exercise by any Holder of its conversion rights in accordance
with the terms of this Certificate of Designation (other than because such
issuance would exceed such Holder's allocated portion of the Reserved Amount)
(each of (x) and (y) being a "Conversion Default"), then the Company shall pay
to the affected Holder, in the case of a Conversion Default described in clause
(x) above, and to all Holders, in the case of a Conversion Default described in
clause (y) above, an amount equal to 1% of the Face Amount of the Preferred
Stock with respect to which the Conversion Default exists (which amount shall be
deemed to be the aggregate Face Amount of all outstanding Preferred Stock in the
case of a Conversion Default described in clause (y) above) for each day
thereafter until the Cure Date. "Cure Date" means (i) with respect to a
Conversion Default described in clause (x) of its definition, the date the
Company effects the conversion of the portion of the Preferred Stock submitted
for conversion and (ii) with respect to a Conversion Default described in clause
(y) of its definition, the date the Company undertakes in writing to issue
Common Stock in satisfaction of all conversions of Preferred Stock in accordance
with the terms of this Certificate of Designation (provided that the Company
thereafter so performs such obligations). The Company shall promptly provide
each Holder with notice of the occurrence of a Conversion Default with respect
to any of the other Holders. Notwithstanding anything in this Section VI(A) or
anywhere else in this Agreement to the contrary, no Conversion Default shall be
deemed to occur if, prior to expiration of the Delivery Period, the Company has
made to the Holder the cash payment permitted to be made pursuant to Section
V(B) following issuance to such Holder of such Holder's allocated portion of the
Common Share Limit.
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B. Conversion Default Payments. The payments to which a Holder shall be
entitled pursuant to Section VI(A) are referred to herein as "Conversion Default
Payments." Conversion Default Payments shall be paid in cash within two (2)
Business Days of written demand from a Holder. Such payment shall be made in
accordance with and be subject to the provisions of Section XIII(B).
C. Adjustments to Conversion Price. If a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) day after
the expiration of the Delivery Period with respect to a conversion of Preferred
Stock (or, if applicable, the cash payment permitted to be made pursuant to
Section V(B)) for any reason (other than as a result of such conversion
exceeding such Holder's pro rata portion of the Reserved Amount) then the
Conversion Price in respect of any shares of Preferred Stock held by such Holder
shall thereafter be the lesser of (i) the Conversion Price on the Conversion
Date specified in the Notice of Conversion which resulted in the Conversion
Default and (ii) the lowest Conversion Price in effect during the period
beginning on, and including, such Conversion Date through but excluding the Cure
Date. If there shall occur a Conversion Default of the type described in clause
(y) of Section VI(A), then the Conversion Price with respect to any conversion
thereafter shall be the lower of the Conversion Price and the lowest Conversion
Price in effect at any time during the period beginning on, and including, the
date of the occurrence of such Conversion Default through but excluding the Cure
Date. The Conversion Price shall thereafter be subject to further adjustment as
described in Article X.
VII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption Events. A "Redemption Event" means any one of the following:
(i) the Common Stock (including any of the shares of Common Stock issuable
upon conversion of the Preferred Stock or upon exercise of the Warrants or
required from time to time to be reserved pursuant to this Certificate of
Designation or the Warrants) is suspended from trading on, or is not listed (and
authorized) for trading on, the Nasdaq, the Nasdaq Small Cap Market, the
American Stock Exchange, or the New York Stock Exchange for an aggregate of ten
(10) trading days in any twelve (12) month period;
(ii) the Company fails, and any such failure continues uncured for seven
(7) Business Days after the Company has been notified thereof in writing by the
Holder, to remove any restrictive legend on any certificate for any shares of
Common Stock issued after the Effective Date to the Holders upon conversion of
the Preferred Stock or upon exercise of the Warrants as and when required by
this Certificate of Designation, the Warrants, the Securities Purchase Agreement
or the Registration Rights Agreement dated as of April 24, 1998, by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement");
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(iii) the Company fails: (x) to file the registration statement required
pursuant to Section 2.1 of the Registration Rights Agreement on or before the
thirtieth (30th) day following Closing, and to cause the registration statement
to be declared effective on or before the one hundred fiftieth (150th) day
following Closing, in a manner which would allow the sale of all Registrable
Securities (as defined in the Registration Rights Agreement); or (y) to cause
the holders of Preferred Stock to be able to utilize such registration statement
for the resale of all of their Registrable Securities (as defined in the
Registration Rights Agreement), unless the Company is using its best efforts to
remedy such inability to utilize such registration statement, subject to the
Company's Board of Directors having determined in their good faith business
judgment by resolution that the continued effectiveness of such registration
statement would have a material adverse effect on the Company's ability to
consummate a financing, acquisition, merger or joint venture, in each case for
which substantive discussions are underway, the failure of which to consummate
would have a material adverse effect on the Company's financial condition,
results of operations or future prospects; provided that in no event shall such
failure exist for a total of more than twenty (20) days in any twelve (12) month
period; or
(iv) the Company fails for any reason to (A) issue shares of Common Stock
within ten (10) Business Days after the expiration of the Extended Delivery
Period with respect to any conversion of Preferred Stock, or (B) if applicable,
to make the cash payment to the extent permitted to be made pursuant to Section
V(B)).
(v) the Company provides notice to any Holder, including by way of public
announcement, at any time, of its intention not to issue shares of Common Stock
to any Holder upon conversion in accordance with the terms of this Certificate
of Designation (other than (i) because of unavailability of authorized shares,
or (ii) because such issuance would exceed such Holder's allocated portion of
the Common Share Limit, for which failures the Holders shall have the remedies
set forth elsewhere herein);
(vi) the Company breaches any material covenant or other material term of
this Certificate of Designation, the Securities Purchase Agreement, the Warrants
or the Registration Rights Agreement, the breach of which would have a material
adverse effect on the Company or the rights of the Holder with respect to its
shares of Preferred Stock or the shares of Common Stock issuable upon conversion
of the Preferred Stock or upon exercise of the Warrants, and such breach
continues for a period of five (5) Business Days after written notice thereof to
the Company;
(vii) any representation or warranty of the Company made in any agreement,
statement or certificate given in writing in connection with the issuance of the
Preferred Stock (including, without limitation, the Warrants, the Securities
Purchase Agreement or the Registration Rights Agreement), shall be false or
misleading in any material respect when made and the breach of which has had or
could reasonably be expected to have a material adverse effect on the Company or
on the Holder with respect to its investment in the shares of Preferred Stock or
Warrants or the shares of Common Stock issuable upon conversion of the Preferred
Stock or upon exercise of the Warrants; or
(viii) the Company fails to increase the Reserved Amount (A) within ten
(10) days following an Authorization Trigger Date if such increase requires
solely approval of the Company's Board of Directors or (B) otherwise within
sixty (60) days thereafter.
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B. Redemption By Holder. Following the occurrence of a Redemption Event,
each Holder shall have the right to elect at any time and from time to time by
delivery of a Redemption Notice (as defined herein) to the Company while such
Redemption Event continues, to require the Company to purchase for cash for an
amount per share equal to the Redemption Amount (as defined herein) any or all
of the then outstanding shares of Preferred Stock, together with accrued and
unpaid dividends thereon and any Conversion Default Payments applicable thereto,
held by such Holder. The "Redemption Amount" with respect to a share of
Preferred Stock means an amount equal to the greater of (i) 1.5 times the
aggregate Face Amount of the Preferred Shares for which a demand is being made
and (ii) an amount determined by the following formula:
Face Amount x M
------------------
CP
When: "CP" means the lowest Conversion Price during the period beginning on
the date of the Redemption Notice and ending on the date of redemption; and "M"
means the highest Closing Bid Price of the Company's Common Stock during the
period beginning on the date of the Redemption Notice and ending on the date of
the redemption, as reported in the principal securities exchange or trading
market in which the Common Stock is traded.
C. Optional Redemption by the Company. Beginning upon the earlier to occur
of (i) the date that the Company completes an underwritten public offering of
its Common Stock, or (ii) the first anniversary of the Closing Date, the Company
may, at its option, redeem for cash out of funds legally available therefor, all
of the outstanding Preferred Shares ("Optional Redemption") at a price per share
equal to the greater of (i) 125% of the Face Amount of the Preferred Stock or
(ii) the product of (X) 125% of the Closing Bid Price of the Common Stock on the
trading day preceding the Company's Optional Redemption Notice (as defined
below) to the Preferred Shareholders, multiplied by (Y) the number of shares of
Common Stock issuable upon conversion of the Preferred Stock being redeemed. The
Company may not deliver an Optional Redemption Notice for a redemption for cash
unless such redemption is with respect to all then-outstanding shares of
Preferred Stock and unless the Company had ("Funding Availability"): (a) the
full amount to be paid for the Preferred Shares pursuant to the Optional
Redemption (the "Optional Redemption Amount") in cash, available in a demand or
other immediately available account in a bank or similar financial institution;
or (b) immediately available credit facilities, in the full amount of the
Optional Redemption Amount in cash with a bank or similar financial institution
(or binding commitment letters with respect thereto which commitment letters
shall be subject only to commercially reasonable conditions to closing as to
which the Company's Board of Directors has made a good faith business judgement
will be fulfilled to permit consummation of the redemption hereunder); or (c) an
agreement with a standby underwriter or qualified buyer ready, willing and able
to purchase from the Company a sufficient number of shares of stock to provide
proceeds necessary to redeem for the Optional Redemption Amount in cash any
stock that is not converted prior to redemption; or (d) a combination of the
items set forth in the preceding clauses (A), (B) and (C), aggregating the full
amount of the Optional Redemption Amount in cash. Any Optional Redemption Notice
delivered in accordance with the immediately preceding sentence shall be
accompanied by a statement executed by a duly authorized officer of the Company
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certifying that the Company has Funding Availability and by other appropriate
documentation as evidence thereof. The Company shall provide each Holder with at
least 30 days' notice of any proposed optional redemption pursuant this Section
VII(C) (an "Optional Redemption Notice"). Any optional redemption pursuant to
this Section VII(C) shall be made ratably among Holders in proportion to the
Face Amount of Preferred Stock then outstanding and held by such Holders. The
Optional Redemption Notice shall state the Face Amount of Preferred Stock to be
redeemed and the date on which the Optional Redemption is to occur (which shall
not be less than thirty (30) or more than sixty (60) Business Days after the
date of delivery of the Optional Redemption Notice) and shall be delivered by
the Company to the Holders at the address of such Holder appearing on the
register of the Company for the Preferred Stock.
Within seven (7) business days after the date of delivery of the Optional
Redemption Notice, each Holder shall provide the Company with instructions as to
the account to which payments associated with such Optional Redemption should be
deposited. On the date of the Optional Redemption, provided for in the relevant
Optional Redemption Notice, (x) the Company will deliver the redemption amount
via wire transfer to the account designated by the Holders, (y) the Holders will
deliver the certificates relating to that number of shares of Preferred Stock
being redeemed, duly executed for transfer or accompanied by executed stock
powers, in either case, transferring that number of shares to be redeemed. Upon
the occurrence of the wire transfer (or, in the absence of a Holder designating
an account to which funds should be transferred, delivery of a certified check
in the amount due such Holder in connection with such Optional Redemption to the
address of such Holder appearing on the register of the Company for the
Preferred Stock), that number of shares to be redeemed pursuant to such Optional
Redemption as represented by the previously issued certificates will be deemed
no longer outstanding. Notwithstanding anything to the contrary in this
Certificate of Designation, each Holder may continue to convert Preferred Stock
in accordance with the terms hereof until the date such Preferred Stock is
actually redeemed pursuant to an Optional Redemption.
D. Redemption Payment Defaults. If the Company fails to pay any Holder the
Redemption Amount with respect to any share of Preferred Stock, as provided in
this Article VII, within five (5) Business Days of its receipt or delivery, as
applicable, of a notice requiring such redemption, then each Holder (i) shall be
entitled to interest on the Redemption Amount at a floating per annum rate equal
to the lower of (x) eighteen percent (18%) and (y) the highest interest rate
permitted by applicable law from the date of the Redemption Notice until the
date of redemption hereunder, payable in cash within two (2) Business Days of
written demand from a Holder. In the event the Company is not able to redeem all
of the shares of Preferred Stock subject to Redemption Notices, the Company
shall redeem shares of Preferred Stock from each Holder pro rata, based on the
total number of shares of Preferred Stock included in the Redemption Notice
relative to the total number of shares of Preferred Stock in all of the
Redemption Notices.
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E. Capital Impairment. In the event that any section of the New York
Business Corporation Law ("NYBCL"), would be violated by the redemption of any
shares of Preferred Stock that are otherwise subject to redemption pursuant to
this Article VII, the Company: (i) will redeem the greatest number of shares of
Preferred Stock possible without violation of said Section; (ii) the Company
thereafter shall use its best efforts to take all necessary steps permitted
pursuant to this Certificate of Designation and the agreements entered into in
connection with the issuance of Preferred Stock pursuant hereto in order to
remedy its capital structure in order to allow further redemptions without
violation of said Section (and not take any actions inconsistent therewith); and
(iii) from time to time thereafter as promptly as possible the Company shall
redeem shares of Preferred Stock at the request of the Holders to the greatest
extent possible without causing a violation of the NYBCL (such redemption to be
at the greater of the Redemption Price in effect at the time of the original
Redemption Event giving rise to such violation and the redemption price which
would be applicable for a Redemption Event at the time of such later election
under this clause (iii). In such case, any Holder shall have the right, at any
time and from time to time, to require the Company, upon written notice, to
immediately convert (in accordance with the terms of Article IV all or any
portion of the Redemption Amount plus any interest or other charges which have
accrued into shares of Common Stock on a dollar for dollar basis based upon the
most recently reported trading price for the Common Stock. In the event the
Company is not able to redeem all the shares of the stock subject to Redemption
Notices, the Company shall redeem shares of Preferred Stock from each Holder pro
rata, based on the total number of shares of Preferred Stock included by such
Holder in the Redemption Notice relative to the total number of Preferred Stock
in all Redemption Notices. In addition, and notwithstanding anything to the
contrary contained in this Section VII(E), so long as the Company is prevented
from redeeming shares of Preferred Stock pursuant to this Section VII.E, the
Company shall be (and shall be deemed to be) in breach of the redemption
obligations set forth in this Section VII(E) and each Holder shall have all
rights and remedies under this Certificate of Designation or otherwise at law
for damages, with respect to such breach. Upon a Redemption Event described in
Section VII(A)(iv), to the extent that the Company has not yet obtained the
Stockholder Approval, any Holder who has not had its Preferred Stock converted
in accordance with the terms of this Certificate of Designation may elect one or
both of the following: (i) require, with the consent of the Holders, the Company
to terminate the listing of its Common Stock on Nasdaq or the Nasdaq Small Cap
Market and to cause its Common Stock to be listed on the over-the-counter
electronic bulletin board, at the option of the requesting Holder; and (ii)
require the Company to issue shares of Common Stock in accordance with such
holder's Notice of Conversion at a conversion price equal to the Conversion
Price in effect on the date of the Holder's written notice to the Company of its
election to receive shares of Common Stock pursuant to this subparagraph (ii).
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<PAGE>
VIII. RANK; PARTICIPATION
A. Rank. All shares of the Preferred Stock shall rank (i) prior to the
Common Stock; (ii) prior to any class or series of capital stock of the Company
now outstanding or hereafter created (unless, with the consent of a majority of
the Holders obtained in accordance with Article XII hereof, such hereafter
created class or series of capital stock specifically, by its terms, ranks
senior to or pari passu with the Preferred Stock) (collectively, with the Common
Stock, "Junior Securities"); and (iii) pari passu with any class or series of
capital stock of the Company hereafter created (with the consent of a majority
of the Holders obtained in accordance with Article XII hereof) specifically
ranking, by its terms, on parity with the Preferred Stock (the "Pari Passu
Securities"); and (iv) junior to any class or series of capital stock of the
Company hereafter created (with the consent of a majority of the Holders
obtained in accordance with Article XII hereof) specifically ranking, by its
terms, senior to the Preferred Stock (the "Senior Securities"), in each case as
to distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary.
B. Participation. Subject to the rights of the holders (if any) of Pari
Passu Securities and Senior Securities, the Holders shall, as such Holders, be
entitled to such dividends paid and distributions made to the holders of Common
Stock to the same extent as if such Holders had converted their shares of
Preferred Stock into Common Stock (without regard to any limitations on
conversion herein or elsewhere contained) and had been issued such Common Stock
on the day before the record date for said dividend or distribution. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
IX. LIQUIDATION PREFERENCE
A. Liquidation of the Company. If the Company shall commence a voluntary
case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Company or of any substantial part of its property, or make an assignment for
the benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Company shall be entered by a court having jurisdiction in the premises in
an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Company shall liquidate, dissolve or
wind up, or if the Company shall otherwise liquidate, dissolve or wind up (a
"Liquidation Event"), no distribution shall be made to the Holders of any shares
of capital stock of the Company (other than Senior Securities and, together with
the Holders of Preferred Stock the Pari Passu Securities) upon liquidation,
dissolution or winding up unless prior thereto the Holders shall have received
the Liquidation Preference (as herein defined) with respect to each share. If,
upon the occurrence of a Liquidation Event, the assets and funds available for
distribution among the Holders and holders of Pari Passu Securities shall be
insufficient to permit the payment to such Holders of the preferential amounts
payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Preferred Stock and the Pari Passu Securities
shall be distributed ratably among such shares in proportion to the ratio that
the Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
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B. Certain Acts Not a Liquidation. The purchase or redemption by the
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up of
the Company. Neither the consolidation or merger of the Company with or into any
other entity nor the sale or transfer by the Company of less than substantially
all of its assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company.
C. Definition of Liquidation Preference. The "Liquidation Preference" with
respect to a share of Preferred Stock means an amount equal to the Face Amount
thereof plus any other amounts that may be due from the Company with respect
thereto pursuant to this Certificate of Designation through the date of final
distribution. The Liquidation Preference with respect to any Pari Passu
Securities shall be as set forth in the Certificate of Designation filed in
respect thereof.
X. ADJUSTMENTS TO THE CONVERSION PRICE; CERTAIN PROTECTIONS
The Conversion Price shall, in order to accomplish the results contemplated
in this Certificate of Designation, be subject to adjustment from time to time
as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
Closing Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the number of shares of Common Stock issuable upon conversion of the
Preferred Stock shall be proportionately increased, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the number of
shares of Common Stock issuable upon conversion of the Preferred Stock shall be
proportionately reduced. In such event, the Company shall notify the Company's
transfer agent of such change on or before the effective date thereof.
B. Certain Public Announcements. In the event that (i) the Company makes a
public announcement that it intends to consolidate or merge with any other
entity (other than a merger in which the Company is the surviving or continuing
entity and its capital stock is unchanged and there is no distribution thereof)
or to sell or transfer all or substantially all of the assets of the Company or
(ii) any person, group or entity (including the Company) publicly announces a
tender offer in connection with which such person, group or entity seeks to
purchase 50% or more of the Common Stock (the date of the announcement referred
to in clause (i) or (ii) of this paragraph is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the consummation of the proposed tender
offer or transaction or the Abandonment Date (as defined below), be equal to the
lesser of (x) the Conversion Price calculated as provided in Article IV the (y)
the Conversion Price which would have been applicable for Conversion occurring
on the Announcement Date. From and after the Abandonment Date, as the case may
be, the Conversion Price shall be determined as set forth in Article IV. The
"Abandonment Date" means with respect to any proposed transaction or tender
offer for which a public announcement as contemplated by this paragraph has been
made, the date which is seven (7) trading days after the date upon which the
Company (in the case of clause (i) above) or the person, group or entity (in the
case of clause (ii) above) publicly announces the termination or abandonment of
the proposed transaction or tender offer which causes this paragraph to become
operative.
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C. Major Transactions. If the Company shall consolidate with or merge into
any corporation or reclassify its outstanding shares of Common Stock (other than
by way of subdivision or reduction of such shares) (each a "Major Transaction"),
then each Holder shall thereafter be entitled to receive consideration, in
exchange for each share of Preferred Stock held by it, equal to the greater of,
as determined in the sole discretion of such Holder: (i) the number of shares of
stock or securities or property of the Company, or of the entity resulting from
such Major Transaction (the "Major Transaction Consideration"), to which a
Holder of the number of shares of Common Stock delivered upon conversion of such
shares of Preferred Stock would have been entitled upon such Major Transaction
had the Holder's Preferred Shares been converted (without regard to any
limitations on conversion herein contained) on the trading date immediately
preceding the public announcement of the transaction resulting in such Major
Transaction and had such Common Stock been issued and outstanding and had such
Holder been the holder of record of such Common Stock at the time of such Major
Transaction, and the Company shall make lawful provision therefore as a part of
such consolidation, merger or reclassification; and (ii) 125% of the Face Amount
of such shares of Preferred Stock in cash. No sooner than ten (10) days nor
later than five (5) days prior to the consummation of the Major Transaction, but
not prior to the public announcement of such Major Transaction, the Company
shall deliver written notice ("Notice of Major Transaction") to each Holder,
which Notice of Major Transaction shall be deemed to have been delivered one (1)
Business Day after the Company's sending such notice by telecopy (provided that
the Company sends a confirming copy of such notice on the same day by overnight
courier). Such Notice of Major Transaction shall indicate the amount and type of
the Major Transaction Consideration which such Holder would receive under clause
(i) of this Section X(C). If the Major Transaction Consideration does not
consist entirely of United States dollars, such Holder may elect to receive
United States dollars in an amount equal to the value, determined by a reputable
accounting firm selected by the Company that is reasonably acceptable to a
majority of the Holders of the Major Transaction Consideration in lieu of the
Major Transaction Consideration which does not consist entirely of United States
Dollars, by delivering notice of such election to the Company within five (5)
days of the Holder's receipt of the Notice of Major Transaction.
D. Issuance of Other Securities. If, at any time after the First Closing
the Company shall issue any securities which are convertible into or
exchangeable for Common Stock ("Convertible Securities") either (i) at a
conversion or exchange rate based on a discount from the market price of the
Common Stock at the time of conversion or exercise or (ii) with a fixed
conversion or exercise price less than the Conversion Price, then, at the
Holder's option: (x) in the case of clause (i), the Conversion Price in respect
of any conversion of Preferred Stock after such issuance shall be calculated
utilizing the greatest discount applicable to any such Convertible Securities,
to the extent such calculation would result in a lower Conversion Price; and (y)
in the case of clause (ii), the Conversion Price will be reduced to such lesser
conversion or exercise price, to the extent that this would result in a lower
Conversion Price.
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<PAGE>
E. Adjustment Due to Distribution. If at any time after the Closing Date,
the Company shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise (including any dividend or
distribution to the Company's stockholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the Conversion Price shall be equitably adjusted to take
account of such distribution.
F. Purchase Rights. If at any time after the Closing Date, the Company
issues any Convertible Securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the Holders will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if such Holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Preferred Stock (without regard to any limitations on conversion or exercise
herein or elsewhere contained) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article X, the Company, at
its expense, shall promptly compute such adjustment or readjustment and prepare
and furnish to each Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any Holder, furnish to such Holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Preferred Stock.
XI. VOTING RIGHTS
No holder of the Preferred Stock shall be entitled to vote on any matter
submitted to the shareholders of the Company for their vote, waiver, release or
other action, except as may be otherwise expressly required by law.
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<PAGE>
XII. PROTECTION PROVISIONS
So long as any Preferred Shares are outstanding, the Company shall not,
without first obtaining the approval of a majority of the Holders: (a) alter or
change the rights, preferences or privileges of the Preferred Stock; (b) alter
or change the rights, preferences or privileges of any capital stock of the
Company so as to affect adversely the Preferred Stock; (c) create any Senior
Securities; (d) create any Pari Passu Securities; (e) increase the authorized
number of shares of Preferred Stock; (f) redeem or declare or pay any cash
dividend or distribution on any Junior Securities, or (g) do any act or thing
not authorized or contemplated by this Certificate of Designation which would
result in any taxation with respect to the Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended, or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended, (or otherwise
suffer to exist any such taxation as a result thereof).
XIII. MISCELLANEOUS
A. Lost or Stolen Certificates. Upon receipt by the Company of (i) evidence
of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Company, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Company shall not be
obligated to reissue such lost, stolen, destroyed or mutilated Preferred Stock
Certificate(s) if the Holder contemporaneously requests the Company to convert
such Preferred Stock.
B. Statements of Available Shares. Upon request, the Company shall deliver
to each Holder a written report notifying the Holders of any occurrence which
prohibits the Company from issuing Common Stock upon any such conversion. The
report shall also specify (i) the total number of shares of Preferred Stock
outstanding as of the date of the request, (ii) the total number of shares of
Common Stock issued upon all conversions of Preferred Stock through the date of
the request, (iii) the total number of shares of Common Stock which are reserved
for issuance upon conversion of the Preferred Stock as of the date of the
request, and (iv) the total number of shares of Common Stock which may
thereafter be issued by the Company upon conversion of the Preferred Stock
before the Company would exceed the Common Share Limit and Reserved Amount. The
Company shall, within five (5) days after delivery to the Company of a written
request by any Holder, provide all of the information enumerated in clauses (i)
- - (v) of this Section XIII(B) and, at the request of a Holder, make public
disclosure thereof.
C. Payment of Cash; Defaults. Whenever the Company is required to make any
cash payment to a Holder under this Certificate of Designation (as a Conversion
Default Payment, Redemption Amount or otherwise), such cash payment shall be
made to the Holder by the method (by certified or cashier's check or wire
transfer of immediately available funds) elected by such Holder. If such payment
is not delivered when due such Holder shall thereafter be entitled to interest
on the unpaid amount until such amount is paid in full to the Holder at a per
annum rate equal to the lower of (x) eighteen percent (18%) and (y) the highest
interest rate permitted by applicable law.
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<PAGE>
D. Conversion of Default Amounts. In addition, and notwithstanding anything
to the contrary contained in this Certificate, a Holder may elect in writing to
convert all or any portion of accrued Default Amounts, at any time and from time
to time, into Common Stock at the lowest Conversion Price in effect during the
period beginning on the date of the default with respect thereto through the
cure date for such default. In the event that a Holder elects to convert all or
any portion of the Default Amounts into Common Stock, the Holder shall so notify
the Company on a Notice of Conversion of such portion of the Default Amounts
which such holder elects to so convert and such conversion shall otherwise be
effected in accordance with the provisions of, and subject to limitations
contained in, Article IV.
E. Remedies, Characterizations, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Certificate of Designation shall be
cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designation (including, without limitation, damages incurred to effect "cover"
purchase of shares of Common Stock anticipated to be received upon a conversion
hereunder and not received in accordance with the terms hereof). Company
covenants to each Holder that there shall be no characterization concerning this
instrument other than as expressly provided herein; provided, however, that the
Company shall be entitled to prepare summaries of this Certificate of
Designation for purposes of complying with its disclosure obligations and in
connection with bona fide disputes as to the operations of the provisions of
this Certificate of Designation. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder hereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of Preferred
Stock and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Holders shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
F. Specific Shall Not Limit General; References to "Preferred Stock". No
specific provision contained in this Certificate of Designation shall limit or
modify any more general provision contained herein. This Certificate of
Designation shall be deemed to be jointly drafted by the Company and the Holders
and shall not be construed against any person as the drafter. Any reference
herein to Preferred Shares, Preferred Stock or an unspecified amount of
Preferred Shares or Preferred Stock shall be deemed to include, without
limitation, all shares of Preferred Stock issued or then issuable as a dividend
or otherwise in satisfaction of any obligation of the Company with respect to
any Preferred Stock issued on the date hereof.
G. Failure or Indulgency Not Waiver. No failure or delay on the part of a
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, not shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
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<PAGE>
Specimen Certificate, Series D Preferred Stock
[front]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED
OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED,
SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS. THE SECURITIES ARE SUBJECT TO A SECURITIES PURCHASE
AGREEMENT, A CERTIFICATE OF DESIGNATION AND A REGISTRATION RIGHTS AGREEMENT.
THESE AGREEMENTS MAY BE INSPECTED DURING NORMAL BUSINESS HOURS AT THE OFFICES OF
THE CORPORATION.
NUMBER SHARES
AMERICAN BIO MEDICA CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
This Certifies that ___________________________
is the owner of __________________________
FULLY PAID AND NON-ASSESSABLE SERIES D CONVERTIBLE PREFERRED SHARES
PAR VALUE $.01 PER SHARE.
AMERICAN BIO MEDICA CORPORATION
transferable on the books of the corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of New York
and to the Certificate of Incorporation and Bylaws of the Corporation, as now or
hereafter amended
WITNESS, the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
AMERICAN BIO MEDICA CORPORATION
CORPORATE SEAL 1986 NEW YORK
- ---------------------------------- --------------------------------------
Secretary President
<PAGE>
[Back]
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - Custodian under Uniform Gifts to Minors Act
Cust Minor State
Additional abbreviations may also be used through not in the above list.
For Value Received, hereby sell, assign, and
transfer unto of the capital stock represented by the
within Certificate, and do hereby irrevocably constitute and appoint
Attorney to transfer the
said stock on the Books of the within named Company with full power of
substitution in the premises.
Dated
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NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature guaranteed:
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The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program) pursuant
to S.E.C. Rule 17Ad-15,
