Registration No. 333-
As filed with the Securities and Exchange Commission on March 11, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CONSOLIDATED ECO-SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Idaho 82-0474589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4294 Lakeland, Suite 200
Jackson, Mississippi 39208
(601) 936-4440
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
EDWARD L. SCHRADER
Consolidated Eco-Systems, Inc.
4294 Lakeland, Suite 200
Jackson, Mississippi 39208
(601) 936-4440
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with a copy to:
KENNETH S. ROSE, ESQ.
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
(212) 838-5030
(212) 838-9190
Approximate date commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.|_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
======================================================================================================
Proposed Maximum
Title of Shares Amount Proposed Maximum Aggregate Amount of
to be Registered to be Aggregate Offering Registration
Registered Price Per Share(2) Price(2) Fee
======================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 1,917,359 shares $1.6875 $3,235,543 $ 980.47
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Common Stock, $.001 par 3,673,051 shares $1.6875 $6,198,274 $1,878.27
value, issuable upon
conversion of outstanding
Convertible Equity
Debentures(1)
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Totals 5,590,410 shares $1.6875 $9,433,817 $2,858.74
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(1) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), there are also being registered such
additional indeterminable number of shares of Common Stock as may become
issuable upon exercise or otherwise in respect of the Convertible Equity
Debentures.
(2) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) on the basis of the average
of the high and low sales prices of the common stock on the Nasdaq SmallCap
Market on March 7, 1997.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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PROSPECTUS
5,590,410 Shares
Consolidated Eco-Systems, Inc.
Common Stock
(Par Value $.001 Per Share)
This Prospectus relates to 5,590,410 shares (the "Offered Shares") of
common stock, par value $.001 per share (the "Common Stock"), of Consolidated
Eco-Systems, Inc., formerly named Exsorbet Industries, Inc., an Idaho
corporation (the "Company"), which Offered Shares may be offered from time to
time by and for the account of certain shareholders and Kenneth and Carolyn
McDonald, Larry and Marilyn Woodcock and Western Continental, Inc.(collectively,
the "Selling Shareholders"). See "Selling Shareholders." The Company will not
receive any of the proceeds from the sale of the Offered Shares. Expenses
incurred in connection with the registration under the Securities Act of 1933,
as amended (the "Securities Act"), of the offering described herein, not
including certain expenses such as commissions and discounts of underwriters,
dealers and agents, will be paid by the Company. See "Selling Shareholders,"
"Use of Proceeds" and "Plan of Distribution."
The Offered Shares may be sold from time to time by the Selling
Shareholders, provided a current registration statement with respect to such
securities is then in effect. Of the 5,590,410 Shares being offered hereby by
the Selling Shareholders, 1,917,359 of the Offered Shares are currently
outstanding, and 3,673,051 of the Offered Shares are issuable upon conversion of
the Convertible Equity Debentures assuming the conversion rate on the date of
this Prospectus. Such number of shares issuable upon conversion of the
Convertible Equity Debentures is presently indeterminable and is being
estimated for the purposes of this Prospectus. The Registration Statement of
which this Prospectus is a part covers such indeterminable number of shares
which may be issuable upon exercise of the Convertible Equity Debentures. The
Convertible Equity Debentures bear interest at a rate of 8% per annum and are
due two years from the date of issuance (the "Convertible Debentures"). See
"Plan of Distribution."
The Common Stock is listed on the Nasdaq SmallCap Market ("Nasdaq
SmallCap") under the symbol "EXSO." On March 7, 1997, the closing sale price of
the Common Stock was $1.6875 per share.
The Offered Shares may be offered for sale from time to time by the Selling
Shareholders to or through brokers, dealers or underwriters acting as principals
or agents or directly to other purchasers or through agents in one or more
transactions on the Nasdaq SmallCap or any other stock exchange on which the
Common Stock is listed, in the over-the-counter market, in one or more private
transactions, or in a combination of such methods of sale, at prices and on
terms then prevailing, at prices related to such prices, or at negotiated
prices. The Selling Shareholders and any brokers and dealers through whom sales
of the Offered Shares are made may be deemed to be "underwriters" within the
meaning of the Securities Act, and the commissions or discounts and other
compensation paid to such persons may be regarded as underwriters' compensation.
See "Plan of Distribution."
See "Risk Factors" commencing on page 11 for information that should be
considered regarding the securities offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March __, 1997.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements (if required) and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information filed by the Company with the Commission
may be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should be available at the Commission's Regional Offices at 7
World Trade Center, 13th Floor, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, NW, Washington, D.C.
20549. The Commission also maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding the Company.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act, with respect to the Offered Shares. This
Prospectus does not contain all the information set forth in the Registration
Statement and the Appendices thereto, certain parts of which were omitted as
permitted by the rules and regulations of the Commission. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Prospectus or in any document
incorporated in this Prospectus by reference as to the content of any contractor
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an Appendix to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
TABLE OF CONTENTS
Page
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Available Information 4
Incorporation of Certain Documents by Reference 5
The Company 6
Recent Developments 8
Risk Factors 11
Use of Proceeds 15
Selling Shareholders 15
Plan of Distribution 17
Legal Matters 18
Experts 18
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus or in the
documents incorporated herein by reference in connection with the offering made
hereby and, if given or made, such information or representations should not be
relied upon as having been authorized by the Company, the Selling Shareholders
or any other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities to
which it relates or any offer to or solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus or any sale made under this Prospectus
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date of this Prospectus.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
0-25970) are incorporated by reference in this Prospectus:
1. Annual Report on Form 10-K/A for the year ended December 31, 1995 (the
"Company's 1995 Form 10-K");
2. The description of Common Stock contained in its Registration
Statement on Form 10, filed with the Commission on May 2, 1995, as
amended by Form 10, filed with the Commission on September 8, 1995;
3. Current Report on Form 8-K/A of March 11, 1996;
4. Quarterly Report on Form 10-Q/A-1 for the quarter ended March 31,
1996;
5. Current Report on Form 8-K/A-1 of June 26, 1996;
6. Current Report on Form 8-K/A-1 of June 27, 1996;
7. Quarterly Report on Form 10-Q for the quarter ended June 30, 1996;
8. Current Report on Form 8-K of September 30, 1996;
9. Quarterly Report on Form 10-Q for the quarter ended September 30,
1996; and
10. Definitive Proxy Statement for the annual meeting of shareholders held
on December 10, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference herein from the date of filing such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein) modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will furnish without charge, upon written or oral request, to
each person, including any beneficial owner, to whom this Prospectus is
delivered, a copy of any or all of the documents incorporated by reference
herein other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to the Company, Corporate Secretary, 4294 Lakeland, Suite
200, Jackson, Mississippi 39208, (601) 936-4440.
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THE COMPANY
The Company is a diverse, environmental and technical services company with
a network of specialized subsidiaries (the "Subsidiaries"). The Company and its
Subsidiaries seek to maintain a high level of technical expertise and provide a
broad range of environmental and technical services to their clients. These
services include environmental consulting, engineering design, environmental
remediation, industrial services, emergency response, recycling and various
specialized environmental services. Generally, each of the Subsidiaries focuses
on a specific set of environmental and technical services that are provided to
clients either individually or in combination with related services of the other
Subsidiaries. The Company's principal business operations are conducted through
seven Subsidiaries - Consolidated Environmental Services, Inc. ("CESI"), Cierra,
Inc. ("Cierra"), Exsorbet Technical Services, Inc. d/b/a Spiltech Services, Inc.
("SpilTech"), Eco-Acquisition, Inc. d/b/a Eco-Systems, Inc. ("Eco-Systems"),
Larco Environmental Services, Inc. ("Larco"), K.R. Industrial Service of
Alabama, Inc. ("KRISA"), and 7-7, Inc. ("7-7"). CESI, Cierra, SpilTech, and
Eco-Systems were formed or acquired by the Company in 1995. Larco, KRISA, and
7-7 were acquired by the Company in 1996. The Company operates primarily in the
states of Arkansas, Texas, Oklahoma, Kansas, Mississippi, Missouri, Alabama,
Florida, Louisiana, Ohio, and Pennsylvania. The Company's principal office is
located at 4294 Lakeland Drive, Suite 200, Jackson, Mississippi 39208.
The Company was originally formed on March 14, 1930 as Sentinel Mines
Corporation. From the late 1940's until November 11, 1993, the Company had no
substantial business operations. On November 11, 1993, the Company acquired
Exsorbet Industries, Inc., which was in the development stages of forming a
business to manufacture and sell (i) an organic, peat moss-based absorbent
material named "Exsorbet," used primarily to clean up oil and other
hydrocarbon-based materials, and (ii) an organic poultry compost and soil
amendment fertilizer. In conjunction with the acquisition, the Company changed
its name to Exsorbet Industries, Inc. The Company ceased production of the
compost and fertilizer in the early fall of 1994. The manufacturing facility
used to process Exsorbet was leased to another entity by the Company during
July, 1996. On January 23, 1997, the Company changed its name to Consolidated
Eco-Systems, Inc.
On April 20, 1995, the Company formed Exsorbet Technical Services, Inc.,
which is in the business of conducting emergency spill response. After the
Company acquired CESI on September 27, 1995, Exsorbet Technical Services, Inc.
began conducting its operations under the name "Spiltech Services, Inc."
On September 27, 1995, the Company acquired CESI. CESI is a diversified
environmental services company, specializing in site remediation, de-watering
and pond solidification, and project management. In addition, CESI is the sole
stockholder of Cierra, Inc, an environmental consulting firm.
On December 28, 1995, the Company acquired Eco-Systems, which is an
environmental consulting/engineering firm comprised of scientists and engineers
specializing in remedial investigations, remediation engineering, air quality,
waste water, regulatory compliance, solid waste engineering, litigation
support/expert testimony, environmental resources and industrial hygiene and
safety.
On June 26, 1996, the Company acquired Larco. Larco was an industrial
service and emergency response company. It provides industrial services to
petrochemical, manufacturing and transportation industries along the Texas and
Louisiana industrial belt and northward along the Mississippi River and
connected inland waterways. Larco was also active in the clean-up and mitigation
of oil and other spills, but has recently sold all of its emergency response
equipment and is no longer providing emergency response services.
On June 27, 1996, the Company acquired KRISA. KRISA is an industrial
service company with offices in Mobile, Birmingham, Decatur, and Double Springs,
Alabama, and Panama City, Florida. Using specialized techniques, KRISA provides
boiler clean-out and rehabilitation for utility companies and other clients.
KRISA is also experienced in hazardous material handling.
On September 30, 1996, the Company acquired 7-7. 7-7 offers a wide range of
environmental services including remediation, barge cleaning, industrial
maintenance and hazardous waste recycling. The firm has developed a
Liquification Process that recycles hazardous coal tar and petroleum tar sludges
into a
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commercially usable product. The Liquification Process has applications for the
steel industry, petroleum and chemical refineries, utility power plants, wood
treatment facilities, and Superfund sites.
Products and Services
Consolidated Environmental Services, Inc. CESI, through its offices in
Dallas, TX and Little Rock, AR provides (i) hazardous waste management
contracting services, (ii) an integrated system of environmental management
services utilizing a combination of technical and remedial capabilities, and
(iii) environmental remediation services, including the following: sludge
management and de-watering; composting; bio-remediation; tank cleaning and
dismantlement; underground storage tank closure; landfill and impoundment
capping; contaminated soil and water treatment; civil construction; groundwater
system design and installation; slurry walls; demolition and decontamination.
Eco-Systems, Inc. Eco-Systems is a diversified environmental
consulting/engineering firm, specializing in remedial investigations,
remediation engineering, air quality, waste water, regulatory compliance, solid
waste engineering, litigation support/expert testimony, environmental resources
and industrial hygiene/safety. Eco-Systems is capable of performing preliminary
project evaluation and environmental and technical services prior to the
performance by CESI of contracting and waste management services on the same
project. Eco-Systems provides its services to clients in various economic
sectors, including: petrochemicals and agricultural chemicals; oil exploration,
refining and marketing; gas pipelines; pulp and paper/forest products;
manufacturing; waste disposal and management; state and local government; and
law firms. Eco-Systems' consultants and engineers have expertise in the
following areas: environmental engineering, materials engineering, chemical
engineering, hydro-geology, computer-aided drafting and design, civil
engineering, geology, archaeology and physics. Eco-Systems offices are located
in Jackson, MS; Mobile, AL; Houston, TX; and Knoxville, TN.
Spiltech Services, Inc. Spiltech operates as an emergency response and
industrial service company, serving several industries and businesses. In
addition, Spiltech is a CHEMNET accredited emergency response contractor.
CHEMNET is a certification service that provides information on companies to
those who need an emergency response contractor.
As an emergency responder, Spiltech performs the following services:
minimizing adverse health impacts of a release of a toxic substance to the
surrounding population; minimizing the extent of destruction to surrounding
property; containing the spread of contamination; minimizing total clean-up
costs; and mitigating both political and legal consequences associated with a
toxic substance release.
Spiltech personnel also assist in the development and implementation of
closure programs for Underground Storage Tanks ("USTs"). USTs containing
petroleum or hazardous chemicals are regulated on the federal level under the
Resource Conservation Recovery Act of 1976 ("RCRA"), which strictly defines the
procedures for the closure, abandonment and removal of USTs. In addition,
specific state requirements have been enacted to facilitate the closure and
removal of USTs. Spiltech and its personnel hold UST certifications for many of
the states within the Company's geographical region, including: Arkansas
Department of Pollution Control and Ecology, Underground Storage Tank Removal
License; Louisiana Department of Environmental Quality, Underground Storage Tank
Closure License; Mississippi Department of Environmental Quality, Underground
Storage Tank Closure License; Texas National Resource Conservation Commission,
Leaking Petroleum Storage Tank Corrective Action Specialist Certification; and
Texas Natural Resource Conservation Commission, Leaking Petroleum Storage Tank
Project Manager Certification. In addition, Spiltech provides metal fixation
services through its Euless, TX operation and vacuum truck services through its
Little Rock, AR operation.
Cierra, Inc. Cierra is a environmental consulting firm based in Little Rock
AR that provides an integrated system of environmental services, including:
remedial action plans; phase I audits for real estate transactions; UST closure
investigations and compliance audits. Cierra's employees have diverse
backgrounds applicable to the environmental field with expertise in the
following areas: agriculture, biology, chemistry, geology, hydrology,
toxicological evaluations and wetlands evaluations.
Larco Environmental Services, Inc. Larco is an industrial service company
with offices in Sulphur and Baton Rouge, LA. Larco provides industrial service
in the form of wet and dry vacuum truck operations, tank
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cleaning, sludge removal, industrial hydroblasting and dewaters. Industrial
services are offered on a time and material basis to major clients primarily in
the petroleum transportation refining and production industry, as well as to
clients in paper manufacturing, chemical manufacturing and storage and municipal
utilities. Larco also provides hazardous and non-hazardous waste transportation
services and roll-off box transportation services.
K.R. Industrial Service of Alabama. KRISA is an industrial service company
with offices in Mobile, Birmingham, Decatur, and Double Springs, Alabama and
Panama City, Florida. Using specialized hydroblasting techniques, KRISA supplies
"on-line" clinkers removal to electrical utilities and other boiler dependent
operations. These techniques have met with regional acceptance leading to
multi-year contracts with major utility companies in Alabama and Mississippi.
KRISA also performs industrial service work for the heavy industry in Northern,
Central and Southern Alabama as well as the adjacent states of Mississippi and
Florida. Such work includes wet and dry vacuum truck services, dewatering,
sludge removal, decontamination and related service.
7-7, Inc. 7-7, which is based in Wooster, Ohio, offers a wide range of
services including site remediation, barge cleaning, industrial maintenance and
waste recycling. The firm utilizes a liquification process (the "Liquification
Process") that recycles coal tar and petroleum tar sludges into a commercially
usable product. The Liquification Process has applications for the steel
industry, petroleum and chemical refineries, utility power plants, wood
treatment facilities, and Superfund sites. Through this process, tar waste
sludges are transformed (either on site or off site) into viable feedstocks,
such as high-BTU fuel stock and various grades and coal chemical feedstocks.
Currently, 7-7 has three Liquification units, one of which is a permanent
facility located in Cleveland with a capacity of up to 300 tons per day and two
are mobile units with capacities of 100 to 150 tons each per day. These mobile
units are used on specific projects.
RECENT DEVELOPMENTS
Exercise of Stock Put Agreement by American Physicians Service Group, Inc.
On September 30, 1996, the Company entered into a Stock Put Agreement (the "Put
Agreement") with American Physicians Service Group, Inc., a Texas corporation
("APS"), in connection with the issuance of 1,200,000 shares of Common Stock to
APS for the purpose of providing financing for the Company's purchase of 7-7.
The Put Agreement gave APS the option to require the Company to repurchase
1,200,000 shares of Common Stock from APS for $3,300,000 for a period of sixty
days. According to the Put Agreement, an election by APS to sell the shares of
Common Stock to the Company triggered an option for the Company to issue a
promissory note to APS in lieu of making a $3,300,000 cash payment. Pursuant to
the Put Agreement such promissory note would be in the stated principal amount
of $3,300,000 and bear interest at a rate of 15.75% per annum, with the
principal and interest payable in full on October 1, 1997.
On November 20, 1996, APS exercised it rights under the Put Agreement and,
accordingly, on November 26, 1996, the Company issued to APS a promissory note
in the stated principal amount of $3,300,000 bearing interest at the rate of
15.75% per annum and due October 1, 1997.
Annual Meeting. At the Annual Meeting of Shareholders, held on December 10,
1996 (the "Annual Meeting"), each director of the Company, Charles E. Chunn,
Jr., James J. Connors Jr., Edward L. Schrader, Sam Sexton III, Robert D. Vick
and Larry J. Woodcock, was reelected to serve another term. Shareholders also
approved a change of corporate name from Exsorbet Industries, Inc. to
Consolidated Eco-Systems, Inc., which change became effective on January 23,
1997. Additionally, Shareholders approved the reincorporation of the Company in
Delaware through a merger of the Company with and into a Delaware corporation,
Consolidated Eco-Systems, Inc. That merger has not been consummated, primarily
due to the Company's desire to obtain an opinion from Idaho counsel with respect
to the rights of dissenting shareholders prior to completing the merger.
Private Placement of $5,000,000 of Convertible Debentures. From December
20, 1996 to January 22, 1997, the Company sold Convertible Debentures in the
stated principal amount of $5,000,000 to certain accredited investors, as
defined by Rule 501 of the Securities Act (the "Holder"). The shares of Common
Stock which may be issued pursuant to these Convertible Debentures are part of
the Offered Shares being offered for sale pursuant to this Prospectus. Each
Convertible Debenture is convertible into Common Stock at the option of the
Holder of such Convertible Debenture at any time from the sixty-first day
following the date of issuance of the Convertible Debenture until the
Convertible Debenture is paid in full, at a conversion price, equal to eighty
percent of the
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average closing bid price of the Common Stock on the five trading days
immediately preceding date, subject to certain limitations set forth in the
Convertible Debenture. If such Convertible Debentures were convertible as of the
date of this Prospectus, such Convertible Debentures would convert into
approximately ___________ shares of Common Stock.
The proceeds of sale of the Convertible Debentures have, and will be used
to pay past due accounts payable of the Company, for working capital and for
other financial needs of the Company and its subsidiaries. In connection with
the issuance of the Convertible Debentures, the Company paid $400,000 in sales
commissions to H. J. Meyers & Co., Inc. ("H. J. Meyers") the Company's placement
agent in connection with the offering. The Company also issued to H. J. Meyers
warrants to purchase 500,000 shares of Common Stock at $1.56 per share.
The Convertible Debentures were issued pursuant to section 4(2) of the
Securities Act, which provides that a registration statement is not required in
connection with transactions not involving a public offering.
The Company agreed, in connection with the sale of the Convertible
Debentures, to file a registration statement covering the shares of Common Stock
issuable upon conversion, and to use its best efforts to cause such registration
statement to be declared effective by the Securities and exchange Commission
within sixty days of the date the Convertible Debenture was issued. Certain of
the Convertible Debentures were issued more than sixty days prior to the date of
this Prospectus. Pursuant to the terms of the Convertible Debentures, the
Company is obligated to pay to the debenture holders as liquidated damages, the
sum of $25 per $1,000 principal amount of debenture for each thirty day period
beyond sixty days from the debenture issuance date that a registration statement
covering the shares issuable upon conversion is not effective. As of the date of
this Prospectus, approximately $________ was due to debenture holders.
Hibernia National Bank Note Acceleration. Hibernia National Bank of New
Orleans, LA ("Hibernia"), the primary creditor of Larco, asserted on February
13, 1997 that Larco was in default of its credit facility and purported to
accelerate the notes underlying the facility. The current balance due to
Hibernia is approximately $3.3 million, which is secured by a security interest
in certain Larco assets. The Company disputes that it is in default of the loan
facility, however, the Company is seeking to replace the Larco credit facility.
In the event that the Company is unsuccessful in disputing the default or
otherwise extending the Hibernia facility, or obtaining a replacement facility
for Larco, Larco would have insufficient working capital to continue its current
operations. A cessation or reduction in operations of Larco would have a
material adverse impact on the Company.
Sale of Larco Emergency Response Equipment. Larco is in the process of
completing the sale of its emergency response equipment. At the time of the
acquisition of Larco, its operations consisted of providing industrial services
and responding to spill emergencies. Since the date of acquisition of Larco, a
reduced demand for Larco's emergency spill response has resulted in that portion
of its business becoming unprofitable. Larco has entered into a contract to sell
all of its emergency response equipment to an unaffiliated third party. Under
the terms of the contract, Larco will agree not to compete with the purchaser in
the emergency response business and the purchaser will agree not to compete with
Larco in the industrial services business, with limited exceptions, within
approximately fifty miles of Lake Charles, LA. The sale will generate proceeds
of approximately $1,200,000 which will be used by Larco to retire debt due to
Hibernia.
Changes in Management; Status of Dispute with Former Chief Financial
Officer.
The Company placed Charles E. Chunn, Jr., its Chief Financial Officer, on
paid administrative leave effective December 10, 1996. Mr. Chunn is employed by
the Company pursuant to an employment agreement. The Company is currently
negotiating a severance and termination arrangement with Mr. Chunn. In the event
an amicable resolution is not reached, the Company anticipates that the Chief
Financial Officer will commence litigation seeking contractual damages pursuant
to his employment agreement which could approach $1.7 million. However, the
Company believes that it has meritorious defenses and counterclaims to any such
claim which it would aggressively assert and prosecute in any such action.
On February 7, 1997, James J. Connors, Jr., former Chief Operating Officer
of the Company, was named President and Chief Executive Officer. Dr. Ed
Schrader, former President and Chief Executive Officer of the Company, became a
full time operating Chairman of the Board of Directors. The change was made to
allow the President and
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Chief Executive Officer to become more fully involved in day to day operations.
Additionally, the change allowed Dr. Schrader to devote his efforts to the
strategic and long term plans of the Company.
On February 24, 1997, Edward M. Penick, Jr., a Vice-President of the
Company, was named Chief Financial Officer. Robert Vick, who had served in that
capacity since January, 1997, resigned due to severe time constraints. Mr. Vick,
who also serves on the Company's Board of Directors, operates Eco-Acquisition,
Inc., d/b/a Eco-Systems, Inc., the Company's engineering subsidiary. Mr. Vick is
responsible for certain day-to-day operations of the engineering subsidiary. The
change allows Mr. Vick to devote his duties to operation of the subsidiary. Mr.
Penick has prior banking and financial experience and was associated with
Consolidated Environmental Services, Inc., the Company's remediation subsidiary,
at the time of its acquisition and through the present.
Financial Condition and Liquidity. The Company is considering various
options to pay the $3.3 million note due to APS on October 1, 1997 including a
private placement of debt or equity, or refinancing the obligation with APS or
others. However, there can be no assurance that the Company can complete a
private placement or that APS will refinance the debt.
At September 30, 1996, the Company had $2 million of bank debt outstanding
secured by a certificate of deposit. During January 1997, the certificate of
deposit was redeemed and used to retire the bank debt. At September 30, 1996,
the Company had current and quick ratios of 1.01 and .89, respectively. Had the
certificate of deposit been used to retire the debt at September 30, 1996, the
quick and current ratios would have been 1.02 and .87, respectively.
During December 1996 and January 1997, the Company completed the sale of $5
million of 8% Convertible Equity Debentures. The net proceeds of this offering
were, and are being used to retire trade accounts payable and for other working
capital purposes.
During March 1997, 7-7 has maturing note obligations due vendors
approximating $1.1 million. It is the intention of the Company to obtain longer
payment options from the vendors. Should the vendors not agree to longer payment
terms, the Company will need to raise additional debt or equity capital to
satisfy these obligations.
The Company is currently seeking to establish a senior debt facility to
consolidate various equipment and accounts receivable notes of its various
subsidiary companies. There is no assurance that such a facility will be
obtained, or if obtained, that such facility will be adequate to fund the
Company's working capital needs. In the event the Company is unsuccessful in
establishing a senior debt facility, it will seek to fund its working capital
needs through the sale of debt or equity instruments. There is no assurance that
the Company will be successful in raising adequate capital to meet its
obligations and working capital needs, the failure of which would have a
material adverse effect on the Company.
-10-
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby is speculative and
involves a high degree of risk. In addition to the other information contained
in this Prospectus and incorporated herein by reference, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby. Prospective
investors should be in a position to risk the loss of their entire investment.
This Prospectus contains forward-looking information as a result of various
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
Limited Operating History and Risks of Development
The Company re-organized its activities and acquired or formed all of its
Subsidiaries in 1995 or 1996. Prior to that time, the Company had engaged
primarily in the production of its peat moss based product for the clean-up of
oil and hydrocarbon spills, marketed under the name "Exsorbet." Except for this
experience, the Company had little or no experience in environmental pollution,
reclamation, and remediation prior to such time. While these recent acquisitions
are seen as favorable for the Company, the acquisitions have increased operating
expenses significantly for the Company. There can be no assurance that the
Company will be able to maintain profitable operations in the future. Results of
operations in the future will be influenced by numerous factors, including,
without limitation, technological developments, increases in expenses associated
with sales growth, market acceptance of the Company's services, the capacity of
the Company to expand and maintain the quality of its products and services,
competition, governmental regulation, and the ability of the Company to control
costs. There can be no assurance that revenue growth or profitability on a
quarterly or annual basis will be sustained. Additionally, the Company will be
subject to all the risks incident to a rapidly developing business with only a
limited history of operations. Prospective investors should consider the
frequency with which relatively newly developed and/or expanding businesses
encounter unforeseen expenses, difficulties, complications and delays, as well
as such other factors such as the possibility of competition with larger
companies.
Limited Liquidity; Need for Additional Financings
The Company's continued operations will depend upon revenues, if any, from
operations and the availability of equity or debt financing. The Company has no
commitments for additional financing. Further, there can be no assurance that
the Company will be able to generate levels of revenues and cash flows
sufficient to fund operations or that the Company will be able to obtain
additional financing on satisfactory terms, if at all, to meet its financial
obligations as they become due.
Future Sales of Common Stock
The Company is unable to predict the effect that sales of restricted Common
Stock of the Company made under Rule 144, or otherwise, may have on the then
prevailing market price of the Common Stock although any substantial sale of
restricted securities pursuant to Rule 144 may have an adverse effect. In March
1996, Floyd Leland Ogle, a former President of the Company, gifted 1,458,100
shares of the Company's Common Stock and an immediately exercisable option for
50,000 shares of the Company's Common Stock to a trust (the "Trust") for the
benefit of his wife. The trustee, First Commercial Trust Co., N.A. (the
"Trustee"), as provided in the trust agreement must liquidate the Trust's
holdings by March of 1998 or as soon as practicable as permitted by applicable
law. The trust agreement provides that the Trustee will attempt to sell
approximately 3,000 shares of the Common Stock each day until the shares held by
the Trust are sold. The average trading volume for the Common Stock since
January 1, 1996 has been approximately 68,000 shares per day. Accordingly, the
sale of the substantial number of shares of Common Stock in the public market
could adversely affect the market price of the Common Stock. As of February 28,
1996, the Trust beneficially held 900,600 shares of Common Stock.
New Industry
The Pollution/Reclamation/Remediation/Industrial Service industry is an
emerging business characterized by an increasing number of market entrants. As
is typically the case in an emerging industry, demand and market acceptance for
services are subject to high levels of uncertainty. In light of the continually
evolving nature of this
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industry, there can be no assurance as to the ultimate level of demand or market
acceptance for the Company's products and services. In addition, there can be no
assurance that the Company will successfully implement its business strategies,
expand its training capacity, maintain the cost competitiveness of its services,
meet its current marketing objectives or succeed in positioning its services as
the desired means of delivery of Pollution/Reclamation/Remediation services.
Technological Changes
The Pollution/Reclamation/Remediation/Industrial Service industry is
subject to rapid technological changes and service obsolescence. The advent and
development of other technology, in particular, could materially affect the
manner in which products and services in the Pollution/Reclamation/Remediation
field compete effectively. The Company must offer technologically oriented
products and services that receive client acceptance and fulfill client needs.
To the extent that the Company fails to keep up with technological advancements
and enhancements comparable to and competitive with those made by others in the
industry, the marketing of the Company's products and services may prove
unsuccessful. There can be no assurances that the Company's products and
services will not be rendered obsolete by changing technology or that the
Company will be able to respond to advances in technology in a manner that will
be commercially feasible.
Competition
At the present time, the Pollution/Reclamation/Remediation/Industrial
Service and related services industry in general is highly competitive and is
expected to continue to be so in the future. The Company will be competing
directly or indirectly with a large number of companies, certain of which may be
larger, better capitalized and more established and may have greater access to
resources necessary to build a competitive advantage. Although the Company
believes that its products and services presently and prospectively can occupy a
competitive market position, there can be no assurance that the Company will
ever be able to effectively compete in this market.
Training and Difficulty of Maintaining Quality Control
The Company will be required to continue to undertake extensive training of
personnel upon expanding its operations so that
Pollution/Reclamation/Remediation/Industrial Service services may be provided in
a professionally acceptable and consistent manner. The Company will also need to
further develop its system of administration as well as personnel management in
order to maintain the quality of products and services on a consistent basis.
There can be no assurances that the Company will be able to achieve a level of
consistency of its service personnel on a broad scale basis, or that the
organization required to administer such initial and ongoing training will not
involve substantial costs that will affect the ability of the Company to provide
its products and services on a cost-effective basis.
Risks Associated with Expansion and Acquisitions
The Company has made, and may make in the future, acquisitions of firms
providing comparable services. Any acquisitions or expansion of operations the
Company may undertake will entail substantial risks because they will involve
specific operations that may be unfamiliar to the Company's management. At the
present time, the Company has only limited management personnel, and its
management has had limited experience in making acquisitions. Consequently,
shareholders must assume the risk that the Company (i) may acquire or develop
operations for which the Company does not possess sufficient managerial
background to administer effectively, (ii) such acquisitions and expansion may
ultimately involve expenditure of funds beyond the resources that will be
available to the Company at that time and (iii) management of such new or
expanded operations may divert management's attention and resources away from
its existing operations, each of which factors may have a material adverse
effect on the Company's present and prospective business activities.
Consolidation
The Company intends to consolidate its operations to control costs and
expenses. The extent of the consolidation requirements is not presently known.
Management personnel have limited experience in
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consolidation of diversified companies. There can be no assurance that the
consolidation will be cost effective or will reduce operating costs.
Dependence upon Key Personnel
The success of the Company is highly dependent upon the continued services
of each of Dr. Edward Schrader, Mr. Robert D. Vick, Mr. James J. Connors, Jr.,
Mr. Caleb Dana, Mr. Larry Woodcock, Mr. Cal Lowe, II, and Mr. Ken McDonald, each
an executive officer of the Company. Although the Company has entered into
employment agreements with each of these individuals, and has entered into
employment agreements with various other skilled executives and employees, the
loss of any of their services would have a material adverse effect on the
business of the Company. The Company does not presently maintain "key man"
insurance on the lives of any of such executives. There can be no assurances
that the Company will be able to replace any of these key executives in the
event that their services become unavailable.
Competition for Key Personnel
The competition for recruitment of personnel in the Pollution/Reclamation/
Remediation/Industrial Service industry is continuous and highly intense. The
Company's success will depend in part on its ability to recruit, train and
retain highly skilled executive, technical and marketing personnel. There can be
no assurances that the Company will, in fact, be in a position to secure and
retain the services of such highly skilled personnel to support the Company's
contemplated operating and products expansion program.
Possible Volatility of Stock Price
The historical fluctuations in the market price of the Company's Common
Stock indicate that the market price of the Company's Common Stock may be highly
volatile. Factors such as fluctuations in the Company's operating results,
relationships with present and potential distributors, announcements of
technological innovations or new products introduced by the Company or its
competitors, and changes in market conditions and in the economy generally, may
have a significant impact on the market price of the Company's Common Stock.
Effect of Outstanding Options
As of March 10, 1997, the Company had granted stock options to purchase an
aggregate of 3,527,469 shares of Common Stock, which have exercise prices
ranging from $0.25 to $8.00 per share and a weighted average exercise price of
$2.28. The Company has been advised that of such options, up to 600,000
options may have been issued in violation of Idaho law and, accordingly, may be
null and void. In such event, there would be outstanding options to purchase an
aggregate of 2,927,469 shares of Common Stock with a weighted average exercise
price of $1.64 per share. To the extent that these outstanding securities are
exercised or converted, dilution of the percentage ownership of the Company's
shareholders will occur. Sales in the public market of Common Stock underlying
the options and warrants may adversely affect prevailing market prices for the
Common Stock. Moreover, the terms upon which the Company may be able to obtain
additional equity capital or debt financing may be adversely affected because
the holders of such outstanding securities can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
outstanding securities.
Prohibition Against Further Indebtedness
As part of the financing of the acquisition of 7-7, the Company entered
into an Assignment and Security Agreement with APS pursuant to which the Company
granted a security interest in all the assets and the issued and outstanding
stock of 7-7 to APS (the "Collateral"). Pursuant to such agreement, the Company
also agreed not to create, incur, assume or become liable in any manner for any
indebtedness (for borrowed money, deferred payment for the purchase of assets,
lease payments, as surety or guarantor of the debt of another, or otherwise)
other than to APS without APS's prior written consent, except for trade debts
incurred in the ordinary course of business. APS has consented to the issuance
of the Convertible Debentures. However, there can be no assurance that APS will
consent to any future incurrence of indebtedness.
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<PAGE>
Debt to Certain Officers, Insiders, and Others.
The Company is indebted to certain officers, insiders, or others pursuant
to notes or agreements which remain presently due but unpaid. Such debts include
obligations to Larry Woodcock, Calvin F. Lowe, Sr., Calvin F. Lowe, II, James
Hodgson, Gary Platek, Edward Kurzenberger, G. Howard Colingwood, and Waste
Solutions Corp. Each of these individuals or entities has temporarily withheld
efforts to collect on indebtedness of the Company. There can be no guarantee or
assurance that further collection efforts will continue to be withheld.
Certain Litigation.
On February 10, 1997, Alabama Insurance Exchange ("AIE"),, filed an action
against the Company, Consolidated Environmental Services, Inc., Eco-Systems,
Larco, 7-7, and Robert Vick, a director and officer of the Company, in the
Circuit Court of Jefferson County, Alabama. AIE contends that it was engaged as
the exclusive insurance broker of record for the Company and subsidiaries and
that the Company breached this agreement by rescinding the broker of record
engagement AIE seeks actual and punitive damages for breach of contract, quantum
meruit, conversion, intentional interference with a business contract,
promissory misrepresentation, and conspiracy to defraud. Although this matter is
in its very early stages and the Company has not had an opportunity to review
this matter with Alabama counsel, it believes that it has valid defenses to the
claim and that its outcome will not have a material adverse effect on the
Company.
On or about February 18, 1997, Perma Fix-Environmental Services, Inc. and
Perma-Fix, Inc., both corporations (collectively "Perma-Fix") filed an action
against the Company in the United States District Court for the Northern
District of Texas, Wichita Falls Division. Perma-Fix contends that the Company
has misappropriated a secret procedure that Perma-Fix contends is proprietary to
it. Perma-Fix also contends that employees of Spiltech, who were formerly
employed by Perma-Fix have disparaged the services and business of Perma-Fix by
the use of false or misleading misrepresentations. Perma-Fix also contends that
the Company breached an agreement with Perma-Fix to refrain from soliciting or
inducing any customer of Perma-Fix to use the services of the Company. Perma-Fix
further alleges that the Company has received benefits by virtue of
misappropriation of its confidential information and that the Company should be
required to provide these benefits to Perma-Fix. The suit seeks actual damages
in excess of $50,000, injunctive relief, unspecified punitive damages, court
costs, and attorney's fees. The Company believes that it has valid defenses to
the claim and that its outcome will not have a material adverse effect on the
Company.
There is also pending a civil action in the District Court of Harris
County, Texas, styled as Ray A. Nichols, et al v. Clean Channel Association,
Inc., et al, cause number 96-52645. The suit seeks damages from Larco The
plaintiffs, who were law enforcement officers, contend that they were injured
from fumes emitted from burning oil. The suit, which is filed against several
emergency response and /or other environmental companies, seeks damages for
failure of such companies to warn the law enforcement officers about dangers
from the burning fumes after an explosion on or near the San Jacinto River in
southern Texas. The Company believes that it has valid defenses to the claim and
that its outcome will not have a material adverse effect on the Company.
No Dividends Anticipated to Be Paid
The Company has not paid its shareholders any cash dividends since its
inception and does not anticipate paying cash dividends to its shareholders in
the foreseeable future. The future payment of dividends is directly dependent
upon future earnings of the Company, its financial requirements and other
factors to be determined by the Company's Board of Directors. For the
foreseeable future, it is anticipated that any earnings that may be generated
from the Company's operations will be used to finance the growth of the Company
and that cash dividends will not be paid to shareholders.
Limited Market for the Company's Securities
There is currently only a limited trading market for the Common Stock. The
Common Stock trades on the Nasdaq SmallCap Market System under the symbol
"EXSO," which is subject to substantial restrictions and limitations. There can
be no assurance that more than a limited market will ever develop for the Common
Stock.
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<PAGE>
Governmental Regulation
The Pollution/Reclamation/Remediation industry is subject to stringent
oversight and regulation by local, state, and federal regulatory agencies. The
Company cannot be assured that the regulations currently in force will not be
changed or altered. A change in any regulations, or more stringent regulations
or governmental oversight, could substantially increase the operating costs of
the Company.
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability of
Securities.
The Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market price
(as defined) of less than $5.00 per share, subject to certain exceptions. If the
Securities offered hereby are removed from listing on NASDAQ at any time
following the Effective Date, the Securities may become subject to rules that
impose additional sales practice requirements on broker-dealers who sell such
Securities to persons other than established customers and accredited investors
(generally, those persons with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of the Securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Securities and may affect the
ability of purchasers in this offering to sell the Securities in the secondary
market.
Risks Associated with Forward-Looking Statements Included in this Prospectus.
This Prospectus contains certain forward-looking statements regarding the
plans and objectives of management for future operations. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and objectives are based,
in part, on assumptions involving the continued expansion of business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein particularly in view
of the Company's early stage operations, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Offered Shares.
SELLING SHAREHOLDERS
The following table shows the names of the Selling Shareholders, the
Offered Shares owned beneficially by each of them as of March 7, 1997, the
number of Offered Shares that may be offered by each of them pursuant to this
Prospectus and the number of Offered Shares and percentage of outstanding shares
of Common Stock to be owned by each of them after the completion of this
Offering, assuming all of the Offered Shares being offered are sold. Of the
Selling Shareholders, Kenneth McDonald, Larry Woodcock and his wife, Marilyn
Woodcock have material relationships with the Company. Mr. McDonald is an
officer of the Company, Mr. Woodcock is an officer and director of the Company,
and Ms. Woodcock is an officer of the Company. Except for Mr. McDonald and Mr.
and Mrs. Woodcock, none of the Selling Shareholders were an officer or director
of the Company or, to the knowledge of the Company, had any material
relationship with the Company within the past three years.
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<TABLE>
<CAPTION>
Selling Shareholders Number of
Number Shares Percentage Percentage
of Beneficially Beneficially Beneficially
Shares Number of Owned after Owned Owned
Beneficially Shares that the Before the After the
Owned May be Sold Offering Offering Offering
------------ ----------- ------------ ------------ ---------
<S> <C> <C> <C>
The Shaar Fund, Ltd., acting in its 921,679 (1) 921,679 0 5.7% *
capacity as agent for certain
non-U.S. persons
Julius Baer Securities, Inc., 553,007 (2) 553,007 0 3.5% *
acting in its capacity as agent for
certain non-U.S. persons
Duane K. Boyd, Jr. Trust 91,751 (3) 91,751 0 * *
Kenneth Shifrin 73,400 (4) 73,400 * *
Douglas Pyron 11,010 (5) 11,010 0 * *
Majors Investments, LLC 40,370 (6) 40,370 0 * *
E.N. Whitton, Jr. 14,680 (7) 14,680 0 * *
Clinton Capital Club 7,340 (8) 7,340 0 * *
Coutts & CO AG. Zurich 157,402 (9) 157,402 0 1.0% *
Sovereign Partners L.P. 366,527 (10) 366,527 0 2.4% *
CEFEO Investments 219,916 (11) 219,916 0 1.4% *
IHAG Industrie and Handelsbank 366,448 (12) 366,448 0 2.4% *
COOK & CIE S.A. 43,973 (13) 43,973 0 * *
Stanley Dickson 183,263 (14) 183,263 0 1.2% *
Brasidas Management Unlimited Trust 73,210 (15) 73,210 0 * *
J&B Associates Profit Sharing Plan 73,210 (16) 73,210 0 * *
& Trust
Windward Island Ltd. 292,840 (17) 292,840 0 1.9% *
S.H. Developments LTD. 183,025 (18) 183,025 0 1.2% *
Kenneth and Carolyn McDonald 545,338 545,338 0 3.6% *
Western Continental, Inc. 20,000 20,000 * *
Larry and Marilyn Woodcock 1,352,021 1,352,021 0 8.8% *
</TABLE>
* Less than 1%.
(1) Includes 921,679 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(2) Includes 553,007 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(3) Includes 91,751 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(4) Includes 73,400 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(5) Includes 11,010 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
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<PAGE>
(6) Includes 40,370 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(7) Includes 14,680 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(8) Includes 7,340 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(9) Includes 157,402 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(10) Includes 366,527 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(11) Includes 219,916 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(12) Includes 366,448 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(13) Includes 43,973 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(14) Includes 183,263 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(15) Includes 73,210 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(16) Includes 73,210 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(17) Includes 292,840 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
(18) Includes 183,025 shares issuable upon conversion of outstanding Convertible
Debentures, assuming the conversion rate as of the date of this Prospectus.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale of the Offered
Shares. It is anticipated that the Selling Shareholders will offer the
securities described herein in the manner set forth on the cover page of this
Prospectus from time to time to or through brokers, dealers, or underwriters
acting as either principals or agents or directly to other purchasers or through
agents in one or more transactions on the Nasdaq SmallCap or any other stock
exchange on which the Common Stock is listed, in the over-the-counter market, in
one or more private transactions, or in a combination of such methods of sale,
at prices and on terms then prevailing, at prices related to such prices, or at
negotiated prices. The Selling Shareholders will bear the expenses of any
distribution or resale, including the payment of any commission, discount, or
transfer tax in connection with any resale. In addition, such distributions and
resales may occur electronically, rather than through the issuance of
certificates. The Selling Shareholders and any brokers and dealers through whom
sales of the Offered Shares are made may be deemed to be "underwriters" within
the meaning of the Securities Act, and the commissions or discounts and other
compensation paid to such persons may be regarded as underwriters' compensation.
The net proceeds to the Selling Shareholders from the sale of Common Stock
so offered will be the purchase price of the Common Stock sold less the
aggregate agents' commissions and underwriters' discounts, if any, and other
expenses of issuance and distribution borne by the Selling Shareholder.
At any time a particular offer of Common Stock is made, to the extent
required, the specific shares of Common Stock to be sold, the name of the
Selling Shareholder, purchase price, public offering price, the names of any
agent, dealer or underwriter and any applicable commission or discount with
respect to a particular offering will be set forth in an accompanying Prospectus
Supplement. Such Prospectus Supplement may, if necessary, be in the form of a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, and will be filed with the Commission to reflect the disclosure of
additional information with respect to the distribution of such securities.
To comply with the securities laws of certain jurisdictions, the securities
offered hereby will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
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<PAGE>
the securities offered hereby may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with.
The Selling Shareholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rules
10b-2, 10b-6 and 10b-7, which provisions may limit the timing of purchases and
sales by the Selling Shareholders and any other such person. Furthermore, under
Rule 10b-6 of the Exchange Act, any person engaged in a distribution of Common
Stock may not simultaneously engage in market making activities with respect to
such securities for a period of two business days prior to the commencement of
such distribution. All of the foregoing may affect the marketability of the
securities offered hereby.
LEGAL MATTERS
The legality of the shares of the Common Stock being offered hereby will be
passed upon for the Company by Sam Sexton III, general counsel of the Company.
EXPERTS
The consolidated financial statements incorporated by reference in this
Prospectus from the Company's 1995 Form 10-K have been so incorporated in
reliance on the report of Moore, Stephens & Frost, independent auditors, given
on the authority of said firm as experts in auditing and accounting, as set
forth in their report thereon included therein and incorporated herein by
reference.
TRANSFER AGENT
The Transfer Agent and Registrar for the Shares is Interwest Transfer
Company, Salt Lake City, Utah.
REPORTS TO SHAREHOLDERS
The Company distributes annual reports to its shareholders, including
financial statements examined and reported on by independent auditors, and will
provide such other reports as management may deem necessary or appropriate to
keep shareholders informed of the Company's operations.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The table below sets forth the estimated expenses of the Company in
connection with the issuance and distribution of the Common Stock covered by
this Registration Statement.
SEC Registration Fee..................................... $ 2,859
Printing and Engraving Expenses.......................... 3,000
Legal Fees and Expenses (other than Blue Sky)............ 35,000
"Blue Sky" Fees and Expenses............................. 3,000
Accounting Fees and Expenses............................. 5,000
Miscellaneous............................................ 3,141
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Total.................................................. $ 55,000
--------
ITEM 15. Indemnification of Directors and Officers
Article 8.01 of the Company's Bylaws as adopted on June 25, 1996, entitled
"Directors and Officers Indemnification" provides for indemnification of
directors and officers under certain circumstances. Section 8.01 provides as
follows:
"8.01 DIRECTORS AND OFFICERS INDEMNIFICATION. Every person who was or
is a party or is threatened to be made a party or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless to the fullest extent legally
permissible against all expenses, liabilities and losses (including
attorney's fees, judgments, fines and amounts paid or to be paid in
settlement) reasonably incurred or suffered by him in connection therewith.
Such right of indemnification shall be a contract right that may be
enforced in any lawful manner by such person. Such right of indemnification
shall not be exclusive of any other right which such director or officer
may have or hereafter acquire and, without limiting the generality of such
statement, he shall be entitled to his rights of indemnification under any
agreement, vote of stockholders, provision of law, or otherwise, as well as
his rights under this paragraph. The board of directors may cause the
Corporation to purchase and maintain insurance on behalf of any person who
is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director or officer of another
corporation, or as its representative in a partnership, joint venture,
trust or other enterprise against any liability asserted against such
person and incurred in any such capacity or arising out of such status,
whether or not the Corporation would have power to indemnify such person.
The provisions of this paragraph shall, however, be inapplicable to provide
any indemnification to any officer or director for any liability resulting
from theft or embezzlement of corporate funds, property, or assets or
otherwise inapplicable if indemnification is otherwise restricted by
applicable statute."
-19-
<PAGE>
[Item 16. Exhibits
Exhibit
Number Description
------- -----------
*5.1 Opinion of Sam Sexton III
*10.1 Promissory Note, in the stated principal amount of $3,300,000, dated
November 26, 1996 by Exsorbet Industries, Inc., an Idaho corporation
in favor of American Physicians Service Group, Inc., a Texas
corporation.
*10.2 Form of Convertible Equity Debenture
*10.3 Form of Securities Purchase Agreement
*10.4 Form of Registration Rights Agreement
*23.1 Consent of Moore, Stephens & Frost
*23.3 Consent of Sam Sexton III (included in Exhibit 5.1)
*24 Power of Attorney (see signature pages of Registration Statement)]
- ----------
* Filed herewith.
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with respect to the Plan of
Distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
-20-
<PAGE>
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jackson, State of Mississippi, on March 10, 1997.
CONSOLIDATED ECO-SYSTEMS, INC.
By: /s/ James J. Connors, Jr.
-------------------------------------
JAMES J. CONNORS, JR.
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes and appoints James J. Connors, Jr. and Sam Sexton III and each
of them, either one of whom may act without joinder of the other, as his
attorney-in-fact to sign on his behalf individually and in the capacity stated
below all amendments and post-effective amendments to this Registration
Statement as that attorney-in-fact may deem necessary or appropriate.
Signature Title Date
/s/ Edward M. Penick, Jr. Chief Financial Officer (Principal March 10, 1997
- ------------------------- Financial and Accounting Officer)
EDWARD M. PENICK, JR.
/s/ James J. Connors, Jr. Chief Executive Officer, President
- ------------------------- and Director (Principal Executive March 10, 1997
JAMES J. CONNORS, JR. Officer)
/s/ Robert D. Vick Director March 10, 1997
- -------------------------
ROBERT D. VICK
______________________ Director
CHARLES CHUNN, JR.
/s/ Dr. Edward L. Schrader Director and Chairman of the Board March 10, 1997
- -------------------------
DR. EDWARD L. SCHRADER
/s/ Sam Sexton III Director March 10, 1997
- -------------------------
SAM SEXTON III
/s/ Larry J. Woodcock Director March 10, 1997
- -------------------------
LARRY J. WOODCOCK
-22-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
*5.1 Opinion of Sam Sexton III
*10.1 Promissory Note, in the stated principal amount of $3,300,000, dated
November 26, 1996 by Industries, Inc., an Idaho corporation in favor
of American Physicians Service Group, Inc., a Texas corporation.
*10.2 Form of Convertible Equity Debenture
*10.3 Form of Securities Purchase Agreement
*10.4 Form of Registration Rights Agreement
*23.1 Consent of Cooper, Shuffield & Company
*23.3 Consent of Sam Sexton III (included in Exhibit 5.1)
*24 Power of Attorney (see signature pages of Registration Statement)]
- ----------
* Filed herewith.
-23-
SAM SEXTON III, ESQ.
March 10, 1997
Consolidated Eco-Systems, Inc.
4294 Lakeland, Suite 200
Jackson, Mississippi 39208
Re: Registration Statement on Form S-3
Dear Sirs:
I have acted as counsel to Consolidated Eco-Systems, Inc., a Idaho
corporation (the "Company") in connection with the preparation of a Registration
Statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Act"), to register the offering by certain selling stockholders of
5,590,410 shares of Common Stock.
In this regard, I have reviewed the Certificate of Incorporation of the
Company, as amended, resolutions adopted by the Company's Board of Directors,
the Registration Statement and such other reports, documents, statutes and
decisions as I have deemed relevant in rendering this opinion. Based upon the
foregoing, I am of the opinion that:
Each share of Common Stock included in the Registration Statement has been,
or will be when issued as contemplated by the Convertible Equity Debentures
(including payment as provided for therein), duly and validly authorized for
issuance, fully paid and non-assessable.
I hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving this opinion, I do not hereby admit that I am
acting within the category of persons whose consent is required under Section 7
of the Act of the rules and regulations of the SEC thereunder.
Very truly yours,
/s/ Sam Sexton III
Sam Sexton III, Esq.
KSR/lmf
PROMISSORY NOTE
Austin, Texas November 26, 1996
FOR VALUE RECEIVED, the undersigned, EXSORBET INDUSTRIES, INC., an Idaho
corporation, ("Maker") promises to pay to the order of AMERICAN PHYSICIANS
SERVICE GROUP, INC., a Texas corporation ("Payee"), at 1301 Capital of Texas
Hwy., Suite C-300, Austin, Texas, 78746 ("Payee's Address"), the principal
amount of Three Million Three Hundred Thousand and 00/100 Dollars
($3,300,000.00) (the "Principal Amount"), or such less amount as may be
outstanding from time to time, together with interest on the unpaid balance of
such amount as provided herein, in lawful money of the United States of America,
in accordance with all the terms, conditions, and covenants of this Note and the
Transaction Documents identified below.
1. Payment. The principal balance of this Note and all accrued and unpaid
interest is payable on or before October 1, 1997 (the "Maturity Date").
2. Transaction Documents and Collateral. This Note is executed and
delivered by Maker pursuant to the terms of the Stock Put Agreement dated
September 30, 1996, executed by and between among Maker and Payee (the "Stock
Put Agreement"), and this Note evidences Maker's indebtedness owing by Maker to
Payee under the terms of such Stock Put Agreement. This Note is secured by,
inter alia, the following: the Assignment and Security Agreement dated September
30, 1996, executed by Maker as debtor and Payee as Secured Party (the
"Assignment"). This Note, the Stock Put Agreement, the Assignment, and all other
documents evidencing, securing, governing, guaranteeing, and/or pertaining to
this Note, including but not limited to those documents described above, are
sometimes collectively referred to as the "Transaction Documents". Payee and any
subsequent owner or holder of this Note is entitled to the benefits and security
provided in the Transaction Documents.
3. Interest Provisions.
(a) Rate. The principal balance of this Note from time to time
remaining unpaid prior to maturity shall bear interest at a fixed rate per annum
equal to fifteen and 75/100 percent (15.75%) (the "Note Rate"), but never
greater than the "Maximum Lawful Rate", as that term is defined in this Note.
(b) Maximum Lawful Interest. The term "Maximum Lawful Rate" means the
maximum rate of interest, and the term "Maximum Lawful Amount" means the maximum
amount of interest that are permissible under applicable state or federal law
for the type of loan evidenced by this Note and the other Transaction Documents.
If Article 1.04 of the Texas Credit Code is applicable to this Note, and
applicable state or federal law does not permit a higher interest rate, the
"Indicated (Weekly) Ceiling" (as defined as Article 1.04(a)(1) of the Texas
Credit Code) shall be the Interest Rate Ceiling applicable to this Note and
shall be the basis for determining the Maximum Lawful Rate in effect from time
to time during the term of this Note, unless a different Interest Rate Ceiling
is designated on the first page of this Note. If applicable state or federal law
allows a higher interest rate or federal law preempts the state law limiting the
rate of interest, then the foregoing Interest Rate Ceiling shall not be
applicable to this Note. If the Maximum Lawful Rate is increased by statute or
other governmental action subsequent to the date of this Note, then the new
Maximum Lawful Rate shall be applicable to this Note from the effective date
thereof, unless otherwise prohibited by applicable law.
EXHIBIT "A"
PROMISSORY NOTE Page 1 of 5 Exsorbet Industries, Inc.
<PAGE>
(c) Spreading of Interest. Because of the possibility of irregular
periodic balances of principal and premature payment, the total interest that
will accrue under this Note cannot be determined in advance. Payee does not
intend to contract for, charge, or receive more than the Maximum Lawful Rate or
Maximum Lawful Amount permitted by applicable state or federal law, and to
prevent such an occurrence Payee and Maker agree that all amounts of interest,
whenever contracted for, charged, or received by Payee, with respect to the loan
of money evidenced by this Note, shall be spread, prorated, or allocated over
the full period of time this Note is unpaid, including the period of any renewal
or extension of this Note. If demand for payment of this Note is made by Payee
prior to the full stated term, the total amount of interest contracted for,
charged, or received to the time of such demand shall be spread, prorated, or
allocated along with any interest thereafter accruing over the full period of
time that this Note thereafter remains unpaid for the purpose of determining if
such interest exceeds the Maximum Lawful Amount.
(d) Excess Interest. At maturity (whether by acceleration or
otherwise) or on earlier final payment of this Note, Payee shall compute the
total amount of interest that has been contracted for, charged, or received by
Payee or payable by Maker under this Note and compare such amount to the Maximum
Lawful Amount that could have been contracted for, charged, or received by
Payee. If such computation reflects that the total amount of interest that has
been contracted for, charged, or received by Payee or payable by Maker exceeds
the Maximum Lawful Amount, then Payee shall apply such excess to the reduction
of the principal balance and not to the payment of interest; or if such excess
interest exceeds the unpaid principal balance, such excess shall be refunded to
Maker. This provision concerning the crediting or refund or excess interest
shall control and take precedence over all other agreements between Maker and
Payee so that under no circumstances shall the total interest contracted for,
charged, or received by Payee exceed the Maximum Lawful Amount.
(e) Interest After Default. At Payee's option, the unpaid principal
balance shall bear interest after maturity (whether by acceleration or
otherwise) at the "Default Interest Rate." The Default Interest Rate shall be,
at Payee's option, (i) the Maximum Lawful Rate, if such Maximum Lawful Rate is
established by applicable law; or (ii) the Note Rate plus five (5) percentage
points, if no Maximum Lawful Rate is established by applicable law; or (iii)
eighteen percent (18%) per annum; or (iv) such lesser rate of interest as Payee
in its sole discretion may choose to charge; but never more than the Maximum
Lawful Rate or at a rate that would cause the total interest contracted for,
charged, or received by Payee to exceed the Maximum Lawful Amount.
(f) Daily Computation of Interest. To the extent permitted by
applicable law, Payee at its option may either (i) calculate the per diem
interest rate or amount based on the actual number of days in the year (365 or
366, as the case may be), and charge that per diem interest rate or amount each
day, or (ii) calculate the per diem interest rate or amount as if each year has
only 360 days, and charge that per diem interest rate or amount each day for the
actual number of days of the year (365 or 366 as the case may be). If this Note
calls for monthly payments, Payee at its option may determine the payment amount
based on the assumption that each year has only 360 days and each month has 30
days. In no event shall Payee compute the interest in a manner that would cause
Payee to contract for, charge, or receive interest that would exceed the Maximum
Lawful Rate or the Maximum Lawful Amount.
EXHIBIT "A"
PROMISSORY NOTE Page 2 of 5 Exsorbet Industries, Inc.
<PAGE>
4. Default Provisions.
(a) Events of Default and Acceleration of Maturity. Maker agrees that
an event of default shall exist under this Note and the other Transaction
Documents if: (i) Maker defaults in the payment of any installment of principal,
interest, or any other sum required to be paid under the terms of this Note or
any of the Transaction Documents; or (ii) there is a default in the performance
of any covenant, condition, or agreement contained in this Note or any of the
Transaction Documents, or an event of default or default otherwise occurs or
exists under any of the other Transaction Documents; or (iii) the bankruptcy or
insolvency of, the assignment for the benefit of creditors by, or the
appointment of a receiver for any of the property of, or the liquidation,
termination, dissolution or death or legal incapacity of, any party liable for
the payment of this Note, whether as maker, endorser, guarantor, surety or
otherwise. Maker agrees that if an event of default occurs, Payee may, without
notice or demand, except as otherwise required by statute or otherwise
specifically provided in this Note or any of the other Transaction Documents,
accelerate the maturity of this Note and declare the entire unpaid principal
balance and all accrued interest at once due and payable, foreclose all liens
and security interests securing this Note, and exercise all other rights and
remedies Payee may have under this Note and the other Transaction Documents,
including any one or more of the foregoing remedies.
(b) WAIVER BY MAKER. MAKER AND ALL OTHER PARTIES LIABLE FOR THIS NOTE
WAIVE DEMAND, NOTICE OF INTENT TO DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF
NONPAYMENT, PROTEST, NOTICE OF PROTEST, GRACE, NOTICE OF DISHONOR, NOTICE OF
INTENT TO ACCELERATE MATURITY, NOTICE OF ACCELERATION OF MATURITY, AND DILIGENCE
IN COLLECTION. EACH MAKER, SURETY, ENDORSER, AND GUARANTOR OF THIS NOTE WAIVES
AND AGREES TO ONE OR MORE EXTENSIONS FOR ANY PERIOD OR PERIODS OF TIME, AND ANY
PARTIAL PAYMENTS, BEFORE OR AFTER MATURITY, WITHOUT PREJUDICE TO THE HOLDER OF
THIS NOTE. EACH MAKER, SURETY, ENDORSER, AND GUARANTOR WAIVES NOTICE OF ANY AND
ALL RENEWALS, EXTENSIONS, REARRANGEMENTS, AND MODIFICATIONS OF THIS NOTE.
(c) Non-Waiver by Payee. Any previous extension of time, forbearance,
failure to pursue some remedy, acceptance of late payments, or acceptance of
partial payment by Payee, before or after maturity, does not constitute a waiver
by Payee of its subsequent right to strictly enforce the collection of this Note
according to its terms.
(d) Remedies. Payee shall not be required to first file suit, exhaust
all remedies, or enforce its rights against any security in order to enforce
payment of this Note. The rights, remedies, and recourses of Payee, as provided
in this Note and in any of the other Transaction Documents, shall be cumulative
and concurrent and may be pursued separately, successively or together as often
as occasion therefore shall arise, at the sole discretion of Payee.
(e) Joint and Several Liability. Each Maker who signs this Note, and
all of the other parties liable for the payment of this Note, such as
guarantors, endorsers, and sureties, are jointly and severally liable for the
payment of this Note.
(f) Attorney's Fees. If Payee requires the services of an attorney to
enforce the payment of this Note or the performance of the other Transaction
Documents, or if this Note is collected through any lawsuit, probate,
bankruptcy, or other judicial proceeding, Maker agrees to pay Payee an amount
equal to its reasonable attorney's fees and other collection costs. This
provision shall be limited by any applicable statutory restrictions relating to
the collection of attorney's fees.
EXHIBIT "A"
PROMISSORY NOTE Page 3 of 5 Exsorbet Industries, Inc.
<PAGE>
5. Miscellaneous Provisions.
(a) Subsequent Holder. All references to Payee in this Note shall also
refer to any subsequent owner or holder of this Note by transfer, assignment,
endorsement, or otherwise.
(b) Transfer. Maker acknowledges and agrees that Payee may transfer
this Note or partial interests in the Note to one or more transferees or
participants. Maker authorizes Payee to disseminate any information it has
pertaining to the indebtedness evidenced by this Note, including, without
limitation, credit information on Maker and any guarantor of this Note, to any
such transferee or participant or prospective transferee or participant.
(c) Other Parties Liable. All promises, waivers, agreements, and
conditions applicable to Maker shall likewise be applicable to and binding upon
any other parties primarily or secondarily liable for the payment of this Note,
including all guarantors, endorsers, and sureties.
(d) Payment in U.S. Dollars. All payments and prepayments of principal
of or interest on this Note shall be made in lawful money of the United States
of America in immediately available funds, at the address of Bank indicated
above, or such other place as the holder of this Note shall designate in writing
to Maker. The books and records of Bank shall be prima facie evidence of all
outstanding principal of and accrued and unpaid interest on this Note.
(e) Payment on Business Days. The term "Business Day" shall mean any
day other than a Saturday, Sunday or any other day on which national banking
associations are authorized to be closed. If any payment of principal of or
interest on this Note shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and any such
extension of time shall be included in computing interest in connection with
such payment.
(d) Successors and Assigns. The provisions of this Note shall be
binding upon and for the benefit of the successors, assigns, heirs, executors,
and administrators of Payee and Maker.
(e) No Duty or Special Relationship. Maker acknowledges that Payee has
no duty of good faith to Maker, and Maker acknowledges that no fiduciary, trust,
or other special relationship exists between Payee and Maker. If Payee and Maker
are now engaged in or in the future engage in other business transactions, such
other business transactions are independent of this Note and the indebtedness
evidenced hereby and of the promises and covenants made by Maker in this Note,
and vice versa.
(f) Modifications. Any modifications agreed to by Payee relating to
the release of liability of any of the parties primarily or secondarily liable
for the payment of this Note, or relating to the release, substitution, or
subordination of all or part of the security for this Note, shall in no way
constitute a release of liability with respect to the other parties or security
not covered by such modification.
(g) Entire Agreement. Maker warrants and represents that the
Transaction Documents constitute the entire agreement between Maker and Payee
with respect to the indebtedness evidenced by this Note and agrees that no
modification, amendment, or additional
EXHIBIT "A"
PROMISSORY NOTE Page 4 of 5 Exsorbet Industries, Inc.
<PAGE>
agreement with respect to such indebtedness will be valid and enforceable unless
made in writing signed by both Maker and Payee.
(h) Maker's Address for Notice. All notices required to be sent by
Payee to Maker shall be sent by U.S. Mail, postage prepaid, to Maker's Address
stated next to Maker's signature below, until Payee shall receive written
notification from Maker of a new address for notice.
(i) Payee's Address for Payment. All sums payable by Maker to Payee
shall be paid at Payee's Address stated on the first page of this Note, or at
such other address as Payee shall designate from time to time.
(j) Chapter 15 Not Applicable. It is understood that Chapter 15 of the
Texas Credit Code relating to certain revolving credit loan accounts and
tri-party accounts is not applicable to this Note.
(k) APPLICABLE LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH
THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF
AMERICA APPLICABLE TO TRANSACTIONS IN TEXAS.
EXECUTED this 26th day of November, 1996.
MAKER:
Exsorbet Industries, Inc.
(an Idaho corporation)
By: /s/ Ed Schrader
---------------------
Name: Ed Schrader
Title: President
EXHIBIT "A"
PROMISSORY NOTE Page 5 of 5 Exsorbet Industries, Inc.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY
STATE; AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED
OF EXCEPT IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM, THE REQUIREMENTS
OF SUCH ACT OR SUCH LAWS.
CONVERTIBLE EQUITY DEBENTURE
Due December 20, 1998
December 20, 1996 $750,000.00
No. ________
Exsorbet Industries, Inc., an Idaho corporation (hereinafter called the
"Company"), for value received, hereby promises to deliver to the Holder (as
defined below) on December 20, 1998 common stock of the Company in the principal
amount of $750,000.00 and additional common stock of the Company equal to
interest on the principal sum at the rate of 8% per annum (the "Debenture
Interest Rate"), subject to Section 6.3 hereto, computed on the basis of the
actual number of days elapsed in a 365-day year. Accrual of interest shall
commence on the date hereof until payment in full of the principal sum and all
interest accrued thereon has been made or duly provided for.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
this Debenture shall have the respective meanings hereinafter specified.
(a) "Additional Capital Shares" shall have the meaning set forth in
Section 3. l(c).
(b) "Business Day" shall mean a day other than Saturday, Sunday or any
day on which banks located in the state of New York are authorized or obligated
to close.
(c) "Capital Shares" shall mean the Common Shares and any other shares
of any other class of common stock, whether now or hereafter authorized, that
have the right to participate in the distribution of earnings and assets of the
Company.
(d) "Closing Date" shall mean December 20, 1996.
<PAGE>
(e) "Common Shares" or Common Stock shall mean shares of the common
stock, par value $.001, of the Company.
(f) "Common Stock of the Company Issued at Conversion" when used with
reference to the securities issuable upon conversion of this Debenture, shall
mean all Common Shares now or hereafter Outstanding and securities of any other
class into which the Debenture shall hereafter have been changed, whether now or
hereafter created.
(g) "Company" shall mean Exsorbet Industries, Inc., an Idaho
corporation, and any successor corporation by merger, consolidation, sale or
exchange of all or substantially all of the Company's assets, or otherwise.
(h) "Conversion Date" shall mean any day on which all or some part of
the principal amount of this Debenture is converted into Common Stock of the
Company Issued at Conversion in accordance with the terms of this Debenture,
provided that a Conversion Date must be a Business Day.
(i) "Conversion Notice" shall have the meaning set forth in Section
3.2.
(j) "Conversion Price" shall have the meaning set forth in Section 3.
1.
(k) "Conversion Ratio" shall have the meaning set forth in Section
3.1.
(l) "Current Market Price" per Common Share on any date herein
specified shall be deemed to be the last trade price on such day on the National
Association of Securities Dealers Automated Quotations Small Capitalization
system ("NASDAQ").
(m) "Debenture" shall mean this Convertible Debenture or such other
Convertible Debenture or Debentures exchanged therefor as provided in Section
2.1.
(n) "Default Interest Rate" shall be equal to the Debenture Interest
Rate plus 6% per annum.
(o) "Event of Default" shall have the meaning set forth in Section
6.1.
(p) "Holder" shall mean Julius Baer Securities, Inc., acting in its
capacity as agent for certain non-U.S. persons or any person to which this
Debenture is subsequently transferred in accordance with the terms provided
herein.
(q) "Market Disruption Event" shall mean any event that results in a
material suspension or limitation of trading of Common Shares on the NASDAQ (or,
if the
<PAGE>
Common Shares are not listed for trading on the NASDAQ, the principal trading
market for the Common Shares as determined by the Holder in its reasonable
discretion).
(r) "Maximum Rate" shall have the meaning set forth in Section 6.3.
(s) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), shall mean, at any date as of which the number
of such Shares is to be determined, all issued and outstanding Shares, and shall
include all such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not mean any such Shares then directly or
indirectly owned or held by or for the account of the Company or any Subsidiary.
(t) "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
(u) "Purchase Agreement " means the Securities Purchase Agreement,
dated December 20, 1996, between the Company and Julius Baer Securities, Inc.
acting its capacity as agent for certain non-U.S. persons.
(v) "Redemption Price" shall have the meaning set forth in Section
2.4.
(w) "Registration Rights Agreement" shall have the meaning set forth
in Section 6(b) of the Purchase Agreement.
(x) "SEC" shall mean the United States Securities and Exchange
Commission.
(y) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(z) "Subsidiary" shall mean any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Company.
(aa) "Trading Day" shall mean any day on which trades of securities
listed thereon are reported by the NASDAQ (or, if the Common Shares are not
listed for trading on the NASDAQ, the principal trading market for the Common
Shares) and on which no Market Disruption Event has occurred.
(bb) "Valuation Event" shall have the meaning set forth in Section
3.1.
<PAGE>
(cc) "Valuation Period" shall have the meaning set forth in Section
3.1. All references to "cash" or "$" herein shall mean currency of the United
States of America.
ARTICLE 2
EXCHANGES AND TRANSFER; REDEMPTION
SECTION 2.1 Exchange and Registration of Transfer of Debentures. The Holder
may, at its option, surrender this Debenture at the office of the Company and
receive in exchange therefor a Debenture or Debentures, each in the denomination
of $10,000.00 or an integral multiple of $10,000.00 in excess thereof, dated as
of the date of this Debenture, and, subject to Section 4.1, payable to such
Person, or order, as may be designated by such Holder. The aggregate principal
amount of such Debenture or Debentures exchanged in accordance with this Section
2.1 shall equal the aggregate unpaid principal amount of this Debenture as of
the date of such surrender; provided, however, that upon such exchange there
shall be filed with the Company the name and address for all purposes hereof of
the Holder or Holders of the Debenture or Debentures delivered in such exchange.
This Debenture, when presented for registration of transfer or for exchange or
conversion, shall (if so required by the Company) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Company duly executed by, the Holder duly authorized in writing.
SECTION 2.2 Loss. Theft. Destruction of Debenture. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Debenture and, in the case of any such loss, theft or destruction, upon
receipt of indemnity or security reasonably satisfactory to the Company, or, in
the case of any such mutilation, upon surrender and cancellation of this
Debenture, the Company will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Debenture, a new Debenture of like tenor and unpaid
principal amount dated as of the date hereof. This Debenture shall be held and
owned upon the express condition that the provisions of this Section 2.2 are
exclusive with respect to the replacement of a mutilated, destroyed, lost or
stolen Debenture and shall preclude any and all other rights and remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement of negotiable instruments or other securities
without their surrender.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the person in
whose name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be overdue) for the purpose of receiving
payment of or on account of the principal of this Debenture, for the conversion
of this Debenture and for all other purposes, and the Company shall not be
affected by any notice to the contrary. All such payments and such conversion
shall be valid and effectual to satisfy and discharge the liability upon this
Debenture to the extent of the sum or sums so paid or the conversion so made.
<PAGE>
SECTION 2.4 Optional Redemption by the Company. The Company may, at its
election, upon notice given as provided in Section 2.5, redeem this Debenture in
whole or in part at any time and from time to time at any time, but only with
respect to that portion of this Debenture for which the Company has not been
provided with notice of conversion. The price to redeem the Debenture shall be
equal to the following amount: 110% of the total sum that the Holder would have
received had the amount being redeemed been converted into common stock on the
day of redemption and sold at such time.
SECTION 2.5 Notice of Redemptions: Right to Convert in Lieu of Accepting
Redemptions. In the case of redemption of this Debenture, notice thereof shall
be given in writing to the Holder not fewer than 5 nor more than 10 days prior
to the date fixed for such redemption, which notice shall specify the date fixed
for such redemption and make reference to this Section 2.5 pursuant to which
such redemption is to be made. Such notice of redemption and all other notices
to be given to the Holder shall be given by registered mail or overnight courier
at its designated address.
SECTION 2.6 Surrender of Debentures: Notation Thereon. Upon any redemption
of a portion of the principal amount of this Debenture pursuant to this Article
2, the Holder at its option may require the Company to make and deliver, at the
expense of the Company (other than for transfer taxes, if any), upon surrender
of this Debenture, a new Debenture payable to such person or persons, or order,
as may be designated by the Holder for the principal amount of this Debenture
then remaining unredeemed, dated as of the date to which interest has been paid
on the unredeemed principal amount of this Debenture (or, if no interest has
been paid hereon, then dated as of the date of this Debenture), or may present
this Debenture to the Company for notation hereon of the payment of the portion
of the principal amount so redeemed. The Company may, as a condition of payment
of all or any of the principal of or interest on this Debenture, require the
Holder to present this Debenture for notation of such payment and, if this
Debenture be paid in full, require the surrender hereof.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price. At the option of the Holder, at
any time from the sixty-first (61st) day following the date of issuance of this
Debenture until this Debenture is paid in full, this Debenture may be converted,
either in whole or in part up to the principal amount hereof (or in case some
portion of this Debenture shall have been called for redemption or converted
prior to such date, then at the portion that is not so called or converted,
together with interest accrued thereon to the relevant Conversion Date, into
Common Stock of the Company (calculated as to each conversion to the nearest
1/lOOth of a share), at the conversion price the ("Conversion Price") equal to
eighty percent (80%) (the "Conversion Ratio") of the average closing bid price
on the five Trading Days immediately preceding the
<PAGE>
relevant Conversion Date (the "Valuation Period") but in no event shall such
amount be in excess of 120% of the average closing bid price of the Company's
Common Stock on the five Trading Days immediately prior to Closing Date of this
Debenture; and provided, however, that if a Valuation Event occurs during any
Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the
Conversion Date; and provided, further, however, that if a Valuation Event
occurs on the fifth day of a Valuation Period then the Conversion Price shall be
the closing price on such day; and provided, further, however, that the Holder
may, in its sole discretion, postpone such Conversion Date to a Trading Day
which is no more than five Trading Days after the occurrence of the latest
Valuation Event. In the event that the Holder deems the Valuation Period to be
other than the five Trading Days immediately prior to the Conversion Date, the
Holder shall give written notice to the Company at the time of Conversion.
For the purposes of this Section 3.1, a "Valuation Event" shall mean an event in
which the Company at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Common Shares;
(b) pays a dividend in its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 3.l(a) and 3.l(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuance, or without
consideration;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect at the hereunder immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for Capital
Shares and the consideration per share for which Additional Capital Shares may
at any time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Current Market Price in effect
immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the
<PAGE>
foregoing Sections 3.l(a) through 3.l(e)), provided, in each case, that such
distribution described in this Section 3.l(f) does not constitute an Event of
Default hereunder; or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 3.l(a)
through 3.l(f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a materially adverse effect upon
the rights of the Holder at the time of a conversion of this Debenture.
Notwithstanding anything to the contrary contained herein, in no event
shall the Holder be entitled to convert this Debenture into any Common Stock
when the result of such conversion would entitle the Holder to receive that
number of shares of the Company's Common Stock of which the sum of (xx) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock that may be deemed beneficially
owned through the ownership of the unconverted portion of this Debenture) and
(yy) the number of shares of Common Stock issuable upon conversion of this
Debenture, would result in beneficial ownership by the Holder and its affiliates
of more than 4.9% of the outstanding shares of Common Stock. For the purposes of
this provision, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (xx) of this
provision.
SECTION 3.2 Exercise of Conversion Privilege. In order to exercise the
conversion privilege, either in whole or in part, the Holder shall surrender
this Debenture to the Company during usual business hours at its principal
office and shall give written notice to the Company in the form attached hereto
in Annex I (the "Conversion Notice") at said office that the Holder elects to
convert this Debenture. The Company shall convert the Debenture and issue the
Common Stock Issued at Conversion effective as of the time requested by the
Holder in the Conversion Notice so long as such time is after the date on which
the Conversion Notice is given. The Conversion Notice shall also state the name
or names (with address) of the persons who are to become the holders of the
Common Stock issued at conversion in connection with such conversion. Upon
surrender for conversion, this Debenture shall be accompanied by a proper
assignment hereof to the Company or in blank. As promptly as practicable after
the receipt of such Conversion Notice and the surrender of this Debenture as
aforesaid, but in any event no more than three (3) Business Days after the
Company's receipt of such Conversion Notice and surrender of this Debenture, the
Company shall (i) issue the Common Stock issuable upon such conversion in
accordance with the provisions of this Article 3, and (ii) deliver by overnight
courier to the Holder (X) a certificate or certificate(s) representing the
number of shares of Common Stock to which the Holder is entitled by virtue of
such conversion, and (Y) cash, as provided in Section 3.4, in respect of any
fraction of a share issuable upon such conversion. Such conversion shall be
deemed to have been effected at the time at which the Conversion Notice
indicates so long as this Debenture shall have been
<PAGE>
surrendered as aforesaid at such time, and at such time the rights of the Holder
as holder of this Debenture shall cease and the person and persons in whose name
or names the Common Stock issued at conversion shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
Common Stock represented thereby. The Conversion Notice shall constitute a
contract between the Holder and the Company, whereby the Holder shall be deemed
to subscribe for the number of shares of Common Stock that it will be entitled
to receive upon such conversion and, in payment and satisfaction of such
subscription (and for any cash adjustment to which it is entitled pursuant to
Section 3.3), to surrender this Debenture and to release the Company from all
liability thereon. No cash payment of less than $1.50 shall be required to be
given unless specifically requested by the Holder.
SECTION 3.3 Automatic Conversion. At the Maturity Date, the remaining
portion of the principal that remains unredeemed and unconverted, if any, plus
accrued interest shall be automatically converted into shares of Common Stock of
the Company as if the Holder had converted such remaining amount by notice
pursuant to Section 3.2.
SECTION 3.4 Fractional Shares. No fractional share of Common Stock of the
Company or scrip representing fractional Common Stock shall be issued upon
conversion of this Debenture. Instead of any fractional Common Stock which would
otherwise be issuable upon conversion of this Debenture, the Company shall pay a
cash adjustment in respect of such fraction in an amount equal to the same
fraction. No cash payment of less than $1.50 shall be required to be given
unless specifically requested by the Holder.
SECTION 3.5 Reclassification; Consolidation; Merger or Mandatory Share
Exchange. At any time while this Debenture remains outstanding and unexpired, in
case of any reclassification or change of Common Shares issuable upon conversion
of this Debenture (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
this Debenture) or in case of any consolidation, merger or mandatory share
exchange of the Company with or into another corporation (other than a merger or
mandatory share exchange with another corporation in which the Company is a
continuing corporation and that does not result in any reclassification or
change, other than a change in par value, or from par value to no par value per
share, or from no par value per share to par value, or as a result of a
subdivision or combination of Outstanding Common Shares upon conversion of this
Debenture), or in the case of any sale or transfer to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
Company, or such successor or purchasing corporation, as the case may be, shall,
without payment of any additional consideration therefore, execute a new
Debenture providing that the Holder shall have the right to convert such new
Debenture (upon terms and conditions not less favorable to the Holder than those
then applicable to this Debenture) and to receive upon such exercise, in lieu of
each Common Share theretofore issuable upon conversion of this Debenture, the
kind and amount of shares of stock, other securities, money or property
receivable upon such
<PAGE>
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one Common Share issuable upon conversion of this
Debenture had this Debenture been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 3.5 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
SECTION 3.6 Adjustments to Conversion Ratio. For so long as this Debenture
is outstanding, if the Company (i) issues and sells pursuant to an exemption
from registration under the Securities Act (A) Common Shares at a purchase price
representing a percentage of the Current Market Price of the Common Shares on
the date of issuance thereof that is lower than 80%, (B) warrants or options
with a strike price representing a percentage of the Current Market Price of the
Common Shares on the date of issuance of the warrants or options that is lower
than 80%, except for employee stock option agreements or stock incentive
agreements, or (C) convertible or exchangeable securities with a right to
exchange at lower than 80% of the Current Market Price of the Common Shares on
the date of issuance or conversion, as applicable, of such convertible or
exchangeable securities, except for stock option agreements or stock incentive
agreements; and (ii) grants the right to the purchaser(s) thereof to demand that
the Company register under the Securities Act such Common Shares issued or the
Common Shares for which such warrants or options may be exercised or such
convertible or exchangeable securities may be converted or exchanged, then the
Conversion Ratio shall be reduced to equal the lowest of any such lower
percentages.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture is a direct, general and
unconditional obligation of the Company ranking pari passu with all other
unsecured indebtedness of the Company, and constitutes a valid and legally
binding obligation of the Company, enforceable in accordance with its terms
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or affecting creditors' rights
and to general principals of equity.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common Stock
of the Company issued according to the terms hereof, have not been and will not
be registered under the United States Securities Act. This Debenture and any
Common Stock of the Company issued upon conversion may not be offered or sold,
directly or indirectly, except pursuant to registration under the Act, an
available exemption therefrom, or pursuant to Regulation D.
ARTICLE 5
COVENANTS
<PAGE>
The Company covenants and agrees that so long as this Debenture shall be
outstanding:
SECTION 5.1 Conversion. The Company will punctually issue shares of Common
Stock at conversion, according to the terms hereof.
SECTION 5.2 Notice of Default. If any one or more events occur which
constitute or which, with the giving of notice or the lapse of time or both,
would constitute an Event of Default or if the Holder shall demand the issuance
of Common Stock or take any other action permitted upon the occurrence of any
such Event of Default, the Company will forthwith give notice to the Holder,
specifying the nature and status of the Event of Default or other event or of
such demand or action, as the case may be.
SECTION 5.3 Sufficient of Authorized Common Shares. (i) So long as the
Current Market Price of the Common Shares is greater than or equal to 90% of the
Current Market Price on the date hereof, the Company shall at all times have
authorized and reserved for issuance, free from preemptive rights, a sufficient
number of Common Shares to yield a number of shares sufficient to satisfy the
conversion rights of the Purchaser pursuant to the terms and conditions hereof;
and
(ii) at any time when the Current Market Price of the Common Shares is
less than 90% of such Current Market Price on the date hereof, the Company shall
continue to reserve the number of shares of Common Stock required by clause (i)
above and in addition shall use its best efforts (including, without limitation,
by authorizing increases in its capital) to have at all times authorized and
reserved for issuance, free from preemptive rights, a sufficient number of
Common Shares that will yield a number of shares of Common Stock Issued at
Conversion sufficient to satisfy the conversion rights of the Purchaser pursuant
to the terms and conditions hereof and required by the drop in the Current
Market Price of the Common Stock below 90% of such Current Market Price on the
date hereof.
SECTION 5.4 Insurance. The Company and each Subsidiary will carry and
maintain in full force and effect at all times with insurers the Company
reasonably believes to be financially sound and reputable such insurance in such
amounts as is customary in the respective industries of the Company and such
Subsidiaries.
SECTION 5.5 Payment of Obligations. Prior to conversion of the entire
principal amount, the Company will pay, extend, or discharge at or before
maturity, all its respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings and will maintain, in accordance with
generally accepted accounting principles, appropriate reserves for the accrual
of the same.
<PAGE>
SECTION 5.6 Compliance with Laws. The Company will comply in all material
respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.7 Inspection of Property. Books and Records. The Company will
keep proper books of record and account in which full, true and correct entries
shall be made of all dealings and transactions in relation to its business and
activities and will permit representatives of the Holder at the Holder's expense
to visit and inspect any of its respective properties, to examine and make
abstracts from any of its respective books and records and to discuss its
respective affairs, finances and accounts with its respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(a) default in the issuance of Common Stock due at conversion; or
(b) substantial failure in the performance or observance of Section
5.5 of this Debenture and the continuance of such default for a period of thirty
(30) calendar days; or
(c) default in the performance or observance of any covenant or
agreement of the Company in this Debenture (other than a covenant or agreement a
default in the performance of which is specifically provided for elsewhere in
this Section), and the continuance of such default for a period of thirty (30)
calendar days after there has been given to the Company by a Holder a written
notice specifying such default and requiring it to be remedied; or
(d) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under the Bankruptcy
Code or any other applicable Federal or state law, or appointing a receiver,
liquidator, assignee, trustee or 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 the continuance of any such decree or order
unstayed and in effect for a period of 30 calendar days; or
(e) the institution by the Company or any Subsidiary of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or
<PAGE>
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the Federal Bankruptcy Code or
any other applicable Federal or state law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of the Company or of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate action by the
Company in furtherance of any such action; or
(f) the Company shall fail to issue and deliver within 3 Business Days
of its receipt of the Debenture and the Conversion Notice in accordance with
Section 3.2; or
(g) unless extended, any principal of other indebtedness of the
Company or any Subsidiary, exceeding $300,000 is not repaid on its original
maturity date or becomes due and payable by reason of default before its
original maturity date; or
(h) the Company or any Subsidiary is unable to pay its debts as they
fall due, stops, suspends, or threatens in writing to stop or suspend payment of
all or any material part of its debts (other than debts contested in good faith
by appropriate proceedings), begins negotiations or takes any proceeding or
other step with a view to readjustment, rescheduling or deferral of all of its
indebtedness (or any material part thereof) that it will or might otherwise be
unable to pay when due or seeks the appointment of a statutory manager or
proposes in writing or makes a general assignment or an arrangement or
composition with or for the benefit of its creditors or any group or class
thereof or files a petition for suspension of payments or other relief of
debtors of for bankruptcy or is declared bankrupt or a moratorium or statutory
management is agreed or declared in respect of or affecting all or any material
part of the indebtedness of the Company or any of its wholly owned subsidiaries,
or (ii) the Company ceases or threatens in writing to cease to carry on all or
any material part of the business carried on by the Company and its Subsidiaries
taken as a whole and as a result of such cessation or threat of cessation, the
Company will not be able to perform or comply with its payment obligations under
this Debenture; or
(i) a final judgment or final judgments for the payment of money shall
have been entered by any court or courts of competent jurisdiction against the
Company and remains undischarged for a period (during which execution shall be
effectively stayed) of 30 days, provided that the aggregate amount of all such
judgments at any time outstanding (to the extent not paid or to be paid, as
evidenced by a written communication to that effect from the applicable insurer,
by insurance) exceeds $500,000; or
(j) it becomes unlawful for the Company to perform or comply with its
obligations under this Debenture or the Registration Rights Agreement.
<PAGE>
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default occurs and is continuing, then and in every such case any Holder may
rescind any Conversion Notice given to the Company and obtain payment in
immediately available funds for the entire outstanding principal amount of the
Debenture that remains unconverted and unredeemed and all interest accrued
thereon, by a notice in writing to the Company, and upon any such declaration
the principal amount of this Debenture shall become immediately due and payable
by virtue of such rescission.
SECTION 6.3 Default Interest Rate. (a) If any portion of the principal of
or interest on the Debenture shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise) such principal of and interest on the
Debenture that is due and owing but not paid shall, without limiting the
Holder's rights under this Debenture or under the Purchase Agreement, bear
interest at the Default Interest Rate until paid in full.
(b) Notwithstanding anything herein or in the Purchase Agreement to
the contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged, taken
or received by the Lender in accordance with applicable laws of the State of New
York (the "Maximum Rate"), the rate of interest applicable to the Debenture
shall be limited to the Maximum Rate.
SECTION 6.4 Remedies Not Waived. No course of dealing between the Company
and the Holder or any delay in exercising any rights hereunder shall operate as
a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Register. (a) The Company shall keep at its principal office a
register in which the Company shall provide for the registration of this
Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and
4 hereof, the Company shall register such transfer on the Debenture register.
(b) The Company may deem the person in whose name this Debenture shall be
registered upon the registry books of the Company to be, and may treat it as,
the absolute owner of this Debenture (whether or not this Debenture shall be
overdue) for the purpose of receiving payment of interest on or principal of
this Debenture, for the conversion of this Debenture and for all other purposes,
and the Company shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon this Debenture to the extent of the sum or sums so
paid or the conversion or conversions so made.
<PAGE>
SECTION 7.2 Withholding. To the extent required by applicable law, the
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Company from any payments made pursuant to this Debenture.
SECTION 7.3 Governing Law. THIS DEBENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT TO ANY SUIT, ACTION OR
PROCEEDINGS RELATING TO THIS DEBENTURE, THE COMPANY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK AND HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. SUBJECT TO APPLICABLE LAW, THE COMPANY AGREES THAT FINAL
JUDGMENT AGAINST IT IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS DEBENTURE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION WITHIN OR OUTSIDE THE UNITED STATES BY SUIT ON THE JUDGMENT, A
CERTIFIED COPY OF WHICH JUDGMENT SHALL BE CONCLUSIVE EVIDENCE THEREOF AND THE
AMOUNT OF ITS INDEBTEDNESS, OR BY SUCH OTHER MEANS PROVIDED BY LAW.
SECTION 7.4 Headings. The headings of the Articles and Sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Debenture.
EXSORBET INDUSTRIES, INC.
By:_________________________________
Name: Edward L. Schrader
Title: President
Attest
By: ____________________________
Name: Sam Sexton III
Tiitle: Secretary
<PAGE>
HOLDER
By: _________________________________
Name: ______________________________
Title: _______________________________
<PAGE>
ANNEX I TO THE DEBENTURE
[FORM OF CONVERSION NOTICE]
TO _____________________:
The undersigned owner of the Debenture, dated December __, 1996, issued by
Exsorbet Industries, Inc. (the "Debenture") hereby irrevocably exercises the
option to convert $______________ of the principal amount of the Debenture [and
accrued and unpaid interest thereon] into Common Shares, par value $.001, of
Exsorbet Industries, Inc., in accordance with the terms of the Debenture. This
conversion of such amount of the Debenture into Common Shares is being exercised
in conjunction with a request for registration of such Debenture pursuant to the
Registration Rights Agreement, dated December __, 1996, between Exsorbet
Industries, Inc. and _______________, acting its in capacity as agent for
certain non-U.S. persons (the "Registration Rights Agreement") and pursuant to
Section 3.2 of the Debenture instructs the Company to convert the portion of the
Debenture specified above into Shares of Common Stock Issued at Conversion
[immediately prior to the filing of the Registration Statement (as defined in
the Registration Rights Agreement)] [other date after effectiveness of
Registration Statement]. The undersigned directs that the Common Shares issuable
and certificates therefor (to the extent that certificates evidencing Common
Shares are then being issued by Exsorbet Industries, Inc.) deliverable upon the
conversion, together with any check in payment for fractional Common Shares, be
issued in the name of and delivered, if appropriate, to the undersigned unless a
different name has been indicated below.
Dated: _______________________ ______________________________
Signature
Fill in for registration of Debenture:
Please print name and address
(including zip code number): _________________________________________________
_________________________________________________
_________________________________________________
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement"), dated as of December
______, 1996, is entered into by and between __________________ acting in its
capacity as agent for certain non-U.S. Persons ("Purchaser") and Exsorbet
Industries, Inc., an Idaho corporation (the "Company"). This is the Agreement
referred to as the Purchase Agreement in the Registration Rights Agreement (as
defined in Section 6(b) hereof).
The parties hereto agree as follows:
1. Purchase and Sale of Convertible Debenture. Upon the basis of the
representations and warranties, and subject to the terms and conditions, set
forth in this Agreement, the Company covenants and agrees to sell to the
Purchaser on the Closing Date, at a purchase price of $______________ (the
"Purchase Price"), a Convertible Debenture in registered form in a principal
amount of $__________________ and substantially in the form of Exhibit A hereto
(the "Debenture"), such Debenture convertible into a number of Common Stock of
the Company Issued at Conversion determined pursuant to Article 3 of the
Debenture, according to the terms and conditions set forth in the Debenture and
upon the basis of the representations and warranties, and subject to the terms
and conditions set forth in this Agreement, the Purchaser covenants and agrees
to purchase from the Company on the Closing Date the Debenture at the Purchase
Price. All capitalized terms not otherwise defined herein shall have the
meanings attributed to them in the Debenture.
2. Closing. The closing of the purchase and sale of the Debenture pursuant
to Section 1 hereof shall take place on December _____, 1996 at the offices of
Morse, Zelnick, Rose & Lander LLP located at 450 Park Avenue, Suite 902, New
York, New York 10022 or at such other date, time and place as the Purchaser and
the Company may agree upon in writing (such time and date for the closing, the
"Closing Date"). The duly executed Debenture to be purchased by the Purchaser
shall be delivered by, or on behalf of, the Company at the closing against
payment of the Purchase Price therefor in immediately available funds by, or on
behalf of, the Purchaser to the attorney trust account of Morse, Zelnick, Rose &
Lander, LLP, (the "Escrow Agent") (Chase Manhattan Bank, Account No. 967086639,
ABA Routing Number 021000021). The Escrow Agent shall receive from the Purchaser
and the Company written instructions of the Purchaser and the Company in
substantially the form of Exhibit A hereto (the Closing Instructions),
instructing the Escrow Agent with respect the closing and settlement procedures.
Commencing on the second Business Day after delivery to the Escrow Agent of the
Purchase Price, the Purchaser, if the Company is not ready, willing and able to
consummate the transaction in accordance with the terms of the Closing
Instructions, may terminate the proposed transaction by notice to the Company
and the Escrow Agent, whereupon
<PAGE>
the Escrow Agent shall redeliver the Purchase Price to the Purchaser as soon as
practicable in accordance with the written instructions of the Purchaser.
3. Representations. Warranties and Covenants of the Purchaser. The
Purchaser understands, and represents and warrants to, and agrees with, the
Company, that:
(a) The Debenture and the Common Stock of the Company Issued at
Conversion have not been and, unless registered under the Securities Act of
1933, as amended (the "Securities Act"), in accordance with the Registration
Rights Agreement (as defined in Section 6(b)), will not be registered under the
Securities Act, or any other applicable securities law, and, accordingly, may
not be offered, sold, transferred, pledged, hypothecated or otherwise disposed
of ("Transferred") unless registered under the Securities Act or Transferred in
a transaction exempt from registration under the Securities Act and any other
applicable securities law;
(b) The Purchaser is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act (an "Accredited Investor"), and is
acquiring or will acquire the Debenture and the Common Stock of the Company
Issued at Conversion for its own account. The Purchaser has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Debenture and the Common Stock of
the Company Issued at Conversion. The Purchaser is aware that it may be required
to bear the economic risk of an investment in the Debenture for an indefinite
period, and it is able to bear such risk for an indefinite period;
(c) The Purchaser is acquiring or will acquire the Debenture and the
Common Stock of the Company Issued at Conversion for its own account for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution thereof. The Purchaser agrees to offer, sell or otherwise
transfer the Debenture and the Common Stock of the Company Issued at Conversion
only (i) in accordance with the terms of this Agreement and the Debenture, as
applicable, and (ii) pursuant to registration under the Securities Act or an
exemption from registration under the Securities Act and any other applicable
securities law;
(d) The Purchaser acknowledges that the Company and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations
and agreements and further agrees that if any of the acknowledgments,
representations and agreements deemed to have been made by the Purchaser by its
acquisition of the Debenture and the Common Stock of the Company Issued at
Conversion are no longer accurate, it shall promptly notify the Company; and
(e) The Company has furnished or made available to the Purchaser a
full and complete set of its most recent definitive proxy statement in
connection with its annual
2
<PAGE>
meeting of stockholders, its Annual Report on Form 10-K/A for its most recently
completed fiscal year, its Form 10-Q or 10-Q/A for each of its fiscal quarters
since the end of its most recently completed fiscal year and any Form 8-K's
filed during its current fiscal year (collectively, the "SEC Documents"), which
the Company has filed pursuant to the Securities Exchange Act of 1934, as
amended.
4. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Purchaser that:
(a) The Company has been duly organized and is validly existing as a
corporation under the laws of Idaho.
(b) This Agreement and the Registration Rights Agreement (as defined
in Section 6(b)) have been duly authorized, executed and delivered by the
Company and constitute valid and binding agreements, enforceable in accordance
with their respective terms, and the Company has full corporate power and
authority necessary to enter into such agreements and to perform its obligations
thereunder.
(c) No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company
or any of its affiliates or any Subsidiary is required for execution of this
Agreement or the Registration Rights Agreement (as defined in Section 6(b)) and
the performance of its obligations under such agreements, including, without
limitation, the issuance and sale of the Debenture and the Common Stock of the
Company Issued at Conversion (except for the registration of the Common Stock of
the Company Issued at Conversion under the Securities Act pursuant to the
Registration Rights Agreement as defined in Section 6(b)).
(d) Neither the sale of the Debenture pursuant to this Agreement, nor
the performance of its obligations under this Agreement, the Debenture or the
Registration Rights Agreement by the Company will:
(i) violate, conflict with, result in a breach of, or constitute
a default (or an event that with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A) the articles
of incorporation or by-laws of the Company
3
<PAGE>
or any Subsidiaries, (B) any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company or any Subsidiaries of any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or any Subsidiaries or over the properties or assets of the Company or
any Subsidiaries, (C) the terms of any bond, debenture, Debenture or any other
evidence of indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which the
Company or any Subsidiary is a party, by which the Company or any Subsidiary is
bound, or to which any of the properties of the Company or any Subsidiary is
subject, or (D) the terms of any "lockup" or similar provision of any
underwriting or similar agreement to which the Company or any Subsidiary is a
party; or
(ii) result in the creation or imposition of any lien, claim or
other encumbrance upon any of the assets of the Company or any Subsidiary.
(e) The Debenture, when issued and delivered pursuant to this
Agreement, will have been duly authorized, executed, issued and delivered and
will constitute a legal, valid, binding and enforceable obligation of the
Company.
(f) The Common Stock of the Company Issued at Conversion, when issued,
(i) will be free and clear of any security interests, liens, claims or other
encumbrances, (ii) will be duly and validly authorized and issued, (iii) will be
fully paid and nonassessable, (iv) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company, and (v) will not subject the holders thereof to
personal liability by reason of being such holders.
(g) There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company
or any Subsidiaries or any of its affiliates that would materially affect the
results of operations of the Company or any Subsidiaries or the execution by the
Company or any Subsidiaries of, or the performance by the Company or any
Subsidiaries of its obligations under, this Agreement, the Debenture or the
Registration Rights Agreement.
(h) The Company, any person representing the Company, and, to the best
knowledge of the Company, any other person selling or offering to sell the
Debenture or the Common Stock of the Company Issued at Conversion in connection
with the transaction contemplated by this Agreement, have not made, at any time,
any oral communication in connection with the offer or sale of the Debenture or
the Common Stock of the Company Issued at Conversion that contained any untrue
statement of a material fact or omitted to state
4
<PAGE>
any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
i) Except as disclosed to the Purchaser in writing, the Company is not
in possession of any material non-public information that, if publicly
disclosed, would, or could reasonably be expected to, have an effect on the
price of the Company's common stock, par value $.001 per share (the "Common
Stock"), which is listed for trading on the National Association of Securities
Dealers Automated Quotations Small Capitalization system ("NASDAQ").
a) (j) Assuming the accuracy of, and compliance with, the representations,
warranties and covenants of the Purchaser in this Agreement, the sale of the
Debenture pursuant to this Agreement has been made in accordance with the
provisions and requirements of Sections 4(2) under the Securities Act ("Section
4(2)") and any applicable state law, and the Common Stock of the Company Issued
at Conversion shall comply with the provisions and requirements of Section
3(a)(9) under the Securities Act ("Section 3(a)(9)") and any applicable state
law.
(k) Intentionally omitted.
(l) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Idaho and is duly qualified as a
foreign corporation in all jurisdictions in which the failure to so qualify
would have a material adverse effect on the Company and its Subsidiaries taken
as a whole. The Company has registered its common stock pursuant to Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Common Stock is listed and trades on the Nasdaq Small Cap Market. The Company
has filed all material required to be filed pursuant to all reporting
obligations under either Section 13(a) or 15(d) of the Exchange Act for at least
twelve (12) months immediately preceding the offer or sale of the Debentures,
and has received no notice, either oral or written, with respect to its
continued eligibility for such listing. The Company has timely made all filings
required under the Securities Exchange Act during the twelve month period
preceding the date hereof and is eligible to use Form S-3 to register the Common
Stock Issued at Conversion.
5
<PAGE>
(m) The Company undertakes and agrees to make all necessary filings in
connection with the sale of the Debentures as required by United States laws and
regulations or any domestic securities exchange or trading market.
(n) Since December 31, 1995, there has been no material adverse
development in the assets, liabilities, business properties, operations,
financial condition or results of operations of the Company and its
Subsidiaries, except as disclosed in the filings of the Company with the SEC.
(o) None of the SEC filings since January 1, 1995 contained, at the
time they were filed, any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statement therein in light of the circumstances under which they were made not
misleading. The Company has since January 1, 1995 timely filed all requisite
forms, reports and exhibits thereto with the Securities and Exchange Commission.
(p) There is no fact known to the Company or any Subsidiaries (other
than general economic conditions known to the public generally) that has not
been disclosed in writing to the Purchaser that (i) could reasonably be expected
to have a material adverse effect on the condition (financial or otherwise) or
in the earnings, business affairs, business prospects, properties or assets of
the Company or any Subsidiaries, or (ii) could reasonably be expected to
materially and adversely affect the ability of the Company or any Subsidiaries
to perform its obligations pursuant to this Agreement.
5. Covenants of the Company. The Company covenants and agrees with the
Purchaser:
(a) to comply with all requirements of Section 4(2) with respect to
the sale of the Debenture and the Common Stock of the Company Issued at
Conversion including but not limited to the filing of a Form D with the
Securities and Exchange Commission;
(b) to notify the Purchaser promptly if at any time during the period
beginning on the date of this Agreement and ending on the Closing Date (i) any
event shall have occurred as a result of which any communication made by the
Company, any person representing the Company, or, to the best knowledge of the
Company, by any other person in connection with the transactions contemplated by
this Agreement would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
(ii) there is any public disclosure of material information regarding the
Company or its financial condition or results of operation;
6
<PAGE>
(c) to cause the Common Stock of the Company Issued at Conversion to
be, upon delivery, fully paid, nonassessable, free of preemptive rights and free
from all taxes, liens, charges, security interests or other encumbrances; and
(d) have at all times authorized and reserved for issuance, free from
preemptive rights, a sufficient number of shares of Common Stock to yield a
number of Common Stock of the Company Issued at Conversion sufficient to satisfy
the conversion rights of the Purchaser pursuant to the terms and conditions of
the Debenture.
6. Conditions Precedent to the Purchaser's Obligations. The obligations of
the Purchaser hereunder are subject to the performance by the Company of its
obligations hereunder and to the satisfaction of the following additional
conditions precedent:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchaser, be true and correct in all
material respects as of the date hereof and at the Closing Date, with the same
force and effect as if they had been made on and as of the Closing Date.
(b) The Company and the Purchaser shall have entered into a
Registration Rights Agreement (the "Registration Rights Agreement") in a form
satisfactory to the Purchaser.
(c) The Company will provide an opinion or opinions of counsel,
running to the purchasers, confirming in substance, the representations and
warranties set out in paragraphs (a), (b), (c), (d), (e), (f), (g), (j) and (l)
of Section 4.
(d) None of the following shall have occurred: (i) any general
suspension of trading in, or limitation on prices listed for, the Common Stock
on the NASDAQ, (ii) a declaration of a banking moratorium or any suspension of
payments in respect to banks in the United States, (iii) a commencement of a
war, armed hostilities or other international or national calamity directly or
indirectly involving the United States, (iv) any limitation by federal or state
authorities on the extension of credit by lending institutions that materially
and adversely affects the Purchaser, or (v) in the case of any of the foregoing
existing at the date of this Agreement, a material acceleration or worsening
thereof.
7
<PAGE>
7. Conditions Precedent to the Company's Obligations. The obligations of
the Company hereunder are subject to the performance by the Purchaser of its
obligations hereunder and to the satisfaction of the condition precedent that
the representations and warranties made by the Purchaser in this Agreement
shall, unless waived by the Company, be true and correct in all material
respects as of the date hereof and at the Closing Date, with the same force and
effect as if they had been made on and as of the Closing Date.
8. Transfer of Common Stock of the Company Issued at Conversion.
(a) Securities Act Legend. Each certificate evidencing the Debenture,
the Common Stock of the Company Issued at Conversion, and any certificates
issued upon transfer or exchange of the Debenture or the Common Stock of the
Company Issued at Conversion shall be stamped or imprinted with a legend
substantially as follows:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY
STATE; AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM,
THE REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
(b) Securities Act Compliance. Each holder (a "Holder") of a certificate
evidencing the Debenture or the Common Stock of the Company Issued at Conversion
which bears the restrictive legend set forth in Section 8(a) above (the
"Restricted Securities"), and who proposes to Transfer (as defined in Section
3(a) of this Agreement) any Restricted Securities, shall give written notice to
the Company of such Holder's intention to effect such Transfer. Each such notice
shall describe the manner and circumstances of the proposed sale or other
disposition in sufficient detail and may be accompanied by an opinion of legal
counsel to the Holder. Promptly upon receipt of such notice, the Company shall
present a copy thereof (together with any accompanying opinion of legal counsel
to the Holder) to its legal counsel, and the following provisions shall apply:
(i) If, in the opinion of legal counsel to such Holder,
satisfactory in form and substance to the Company and its legal counsel, or if
such notice was not accompanied by an opinion of legal counsel to the Holder,
then, if, in the opinion of legal counsel to the Company, the proposed sale or
other disposition may be effected without registering the Restricted Securities
involved under the Securities Act or under state securities laws, such Holder
shall be entitled to Transfer such Restricted Securities in accordance with the
terms of the notice delivered to the Company. The Company will advise the
Holder, within five (5) business days after submission of such notice, whether
such Holder is entitled to so Transfer
8
<PAGE>
the Restricted Securities. If the Holder is entitled to so Transfer, he shall
submit the stock certificate or certificates evidencing the Restricted
Securities to be Transferred to the Company in proper form for Transfer and
accompanied by appropriate instruments of Transfer. Restricted Securities thus
Transferred (and each of the certificates evidencing any untransferred balance
of the Common Stock of the Company Issued at Conversion not so transferred)
shall bear the restrictive legend set forth in Section 8(a), unless, in the
opinion of both such legal counsel (or legal counsel to the Company if the
Holder did not present an opinion of its legal counsel), such legend is not
required by the applicable provisions of the Securities Act or state securities
laws; and
(ii) If in the reasonable opinion of either of such legal counsel
(or legal counsel to the Company if the Holder did not present an opinion of its
legal counsel), the proposed Transfer cannot be effected without registering the
Common Stock of the Company Issued at Conversion involved under the Securities
Act or state securities laws, such Holder shall not offer to Transfer or
Transfer such Restricted Securities unless and until such Restricted Securities
have been registered under the Securities Act or state securities laws for such
purpose or an exemption from such registration becomes available pursuant to
Section 8(b)(i) above. The Company has obligated itself to register the Common
Stock of the Company Issued at Conversion pursuant to the terms of the
Registration Rights Agreement, a copy of which is attached hereto and made a
part hereof.
9. Fees and Expenses. Each of the Purchaser and the Company agrees to pay
its own expenses incident to the performance of its obligations hereunder,
including, but not limited to, the fees, expenses and disbursements of such
party's counsel.
10. Survival of the Representations. Warranties, etc. The respective
agreements, representations, warranties, indemnities and other statements made
by or on behalf of the Company and the Purchaser, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or any
officer, director or employee of, or person controlling or under common control
with, such party and will survive delivery of any payment for the Debenture and
the Common Stock of the Company Issued at Conversion.
9
<PAGE>
11. Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given if delivered personally
or by facsimile transmission, and confirmed, or mailed postage prepaid to the
parties at the following addresses or facsimile numbers:
If to the Purchaser, to:
______________________________
______________________________
______________________________
Telecopy: ____________________
with a copy to:
______________________________
______________________________
______________________________
Telecopy: ____________________
If to the Company, to:
Exsorbet Industries, Inc.
4294 Lakeland Drive, Suite 200
Jackson, Miss. 39208
Attention: President
Telecopy: (601) 936-2500
with a copy to:
Exsorbet Industries, Inc.
1401 South Waldron Road, Suite 201
Fort Smith, AR 72903
Attention: General Counsel
Telecopy: (501) 452-6022
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given
10
<PAGE>
upon receipt, and (iii) if delivered by mail in the manner described above to
the address as provided in this Section, be deemed given upon receipt (in each
case regardless of whether such notice, request or other communication is
received by any other Person to whom a copy of such notice is to be delivered
pursuant to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other parties hereto.
12. Third Party Beneficiary. Any permitted transferee of any part of the
principal amount of the Debenture or the Common Stock of the Company Issued at
Conversion shall be a third party beneficiary of the Company's obligations under
this Agreement, the Debenture and the Registration Rights Agreement. Such person
shall have all the rights of a third party beneficiary with respect to the
enforcement against the Company of any provision of this Agreement, the
Debenture and the Registration Rights Agreement.
13. Non-delivery of the Conversion Shares. If, within 10 Business Days of
the date on which the Purchaser requests conversion of any of the Convertible
Debenture, the Company shall fail to (i) issue the Common Stock of the Company
Issued at Conversion and (ii) deliver to the Purchaser certificate representing
the Common Stock of the Company Issued at Conversion for any reason other than
failure by the Purchaser to comply with its obligations hereunder, then the
company shall:
a. hold the Purchaser harmless against any loss, claim or damage
arising from or as a result of such failure by the Company (including, without
limitation, any such loss, claim or damage resulting from an obligation to
resell the Common Stock of the Company Issued at Conversion); and
b. reimburse the Purchaser for all of its out-of-pocket expenses,
including fees and disbursements of its counsel, incurred by the Purchaser in
connection with this Agreement and the transactions contemplated herein;
provided however, that the Company shall then be under no further liability to
the Purchaser except as provided in this Section 13 and Section 14 hereof.
14. Indemnification. a. The Company agrees to indemnify the Purchaser and
its officers, directors, employees, agents and affiliates in respect of, and
hold each of them
11
<PAGE>
harmless from and against, any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including without limitation interest, court
costs, fees of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment)
("Losses") suffered, incurred or sustained by any of them or to which any of
them becomes subject, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of the Company contained in this
Agreement, as such expenses are incurred, unless such Loss results primarily
from the Purchaser's gross negligence, recklessness or bad faith in performing
the obligations which are the subject of this Agreement.
b. The Purchaser agrees to indemnify the Company and its officers,
directors, employees, agents and affiliates in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained by
any of them or to which any of them becomes subject, resulting from, arising out
of or relating to any misrepresentation, breach of warranty or nonfulfillment of
or failure to perform any covenant or agreement on the part of Purchaser
contained in this Agreement, as such expenses are incurred, unless such Loss
results primarily from the Company's gross negligence, recklessness or bad faith
in performing the obligations which are the subject of this Agreement.
15. Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 14
will be asserted and resolved as follows:
a. In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 14 (an Indemnified
Party) might seek indemnity under Section 14 is asserted against or sought to be
collected from such Indemnified Party by a person other than the Company, the
Purchaser or any affiliate of the Company or the Purchaser (a Third Party
Claim), the Indemnified Party shall deliver a written notification, enclosing a
copy of all papers served, if any, and specifying the nature of and basis for
such Third Party Claim and for the Indemnified Party's claim for indemnification
that is being asserted under any provision of Section 14 against any person (the
Indemnifying Party), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a Claim Notice) with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the period ending thirty (30)
calendar days following receipt by an Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as defined below) (the Dispute Period) whether
the
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<PAGE>
Indemnifying Party disputes its liability to the Indemnified Party under Section
14 and whether the Indemnifying Party desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
15(a), then the Indemnifying Party will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party will not be indemnified in
full pursuant to Section 14). The Indemnifying Party will have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party may, at
the sole cost and expense of the Indemnified Party, at any time prior to the
Indemnified Party's delivery of the notice referred to in the first sentence of
this clause (i), file any motion, answer or other pleading or take any other
action that the Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further, that if requested by
the Indemnifying Party, the Indemnified Party will, at the sole cost and expense
of the Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the preceding sentence,
the Indemnified Party will bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party Claim at any time
if it irrevocably waives its right to indemnity under Section 14 with respect to
such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim
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pursuant to Section 15(a), or if the Indemnifying Party gives such notice but
fails to prosecute vigorously and diligently or settle the Third Party Claim, or
if the Indemnifying Party fails to give any notice whatsoever within the Dispute
Period, then the Indemnified Party will have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be prosecuted by the Indemnified
Party in a reasonable manner and in good faith or will be settled at the
discretion of the Indemnified Party (with the consent of the Indemnifying Party,
which consent will not be unreasonably withheld). The Indemnified Party will
have full control of such defense and proceedings, including any compromise or
settlement thereof; provided however, that if requested by the Indemnified
Party, the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified Party and
its counsel in contesting any Third Party Claim which the Indemnified Party is
contesting. Notwithstanding the foregoing provisions of this clause (ii), if the
Indemnifying Party has notified the Indemnified Party within the Dispute Period
that the Indemnifying Party disputes its liability hereunder to the Indemnified
Party with respect to such Third Party Claim and if such dispute is resolved in
favor of the Indemnifying Party in the manner provided in clause (iii) below,
the Indemnifying Party will not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this clause (ii) or of the
Indemnifying Party's participation therein at the Indemnified Party's request,
and the Indemnified Party will reimburse the Indemnifying Party in full for all
reasonable costs and expenses incurred by the Indemnifying Party in connection
with such litigation. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party pursuant
to this clause (ii), and the Indemnifying Party will bear its own costs and
expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability to the Indemnified Party with respect to
the Third Party Claim under Section 14 or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes its liability
to the Indemnified Party with respect to such Third Party Claim, the Loss in the
amount specified in the Claim Notice will be conclusively deemed a liability of
the Indemnifying Party under Section 14 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through negotiations
within the Resolution Period, such dispute shall be resolved by arbitration in
accordance with paragraph (c) of Section 15.
b. In the event any Indemnified Party should have a claim under
Section 14 against any Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 14 specifying the nature of and basis for such claim,
together with the amount, or if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an Indemnity
14
<PAGE>
Notice) with reasonable promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that an Indemnifying Party demonstrates
that it has been irreparably prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim described in
such Indemnity Notice or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes the claim described in
such Indemnity Notice, the Loss in the amount specified in the Indemnity Notice
will be conclusively deemed a liability of the Indemnifying Party under Section
14 and the Indemnifying Party shall pay the amount of such Loss to the
Indemnified Party on demand. If the Indemnifying Party has timely disputed its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party will proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the Resolution Period, such dispute
shall be resolved by arbitration in accordance with paragraph (c) of this
Section 15.
c. Any dispute submitted to arbitration pursuant to this Section 15
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter sometimes called the
"Board of Arbitration") selected as hereinafter provided. Each of the
Indemnified Party and the Indemnifying Party shall select one (1) member and the
third member shall be selected by mutual agreement of the other members, or if
the other members fail to reach agreement on a third member within twenty (20)
days after their selection, such third member shall thereafter be selected by
the American Arbitration Association upon application made to it for such
purpose by the Indemnified Party. The Board or Arbitration shall meet in New
York, New York or such other place as a majority of the members of the Board of
Arbitration determines more appropriate, and shall reach and render a decision
in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the Indemnifying Party is
required to pay to the Indemnified Party in respect of a claim filed by the
Indemnified Party. In connection with rendering its decision, the Board of
Arbitration shall adopt and follow such rules and procedures as a majority of
the members of the Board of Arbitration deems necessary or appropriate. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to the Indemnified Party and the Indemnifying Party. Any decision made
by the Board of Arbitration (either prior to or after the expiration of such
thirty (30) calendar day period) shall be final,
15
<PAGE>
binding and conclusive on the Indemnified Party and the Indemnifying Party and
entitled to be enforced to the fullest extent permitted by law and entered in
any court of competent jurisdiction. Each party to any arbitration shall bear
its own expense in relation thereto, including but not limited to such party's
attorneys fees, if any, and the expenses and fees of the Board of Arbitration
shall be divided between the Indemnifying Party and the Indemnified Party in the
same proportion as the portion of the related claim determined by the Board of
Arbitration to be payable to the Indemnified Party bears to the portion of such
claim determined not to be so payable.
16. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it
is not necessary that signatures of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same agreement.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their respective successors and permitted assigns and, with
respect to Sections 14 and 15 hereof, the officers, directors and controlling
persons thereof and each person under common control therewith, and no other
person shall have any right or obligation hereunder.
(c) This agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without giving effect to conflicts of
laws principles). With respect to any suit, action or proceedings relating to
this Agreement, each of the Company and the Purchaser irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in the City of New
York and hereby waives to the fullest extent permitted by applicable law any
claim that any such suit, action or proceeding has been brought in an
inconvenient forum. Subject to applicable law, the Company agrees that final
judgment against it in any legal action or proceeding arising out of or relating
to this Agreement or the Debenture shall be conclusive and may be enforced in
any other jurisdiction within or outside the United States by suit on the
judgment, a certified copy of which judgment shall be conclusive evidence
thereof and the amount of its indebtedness, or by such other means provided by
law.
(d) The headings of the sections of this document have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
(e) The provisions of this Agreement are severable, and if any clause
or provision shall be held invalid, illegal or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect in
that jurisdiction only such clause or provision, or part thereof, and shall not
in any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.
16
<PAGE>
(f) This Agreement, including the schedules and exhibits hereto,
constitutes the sole and entire agreement of the parties with respect to the
subject matter hereof, which are expressly incorporated herein.
17. Time of Essence. Time shall be of the essence in this Agreement.
18. Escrow Agent. The Escrow Agent shall not be liable for any action taken
or omitted by it in good faith and its liability hereunder shall be limited to
liability for gross negligence, willful misconduct or bad faith on its part. The
Company and the Purchaser agree to save harmless, indemnify and defend the
Escrow Agent for, from and against any loss, damage, liability, judgment, cost
and expense whatsoever, by reason of, or on account of, any misrepresentation
made to it or its status or activities as Escrow Agent under this Agreement
except for any loss, damage, liability, judgment, cost or expense resulting from
gross negligence, willful misconduct or bad faith on the part of the Escrow
Agent.
It is understood and further agreed that the Escrow Agent shall:
(a) be under no duty to enforce payment of any subscription that is to
be paid to and held by it hereunder;
(b) promptly notify the Purchaser and the Company of any discrepancy
between the amounts set forth on any statement delivered by the Purchaser and/or
the Company and the sum or sums delivered to it therewith;
(c) be under no duty to accept funds, checks, drafts or instruments
for the payment of money from anyone other than the Company or the Purchaser, or
to give any receipt therefor except to the Company or the Purchaser, with a copy
in each case to the Company;
(d) be protected in acting upon any notice, request, certificate,
approval, consent or other paper reasonably believed by it to be genuine and to
be signed by the proper party or parties;
17
<PAGE>
(e) be permitted to consult with counsel of its choice, and shall not
be liable for any action taken, suffered, or omitted by it in accordance with
the advice of such counsel; provided, however, that nothing in this subsection
(e), nor any action taken by the Escrow Agent, or suffered or omitted by it in
accordance with the advice of any counsel, shall relieve the Escrow Agent from
liability for any claims that are occasioned by its gross negligence, willful
misconduct, or bad faith;
(f) not be bound by any modification, amendment, termination,
cancellation, or rescission of this Agreement, unless the same shall be in
writing and signed by it;
(g) be entitled to refrain from taking any action other than to keep
all property held in escrow if it (i) shall be uncertain concerning its duties
or rights hereunder, or (ii) shall have received claims or demands from any
party, or (iii) shall have received instructions from the Purchaser and/or the
Company that, in the Escrow Agent's opinion, are in conflict with any of the
provisions of this Agreement, until it shall have received a final judgment by a
court of competent jurisdiction;
(h) have no liability for following the instructions herein or
expressly provided for herein, or the joint written instructions given by the
Purchaser and the Company; and
(i) have the right, at any time, to resign hereunder by giving written
notice of its resignation to all other parties hereto at least three (3) days
prior to the date specified for such resignation to take effect, and upon the
effective date of such resignation all cash and other payments and all other
property then held by the Escrow Agent hereunder shall be delivered by it to
such person as may be designated in writing by the other parties executing this
Agreement, whereupon the Escrow Agent's obligations hereunder shall cease and
terminate. If no such person has been designated by such date, all obligations
of the Escrow Agent hereunder shall, nevertheless, cease and terminate. The
Escrow Agent's sole responsibility thereafter shall be to keep safely all
property then held by it and to deliver the same to a person designated by the
other parties executing this Agreement or in accordance with the directions of a
final order or judgment of a court of competent jurisdiction.
16. Lock Out Period. For a period of six months following the date of
closing of this Agreement (the Lock Out Period), the Company will not, without
the consent of all the Purchasers, enter into any other agreements for the
issuance of any security, for which cash consideration is received by the
Company, that is convertible into common stock of the company. In the event that
registration of the Company's Common Stock pursuant to the Registration Rights
Agreement between the parties is not effective until more than 90 days after
18
<PAGE>
the closing of this Agreement, the Lock Out Period shall continue through the
expiration of 90 days after the effective date of such registration.
17. Delivery of Stock. The Company will permit the Purchaser to exercise
its right to convert the Debenture by telecopying an executed and completed
Notice of Conversion to the Company and delivering within three business days
thereafter, the original Notice of Conversion and Debenture by express courier.
Each date on which a Notice of Conversion is telecopied to and received by the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date. The Company will transmit the certificates representing the shares of
Common Stock of the Company Issued at Conversion and the newly issued Debenture
representing the amount of the Debenture which remains unconverted to the
Purchaser via express courier within three business days after receipt by the
Company of the original Notice of Conversion and the Debenture.
18. Liquidated Damages for Failure to Deliver. The Company understands that
a delay beyond the deadline for delivery, specified in paragraph 17, could
result in economic loss to the Purchaser. As compensation to the Purchaser for
such loss, the Company agrees to pay late payments to the Purchaser for the late
issuance of shares issuable at conversion in accordance with the following
schedule (where No. Business Days Late is defined as the number of business days
beyond three business days from Delivery Date):
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Principal Amount Being Converted
---------------------- --------------------------------
1 $ 50.00
2 $100.00
3 $150.00
4 $200.00
5 $250.00
6 $300.00
7 $350.00
8 $400.00
9 $450.00
19
<PAGE>
10 $500.00
>10 $500.00 + $100.00 for Each Business Day
Beyond 10 Days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit a Purchaser's right to
pursue actual damages for the Company's failure to issue and deliver Common
Stock to the Purchaser. Furthermore, in addition to any other remedies which may
be available to the Purchaser, in the event that the Company fails for any
reason to effect delivery of such shares of Common Stock within five business
days after the Delivery Date, the Purchaser will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Purchaser shall each be restored to their
respective positions immediately prior to such Notice of Conversion.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer(s) of each party hereto as of the date first above
written.
PURCHASER
By: ______________________________
Title: ____________________________
EXSORBET INDUSTRIES, INC.
By: ______________________________
Title: ____________________________
20
<PAGE>
EXHIBIT A
CONVERTIBLE DEBENTURE
21
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
_____, 1996 by and among EXSORBET INDUSTRIES, INC., an Idaho corporation, with
headquarters located at 4294 Lakeland Drive, Suite 200, Jackson, Mississippi
39208 (the "Company"), and the undersigned parties (together with affiliates,
the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investors (the "Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors
Convertible Debenture (the Debenture) that are convertible into shares (the
"Conversion Shares") of the Company's common stock (the "Common Stock"), upon
the terms and subject to the limitations and conditions set forth in the
Debentures; and
B. To induce the Initial Investors 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;
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
Investors hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Initial Investors and any transferees
or assignees who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "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 the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
<PAGE>
(iii) "Registrable Securities" the Conversion Shares issued or
issuable and any shares of capital stock issued or issuable as a dividend on or
in exchange for or otherwise with respect to any of the foregoing and any shares
of capital stock issuable pursuant to Section 2(b) hereof.
(iv) "Registration Statement" means a registration statement of
the Company under the 1933 Act.
(b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Purchase Agreement.
2. REGISTRATION.
(a) Mandatory Registration. The Company shall prepare, and, on or
prior to the date which is the day after the earlier of (x) five business days
after the Closing Date under the Purchase Agreement (the "Closing Date") or (y)
the date the Initial Investors approve the Registration Statement, file with the
SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available,
on such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors (as determined pursuant to Section l0 hereof), which consent
will not be unreasonably withheld) covering the resale of the Registrable
Securities, which Registration Statement, to the extent allowable under the 1933
Act and the Rules promulgated thereunder (including Rule 416), shall state that
such Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Debenture
(i) to prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Conversion Rate in accordance
with the terms thereof. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
its counsel prior to its filing or other submission.
(b) Liquidated Damages. The Company shall use its best efforts to
obtain effectiveness of the Registration Statement as soon as practicable. If
(i) the Registration Statement(s) covering the Registrable Securities required
to be filed by the Company pursuant to Section 2(a) hereof is not declared
effective by the SEC within sixty (60) days after the Closing Date of the sale
of the Debentures (other than by reason of any act or failure to act in a timely
manner by the Investors or Investors' counsel), or if, after the Registration
Statement has been declared effective by the SEC, sales cannot be made pursuant
to the Registration Statement (by reason of stop order, or the Company's failure
to update the Registration Statement), or (ii) the Common Stock is not listed or
included for quotation on the NASDAQ National Market System (the "NASDAQ-NMS"),
NASDAQ Small Cap, the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX"), then the Company will make payments to the Investors as
liquidated damages in such amounts and at such times
<PAGE>
as shall be determined pursuant to this Section 2(b) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each holder of Registrable Securities an amount equal to the aggregate "Purchase
Price" (as defined below) of the Debentures held by such Investors (including,
without limitation, Debentures that have been converted into Conversion Shares
then held by such Investors) (the "Aggregate Share Price") multiplied by two and
one-half hundredths (.025) times the sum of: (i) the number of months (prorated
for partial months) after the end of such 60-day period and prior to the date
the Registration Statement is declared effective by the SEC, provided, however,
that there shall be excluded from such period any delays which are solely
attributable to changes required by the Investors in the Registration Statement
with respect to information relating to the Investors, including, without
limitation, changes to the plan of distribution, or to the failure of the
Investors to conduct their review of the registration statement pursuant to
Section 2(a) above in a reasonably prompt manner; (ii) the number of months
(prorated for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective; and (iii) the number of months (prorated for partial months) that the
Common Stock is not listed or included for quotation on the NASDAQ-NMS, NASDAQ
Small Cap, NYSE or AMEX after the Registration Statement has been declared
effective. (For example, if the Registration Statement becomes effective one (1)
month after the end of such 60-day period, the Company would pay $25,000 for
each $1,000,000 of Aggregate Share Price and would continue to pay $25,000 for
each $1,000,000 of Aggregate Share Price until the Registration Statement
becomes effective.) Such amounts shall be paid in cash or, at each Investor's
option (but subject to the limitations contained in Section 3.1 of the
Debenture), may be convertible into Common Stock at the "Conversion Price" (as
defined in the Debenture). Any shares of Common Stock issued upon conversion of
such amounts shall be Registrable Securities. If the Investor desires to convert
the amounts due hereunder into Registrable Securities it shall so notify the
Company in writing within two (2) business days of the date on which such
amounts are first payable in cash and such amounts shall be so convertible
(pursuant to the mechanics set forth in the Debenture), beginning on the last
day upon which the cash amount would otherwise be due in accordance with the
following sentence. Payments of cash pursuant hereto shall be made within ten
(10) days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
interim payments shall be-made for each such thirty (30) day period. The term
"Purchase Price" means the purchase price paid by the Investors for the
Debenture. Upon agreement of both the Purchaser and the Company, any liquidated
damages due under the provisions of this subparagraph may be paid in common
stock of the Company, registered as if such stock were common stock being issued
at conversion under this Agreement, and valued at the Conversion Price, as such
term is defined in Section 3.1 of the Debenture between the parties.
(c) Eligibility for Form S-3. The Company represents and warrants that
it meets the requirements for the use of Form S-3 for registration of the sale
by the Initial
<PAGE>
Investors and any other Investor of the Registrable Securities and the Company
shall file all reports required to be filed by the Company with the SEC in a
timely manner so as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
(a) The Company shall prepare and file with the SEC within five
business days of the Closing Date, a Registration Statement with respect to the
number of Registrable Securities provided in Section 2(a), and thereafter use
its best efforts to cause such Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing provided
that as far in advance as practical before filing such Registration Statement or
any amendment thereto, the Company will furnish to the Investor copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such holder shall have the opportunity to object, within two
(2) business days, to any information pertaining solely to such holder that is
contained therein and the Company will make the corrections reasonably requested
by such holder with respect to such information prior to filing any such
Registration Statement or amendment. The Company shall also keep the
Registration Statement effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold by the Investors; (ii) the date on which all of the
Registrable Securities that have not been sold by the Investors (in the opinion
of counsel to the Initial Investors) may be immediately sold without
registration; or (iii) two years after the date of this Registration Rights
Agreement (the "Registration Period"), which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein and all
documents incorporated by reference therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein not misleading.
(b) 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 keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement until 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 insufficient
to cover all of the Registrable Securities issued or issuable upon conversion of
the Debentures, the Company shall amend the Registration Statement, or file a
new Registration Statement (on the short form available therefore, if
applicable), or both, so as
<PAGE>
to cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and other
relevant factors on which the Company reasonably elects to rely). The Company
shall use its best efforts to 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 prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of 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 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.
(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 in the United States
as the Investors 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; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) 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) As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor 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 omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to
<PAGE>
correct such untrue statement or omission, and deliver such number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request.
(f) 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, to obtain the withdrawal of such order at the
earliest possible moment 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.
(g) The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects. Any period of review shall be added to the time in which registration
is required to become effective.
(h) 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 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.
(i) The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure 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. 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 the Investor, at its expense, to undertake
appropriate action to- prevent disclosure of, or to obtain a protective order
for, such information.
(k) The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on the
NYSE or the AMEX or another national securities exchange and on each additional
national securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on NASDAQ Small Cap and, without limiting
the generality of the foregoing, to arrange for or maintain at least two market
makers to register with the
<PAGE>
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities.
(l) 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.
(m) The Company shall cooperate with the Investors who hold
Registrable Securities being offered 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, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and-registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request.
(n) The Company shall make available for inspection by the Investor, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant, or other agent retained by such seller
or underwriter (collectively, the Inspectors) all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
Records) as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers, directors, employees
and accountants to supply all information reasonably requested by any such
Inspector in connection with such registration statement. Records which the
Company determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors.
(o) The Company shall use its best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable each holder thereof to consummate the disposition of such Registrable
Securities.
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 a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of
<PAGE>
such Registrable Securities and shall execute such documents in connection with
such registration as the Company may reasonably request.
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of 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(e) or
3(f), 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(e) or 3(f) 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, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
(d) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (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 any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
The Company will pay 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.
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, hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the
<PAGE>
directors, officers, partners, employees, agents and each person who control any
Investor within the meaning of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), if any, (each, an "Indemnified Person"),
against any joint or several losses, claims, damages, liabilities or expenses
(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 may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated 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 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (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, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation that 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; (ii) 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; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified 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 corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless
<PAGE>
and defend, 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 1934 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 1934 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 1934 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-reimburse any legal or other expenses (promptly
as such expenses are incurred and are 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 as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
(c) 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 the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal counsel
for the
<PAGE>
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Investors holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (with the approval of the Initial Investor if it holds Registrable
Securities included in such Registration Statement), if the Investors are
entitled to indemnification hereunder, or the Company, if the Company is
entitled to indemnification hereunder, as applicable. 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 actually 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 by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
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 1l(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 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and
<PAGE>
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities pursuant to
this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of Registrable Securities if (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
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 beforethe time the Company receives
the written notice contemplated by clause (ii) of this sentence, the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions contained herein, (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 defined in Rule
501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended, supplemented or modified and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by a written
instrument (which may be executed in any number of counterparts) duly executed
by or on behalf of each of the Company and persons owning sixty-six and
two-thirds percent (66 %) or more of the Registrable Securities. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
<PAGE>
11. MISCELLANEOUS.
(a) 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 required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid,
if to the Company:
Exsorbet Industries, Inc.
4294 Lakeland Drive, Suite 200
Jackson, MS 39208
Attention: President
with copy to:
Exsorbet Industries, Inc.
1401 South Waldron, Suite 201
Fort Smith, AR 72903
Attention: General Counsel;
if to the Initial Investors as set forth below their signatures appended hereto,
or at such other address as each such party furnishes by notice given in
accordance with this Section 11(b), and shall be effective, when personally
delivered, upon receipt and, when so sent by certified mail, four days after
deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State. 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
<PAGE>
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. The parties hereto hereby submit
to the exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the Borough of Manhattan in the City of
New York with respect to any dispute arising under this Agreement or the
transactions contemplated hereby, and hereby waives to the fullest extent
permitted by applicable law any claim that any such suit, action or proceeding
has been brought in an inconvenient forum. Subject to applicable law, the
Company agrees that final judgment against it inany legal action or proceeding
arising out of or relating to this Agreement shall be conclusive and may be
enforced in any other jurisdiction within or outside the United States by suit
on the judgment, a certified copy of which judgment shall be conclusive evidence
thereof and the amount of its indebtedness, or by such other means provided by
law.
(e) This Agreement, the Equity Debentures, and the Purchase Agreement
(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 and therein. This Agreement, the Equity
Debentures, and the Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall be enforceable by, inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in 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 of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
(j) All consents and other determinations to be made by the Investors
pursuant to this Agreement, and by waiver by such Investors of any provision of
this
<PAGE>
Agreement, shall be made in writing (which may be executed in any number of
counterparts) and may be given or taken by persons owning sixty-six and
two-thirds percent (66 %) or more.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
EXSORBET INDUSTRIES, INC.
By:__________________________
Name:_______________________
Its:__________________________
INITIAL INVESTORS
_______________________________
By: __________________________
Name:________________________
Its: __________________________
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report included in Consolidated
Eco-Systems, Inc. (formerly Exsorbet Industries, Inc.) Form 10-K, as amended,
for each of the two years in the period ended December 31, 1995 and to all
references to our Firm included in this registration statement.
COOPER, SHUFFIELD & COMPANY
By: /s/ Dennis Cooper
------------------------------
DENNIS COOPER
