<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended SEPTEMBER 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-28444
EPL TECHNOLOGIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0990658
- ------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
2 INTERNATIONAL PLAZA, SUITE 245
PHILADELPHIA, PA 19113-1507
---------------- ----------
(Address of principal executive offices) Zip Code
(610) 521-4400
--------------
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
17,961,632 shares of $0.001 par value common stock
outstanding as of October 31, 1997.
<PAGE> 2
EPL TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
A. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997
AND DECEMBER 31, 1996 1
B. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996 2
C. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 3
D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8
CONDITION AND RESULTS OF OPERATIONS.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 12
SIGNATURES. 13
</TABLE>
<PAGE> 3
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ -------------
(Unaudited) *
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,165,749 $ 1,639,567
Accounts receivable, net 2,973,065 2,911,660
Due from related parties 30,585 34,101
Inventories 2,195,201 1,938,819
Prepaid expenses and other current assets 1,279,702 623,792
------------ ------------
TOTAL CURRENT ASSETS 7,644,302 7,147,939
------------ ------------
PROPERTY AND EQUIPMENT, NET 4,120,961 4,005,711
------------ ------------
OTHER ASSETS
Patent and distribution rights, net 1,056,089 1,303,121
Goodwill 2,324,556 2,503,655
Other intangibles, net 227,608 254,996
------------ ------------
TOTAL OTHER ASSETS 3,608,253 4,061,772
------------ ------------
TOTAL ASSETS $ 15,373,516 $ 15,215,422
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 4,362,175 $ 3,005,577
Accrued expenses 712,996 1,213,964
Other liabilities 661,114 396,418
Line of credit - related party 337,500 0
Current portion of long-term debt 222,345 262,779
------------ ------------
TOTAL CURRENT LIABILITIES 6,296,130 4,878,738
LONG TERM DEBT 2,107,032 1,554,161
DEFERRED INCOME TAXES 151,836 161,926
MINORITY INTEREST (10,552) 202,120
------------ ------------
TOTAL LIABILITIES 8,544,446 6,796,945
SHAREHOLDERS' EQUITY
Series A Convertible Preferred Stock 2,143,000 2,490,000
Series B Convertible Preferred Stock 0 5,319
Series C Convertible Preferred Stock 144 0
Common Stock 17,676 15,531
Additional paid-in capital 24,929,140 21,314,678
Accumulated deficit (20,325,219) (15,658,464)
Foreign currency translation adjustment 64,329 251,413
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 6,829,070 8,418,477
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,373,516 $ 15,215,422
============ ============
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
-1-
<PAGE> 4
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 14,047,404 $ 7,063,578 $ 5,147,600 $ 3,520,474
Cost of Sales 12,604,440 5,828,264 4,572,780 2,853,835
------------ ------------ ------------ ------------
Gross Profit 1,442,964 1,235,314 574,820 666,639
Selling, general and administrative expenses 4,437,477 3,172,052 1,733,442 1,271,651
Research and development costs 869,067 682,597 284,064 268,496
Depreciation and amortization 931,359 689,428 328,894 275,621
------------ ------------ ------------ ------------
Net loss from operations (4,794,939) (3,308,763) (1,771,580) (1,149,129)
Interest expense, net 84,488 12,227 35,947 (4,765)
Minority Interest (212,672) (7,773) (136,062) (7,773)
------------ ------------ ------------ ------------
Net loss $ (4,666,755) $ (3,313,217) $ (1,671,465) $ (1,136,591)
Deduct:
Effect of 10% cumulative preferred dividend 338,917 248,357 92,230 111,250
------------ ------------ ------------ ------------
Net loss for common stockholders $ (5,005,672) $ (3,561,574) $ (1,763,695) $ (1,247,841)
============ ============ ============ ============
Loss per common share $ (0.31) $ (0.24) $ (0.10) $ (0.08)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-2-
<PAGE> 5
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(4,666,755) $(3,313,217)
Adjustments to reconcile net loss to net cash
Used in operating activities: 918,481 689,428
Gain on foreign currency translation 27,788 23,647
Minority interest (212,672) (7,773)
Changes in assets and liabilities 75,886 (638,106)
----------- -----------
Net cash (used) in operating activities (3,857,272) (3,246,021)
----------- -----------
INVESTING ACTIVITIES:
Purchase of intangible assets 0 (59,488)
Purchase of fixed assets (776,919) (2,207,402)
Proceeds from sale of fixed assets 15,658 0
----------- -----------
Net cash (used) in investing activities (761,261) (2,266,890)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from the exercise of options/warrants 1,388,454 3,584,213
Proceeds from issuance of preferred and common stock, net 1,875,978 2,500,000
Proceeds from note payable/net borrowings/line of credit 1,086,495 939,000
Repayment of long term debt (206,212) (643,012)
----------- -----------
Net cash provided from financing activities 4,144,715 6,380,201
----------- -----------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (473,818) 867,290
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,639,567 1,522,075
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,165,749 $ 2,389,365
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-3-
<PAGE> 6
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The financial information of EPL Technologies, Inc. and Subsidiaries
(the "Company") included herein is unaudited; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of results for the
interim period.
The financial information has been prepared in accordance with
generally accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly it does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Moreover, the results
of operations for the nine months and three months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full year. At
this stage of the Company's development, month to month and quarter to quarter
anomalies in operating results are to be expected. This information must also be
read in connection with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
NOTE 2 - OPERATIONS
EPL Technologies, Inc. develops, manufactures and markets complementary
proprietary technologies designed to maintain the quality and integrity of fresh
produce. The Company's primary products are processing aids and packaging
materials, together with a range of scientific and technical services that
support and complement its product offerings. The Company's continued ability to
operate is dependent upon its ability to maintain adequate financing and to
achieve levels of revenues necessary to support its cost structure, of which
there can be no assurance. The nature of the processing aid business is such
that fresh-cut produce processors and other third party users supplying retail
markets require extensive and confidential on-site, and, in certain cases,
independent testing prior to utilizing the Company's products and related
protocols in their production and then, for competitive reasons, protect the
supply relationship with confidentiality agreements. This results in an extended
sales process, which the Company supports by absorbing the costs of testing work
undertaken and by retaining in a proprietary context the data generated. This
level of support adds to the cost of market development. Management believes
that success in this sales process with large processors is the primary basis
for developing sustainable growth in revenues, which will enable the Company to
achieve profitable operations in this area of the business, although there can
be no assurance such will be the case. The nature of the packaging materials
business is such that the sales process is shorter than that for processing
aids, but there is still an approval process to be completed with new customers
prior to sale.
In September 1997, IPS Produce, Inc., ("IPSP"), one of the U.S.
subsidiaries of the Company, executed a ten-year exclusive trademark license
agreement and strategic alliance with Potandon Produce LLC ("Potandon"), a
"Green Giant Fresh(TM)" brand licensee of the Pillsbury Company. Under this
agreement, which is subject to extension beyond August 2007, and is subject to
the terms of Potandon's license of the "Green Giant Fresh(TM)" brand from the
Pillsbury Company, certain minimum royalties and other customary provisions,
EPL will sell fresh-cut potato products, such as french fries, to the wholesale
foodservice industry under the "Green Giant Fresh(TM)" brand name, utilizing
EPL's "Potato Fresh(TM) System" processing aid technologies and related
protocols. The sales process and documentary negotiations involved in securing
this alliance took two years. The fresh-cut potato products will be sold to the
foodservice industry through IPSP using raw materials from Potandon, in
conjunction with one or more co-packers expected to be operating at several
sites around the US. There can, however, be no assurance as to the pace of
development or degree of success of the expansion of this part of the Company's
business.
Subsequent to the end of the quarter, the Company also announced a
license agreement for its "Apple System(TM)" processing aid (see note 9 below -
Subsequent Events).
The Company's management believes that cash flows from consolidated
operations and the availability of financing from other sources, such as
additional borrowing under its available line of credit, or other private or
public issuances of equity which the Company believes may be obtainable
acceptable terms, will provide the Company adequate financing for the next year,
assuming minimal sales budgets are met. For example, the Company, after the end
of the period reported, successfully raised $12.5 million in new equity in a
private transaction. See Note 6, Note 9 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below.
-4-
<PAGE> 7
NOTE 3 - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw Materials and Supplies $1,198,962 $ 938,050
Finished Goods 996,239 1,000,769
---------- ----------
Total Inventories $2,195,201 $1,938,819
========== ==========
</TABLE>
NOTE 4 - INTANGIBLE ASSETS - PATENT AND DISTRIBUTION RIGHTS AND GOODWILL
Patents are amortized over the shorter of their estimated useful
lives or the life of the patent. The net book value of acquired and developed
patents totaled $998,689 as of September 30, 1997. Distribution rights are
amortized over the ten-year life of the relevant agreement. The net book value
of previously acquired distribution rights totaled $57,400 as of September 30,
1997. Amortization expense related to patent and distribution rights totaled
$247,032 for the nine months ended September 30, 1997. Goodwill related to the
acquisition of certain subsidiaries is being amortized on a straight line basis
over ten years. Amortization expense related to goodwill and other intangible
assets totaled $247,844 for the nine months ended September 30, 1997.
NOTE 5 - CONVERTIBLE PREFERRED STOCK
The Company's 10% Series A Convertible Preferred Stock (the
"Series A Stock"), which has been issued up to its authorized limit of
3,250,000, was issued more than three years ago at a price of $1.00 per share,
with each share of Series A Stock carrying the option to convert into common
shares at a rate of $0.75 per share. The Series A Stock carries equal voting
rights to the common shares, based on the underlying number of common shares
after conversion. The Series A Stock carries a dividend rate of 10% per annum,
payable in cash and/or common shares ($0.75 per share) at the Company's option
(dividends in arrears at September 30, 1997 totaled $1,279,986).
During the three months ended September 30, 1997, shareholders
holding 210,000 shares of Series A Stock elected to exercise their right of
conversion, leaving 2,143,000 shares of Series A Stock outstanding at September
30, 1997. In addition, 20% of the common stock into which the Series A Stock may
be converted carries detachable warrants at an exercise price of $1.00 per
warrant. During the three months ended September 30, 1997, 91,733 of these
warrants were exercised, leaving 135,464 of these warrants unexercised at
September 30, 1997.
At the Annual Shareholders Meeting of the Company held on July 21,
1996, the shareholders approved an amendment to the Company's Articles of
Incorporation to permit the issuance of up to 2,000,000 shares of preferred
stock (the "Board Designated Preferred Stock") with such designations and
preferences as the Company's Board of Directors may determine from time to time.
On July 23, 1996, the Company issued 531,915 of these shares - designated Series
B Convertible Preferred Stock - at an aggregate consideration of $2,500,000 to
two existing institutional investors in the Company (the "Series B Stock"). Such
issuance was made under Regulation D under the Securities Act of 1933, as
amended, as a transaction not involving a public offering. The Series B Stock
carries the option to convert into shares of common stock at the rate of $4.70
per share and votes as a class, except as otherwise provided by law, with the
Series A Stock, the Series C Stock (as defined below) and the common stock,
based on the underlying number of shares of common stock after conversion.
During the three months ended September 30, 1997, shareholders holding 531,915
shares of Series B stock elected to fully exercise their right of conversion
into common stock and thus there were no shares of Series B Stock outstanding at
September 30, 1997. The Series B Stock carried a dividend rate of 10% per annum,
-5-
<PAGE> 8
payable in cash and/or shares ($4.70 per share) at the Company's option. (The
dividend in arrears on the Series B Stock at September 30, 1997 totaled
$270,092.)
During the three months ended June 30, 1997, the Company accepted
the subscription of $1.0 million, received in the three months ended March 31,
1997, from an existing institutional shareholder in connection with a private
offering of common and Board Designated Preferred Stock. This resulted in the
issuance of 87,500 shares of common stock, together with 144,444 shares of Board
Designated Preferred Stock - designated Series C Convertible Preferred Stock
(the "Series C Stock"). Such issuance was made under Regulation D under the
Securities Act of 1933, as amended, as a transaction not involving a public
offering. The Series C Stock carries the option to convert into shares of common
stock at the rate of $4.50 per share and votes as a class, except as otherwise
provided by law, with the Series A Stock, the Series B Stock and the common
stock, based on the underlying number of shares of common stock after
conversion. The Series C Stock carries a dividend rate of 10% per annum, payable
in cash and/or shares ($4.50 per share) at the Company's option. The dividend in
arrears on the Series C Stock at September 30, 1997 totaled $20,583.
At the Annual Meeting of the Company held on July 21, 1997, the
shareholders of the Company approved an increase in the number of shares of
Board Designated Preferred Stock reserved for issuance from 2,000,000 to
4,000,000. See also Note 9 below.
NOTE 6 - ISSUANCE OF COMMON STOCK AND EXERCISE OF WARRANTS
In addition to the 280,000 shares of common stock issued upon the
conversion of 210,000 shares of Series A Stock, the 531,915 shares of common
stock issued upon conversion of an equal number of shares of Series B Stock and
91,733 shares of common stock issued upon the exercise of warrants underlying
the Series A Stock, all as described in Note 5 above, 175,000 shares of common
stock were issued due to the exercise of stock options covered by the Company's
registration statements on Form S-8 during the three month period ended
September 30, 1997. This exercise of options resulted in gross proceeds to the
Company of $510,656. Furthermore, 110,450 previously privately-issued warrants
were exercised, which resulted in additional gross proceeds to the Company of
$220,900.
At the Annual Meeting of the Company held on July 21, 1997, the
shareholders also approved an amendment to the Company's 1994 Stock Incentive
Plan (the "Plan") which increased the number of shares of common stock reserved
for issuance under the Plan from 3,000,000 to 4,500,000.
NOTE 7 - NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the loss
applicable to common shareholders by the weighted average number of common
shares and common share equivalents during the period. Outstanding options,
convertible Series A Stock, Series B Stock and Series C Stock and stock warrants
were determined to be antidilutive for the periods ended September 30, 1997 and
1996 and were therefore excluded from the per share calculations.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued SFAS
No. 128, "Earnings Per Share," which will result in changes to the computation
and presentation of earnings per share. The Company will be required to adopt
this standard during its year ended December 31, 1997 with earlier adoption not
permitted. At this time, the Company has not determined the impact this standard
will have on the Company's earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," This statement, which establishes standards for reporting
and disclosing comprehensive income, is effective for interim and annual periods
beginning after December 15, 1997, although earlier adoption is permitted.
Reclassification of financial information for earlier periods presented for
comparative periods is required under SFAS No. 130. As this statement only
requires additional disclosures in the Company's consolidated financial
statements, its adoption will not have any impact on the Company's consolidated
financial position or results of operations. The Company expects to adopt SFAS
No. 130 effective January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," This statement, which
establishes standards for the reporting of information about operating segments
and requires the reporting of selected information about operating segments in
interim financial statements, is effective for
-6-
<PAGE> 9
fiscal years beginning after December 15, 1997, although earlier application is
permitted. Reclassification of segment information for earlier periods presented
for comparative periods is required under SFAS No. 131. The Company does not
expect adoption of this statement to result in changes to its presentation of
financial information. The Company expects to adopt SFAS No. 131 effective
January 1, 1998.
NOTE 9 - SUBSEQUENT EVENTS
On October 3, 1997, Integrated Produce Systems, Inc. a subsidiary
of the Company, announced a three-year license agreement with Farmington Fresh
("FF"), which the Company believes is the largest grower and shipper of Fuji
apples in California. Under this agreement, which may be extended beyond its
initial term, FF will produce fresh-cut apple slices, utilizing the Company's
"Apple System(TM)" processing aid technologies and related protocols, as well as
the Company's scientific support and packaging technologies. The new sliced
apple product will be processed at FF's newlybuilt processing plant in
California. The agreement grants FF production exclusivity in FF's local
geographic market. The Company announced this arrangement in a report on a Form
8-K filed October 3, 1997.
Effective October 21, 1997, the Company completed a revolving line
of credit agreement with Trilon Dominion Partners LLC, the Company's largest
shareholder (the"Trilon Line"). Under the Trilon Line, which makes available to
the Company $2.1 million for working capital purposes, any amounts drawn are
secured by, amongst other things, a blanket lien on the assets of the Company's
wholly-owned US subsidiaries and on the assets of the Company itself. Any
accounts drawn under this line of credit are repayable on September 30, 1998,
unless repaid earlier or the repayment date is renegotiated. Interest at the
"prime rate" (as published in the Wall Street Journal) plus 3% or 4% is payable
quarterly in arrears. $337,500 was drawn at September 30, 1997 . The Company
reported this arrangement in a report on Form 8-K filed October 24, 1997.
Effective October 31, 1997, the Company announced the acquisition
of 100% of the issued shares of California Microbiological Consulting, Inc.
("CMC"), based in Walnut Creek, CA. CMC specializes in food safety, forensic
testing and microbiological consulting. The acquisition provides the Company
with a West Coast food safety laboratory and microbiological testing facility to
complement the Company's East Coast capabilities at the facilities of its Pure
Produce, Inc. subsidiary. The two companies together afford the Company
increased food safety management capability, together with production
monitoring, contract research and HACCP (Hazard Analysis Critical Control
Points) and TQM (Total Quality Management) program services. The consideration
was settled almost exclusively through the issuance of shares of common stock in
the Company. The total consideration was not material.
Effective November 10, 1997, the Company issued 12,500 further
shares of Board Designated Preferred Stock - designated Series D Convertible
Preferred Stock - at an aggregate consideration, before associated costs and
expenses, of $12,500,000, to three new institutional investors (the "Series D
Stock"). Such issuance was made under Regulation D under the Securities Act of
1933, as amended, in a transaction not involving a public offering. The Series D
Stock carries the option to convert into shares of common stock at a variable
rate, based on a formula linked to the prevailing market price at the time of
conversion, and subject to certain limitations. The conversion rate may be up to
a 50% premium to the closing market price at the consummation of the transaction
(i.e. a 50% premium to the November 7, 1997 closing price of $7.75). In
addition, the Company issued 403,228 warrants exercisable at 130% of the closing
price (i.e. $10.08) exercisable at any time over the next 5 years. Part of the
proceeds of this offering were used to repay the Trilon Line on November 12,
1997, whereupon the Company instructed Trilon to cancel the Trilon Line and to
file appropriate releases of all collateral securing the Trilon Line. The Trilon
Line therefore is no longer available for drawings.
-7-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
EPL Technologies, Inc. develops, manufactures and markets
complementary proprietary technologies designed to maintain the quality and
integrity of fresh produce. The Company's primary products are processing aids
and packaging materials, together with a range of scientific and technical
services that support and complement its product offerings. These products and
services are designed for and marketed to processors of fresh fruits and
vegetables to be integrated into a customer's fresh produce production system.
The Company believes its products are safe (the Company's processing aid
products use ingredients that are included in the Food and Drug Administration
list as "generally recognized as safe"), environmentally friendly and, together
with the Company's services, add significant value to the business of its
customers. The Company also believes that its processing aids, packaging
materials and services are complementary technologies and markets them as such.
The Company's goal is to become a world class provider of products and
scientific and technical services designed to maintain the quality and integrity
of fresh produce. As consumer awareness continues to grow, including reaction to
reports regarding the potential health concerns surrounding the use of
sulfite-based preservatives and untreated produce or produce-derived food
products, management believes interest in the Company's products will increase,
although there can be no assurance in this regard. Management is continually
searching for new ways to market its products and services and expand
operations, both internally and, where appropriate, through strategic and
opportunistic acquisitions.
In this regard, in March 1997 the Company executed a letter of
intent containing its conditional offer to acquire a European-based specialty
packaging business, with sales revenue of approximately $7,500,000. Since that
time the Company has continued its due diligence and negotiations, which have
continued to progress satisfactorily. The Company believes that this acquisition
would complement its existing European operations and advance its strategic plan
of the range of products and services it desires to offer. It currently believes
that the acquisition will be completed by the end of 1997 or the first quarter
of 1998. There can, however, be no assurance that this or any other acquisition
will in fact be consummated.
In addition, the Company continues to be in discussions with a
number of other processors and companies in connection with the use of the
Company's processing aid technology and related protocols in various fruit and
vegetable categories, as well as the use of its variety-specific produce
packaging technologies, with regard to potential strategic alliances, joint
ventures, licenses and other contracts. In this regard, as mentioned above in
Note 2 (Operations), effective September 22, 1997 the Company, through its
subsidiary IPS Produce, Inc., executed a ten-year exclusive trademark license
agreement and strategic alliance with Potandon Produce LLC, a "Green Giant
Fresh(TM)" brand licensee of the Pillsbury Company. Under this agreement, which
is subject to extension beyond August 2007, and is subject to the terms of
Potandon's license of the "Green Giant Fresh(TM)" brand from the Pillsbury
Company, certain minimum royalties and other customary provisions, EPL will sell
fresh-cut potato products, such as french fries, to the wholesale foodservice
industry under the "Green Giant Fresh(TM)" brand name, utilizing EPL's "Potato
Fresh(TM) System" processing aid technologies and related protocols. The
fresh-cut potato products will be sold to the foodservice industry through IPSP
using raw materials from Potandon, in conjunction with one or more co-packers
expected to be operating at several sites around the US. Furthermore, as
mentioned in Note 9 (Subsequent Events) of the financial statements, the Company
announced, subsequent to the end of the quarter, a three-year license agreement
for its "Apple System(TM)" processing aid with Farmington Fresh ("FF"),which the
Company believes is the largest grower and shipper of Fuji apples in California.
In addition to the "Apple System(TM)" being used in the production of fresh-cut
apple slices, the company also supplies FF with its scientific support and
packaging technologies. The agreement grants FF production exclusivity in their
local geographic market. There can, however, be no assurance as to the pace of
development or degree of success of the expansion of this part of the Company's
business. Other discussions in relation to further potential transactions are
continuing. However, there can be no assurance that any such discussions will
result in any further transaction being consummated.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Sales for the nine months ended September 30, 1997 were
$14,047,404, an increase of 99% on the total revenue of $7,063,578 achieved
during the nine months ended September 30, 1996. Sales for the first nine months
of
-8-
<PAGE> 11
1997 was comprised of $2,098,421 of processing aids and related activities,
$2,047,745 of US packaging materials and $9,901,238 of UK and other European
packaging materials.
Sales of processing aids and related activities increased by
$1,377,970 (191%) compared to the nine months ended September 30, 1996. This
increase was mainly from the inclusion of the revenue from the Company's corn
activities through its majority owned company NewCorn Co LLC, which joint
venture was completed on July 22, 1996. The focus of processing aid activity
continues to be towards new product introduction to larger processors. The
supply of product for testing continues, and in some cases has been expanded
and/or accelerated, and as detailed below, significant costs have been incurred
which are yet to yield material revenue increases. The main market development
work has been, and continues to be, on potatoes, corn and apples. Some of the
initial results of this work are evidenced in the agreements with Potandon
Produce LLC and Farmington Fresh detailed above. The potato and apple markets
are potentially the two largest produce categories and the Company believes that
both of these agreements have the potential to yield significant future revenue
streams to the Company, although no material income is expected in 1997. Product
development continues on broccoli and mushrooms. As mentioned above, the Company
continues to evaluate the most appropriate strategic options with regard to the
development of each fruit or vegetable category. In each case, there can be no
assurance that any such development activity will succeed in generating profits
for the Company.
Sales of US packaging materials increased by $963,479 (89%) over
the same period in 1996, much of which was due to the inclusion in operations of
results from Crystal Specialty Films, Inc. (Crystal) which the Company acquired
in July 1996. The balance of the increase came from growth in the business of
the Company's Respire Films subsidiary, together with an initial contribution
from the contract with DuPont for gas-flame film perforation services. Revenue
from this source, which is serviced from the Crystal factory, is expected to
increase during 1998.
Sales of UK and other European packaging materials increased by
$4,642,377 (88%) in the nine months ended September 30, 1997 compared to the
same period in 1996. This reflected both an increase in the underlying business
of the company formerly known as Bakery Packaging Services Limited (BPS) as well
as the contribution from EPL Flexible Packaging Limited (EPL Flexible) and its
main customer Pepsico. BPS and EPL Flexible now trade under the one name, EPL
Flexible. At the end of 1996/early 1997, the Company relocated all of the film
printing activities previously located at the BPS site to the EPL Flexible site.
In addition, following this relocation, a plant reorganization to facilitate an
increase in higher margin film perforation and conversion capacity at the BPS
site, together with an increase in production capacity from the combined
printing equipment of the EPL Flexible site, were commenced. Costs incurred to
date in connection with this reorganization have had a negative impact on the
gross margin in the first nine months of 1997.
Gross margin for the nine months ended September 30, 1997, was
10.3% as compared to 17.5% for the same period in 1996. This reduction was
principally due to: the inclusion in consolidation of sales of UK and other
European packaging materials, which generate a lower average margin than
processing aids and now represent a greater proportion of total group sales; the
effect of the disproportionate level of fixed costs in packaging manufacturing
operations exacting a disproportionate impact on margins on the seasonably lower
fiscal first half volume levels, which continued to some degree in the third
quarter; the previously noted costs incurred in the relocation of the film
printing activities to the EPL Flexible site; costs associated with the
subsequent plant reorganization at BPS and increase in EPL Flexible production
capacity, which are expected to continue to some degree into the next quarter;
and an adverse sales mix in the period. With the relocation of the printing
presses mentioned above, combined with the significant increase in volumes, the
EPL Flexible site incurred operational inefficiencies in meeting this demand.
While action to address these is being taken, the benefits of this action, to
the extent they materialize, are not expected to begin to affect the Company
until late in 1997 and into 1998.
Selling, general and administrative expenses rose from $3,172,052
for the nine months ended September 30, 1996 to $4,437,477 for the same period
in 1997, an increase of $1,265,425 (40%). This increase was due not only to the
inclusion on consolidation of incremental expenses from the inclusion of EPL
Flexible, Crystal, and NewCorn Co, but also due to the continuing and
accelerating development of the sales and marketing effort as well as projects
to support prospective large customers. As discussed above, this effort is
focused on a number of vegetable categories, including potatoes, corn and
apples, where market development activity is continuing. The Company expects
that this level of additional expenditure will continue at least in the
short-term and may even increase. In addition, the Company continues to spend
significant amounts on patent preparation and filing. Today, the Company has two
US patents and two overseas patents. In addition, however, it has three patents
pending in the US, 26 patent applications pending overseas, as well as two
patents being prepared for application. The Company believes that this patent
expense, which it expects will continue in at least the short term, will help
protect the Company's future anticipated revenues, although in this regard there
can be
-9-
<PAGE> 12
no assurance that this will in fact be the case.
Research and development costs increased from $682,597 for the
first nine months of 1996 to $869,067 for the same period of 1997, an increase
of $186,470 (27%). This reflects increased costs of the scientific activities
related to projects supporting the sales effort for prospective large customers,
which, as previously noted, the Company absorbs. Again, the Company expects that
these higher expenses will continue in the short-term, although it believes the
results of these expenditures will be seen in incremental revenues later in 1997
and beyond. Despite these increases, overheads as a percentage of sales revenue
fell from 54.6% in the nine months ended September 30, 1996 to 37.8% for the
nine months ended September 30, 1997. Depreciation and amortization expense
increased by $241,931 (35%), from $689,428 in the first nine months of 1996 to
$931,359 for the same period of 1997. This reflects increased depreciation and
amortization as a result of capital expenditure and the assets acquired in the
EPL Flexible, Crystal and NewCorn Co acquisitions in the second half of 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Sales for the three months ended September 30, 1997 increased to
$5,147,600 compared with $3,520,474 recorded during the three months ended
September 30, 1996, an increase of $1,627,126 (46%). Of the sales in the third
quarter, processing aids and related activities accounted for $1,090,087, US
packaging materials $692,293 and UK and other European packaging materials
$3,365,220.
Sales of processing aids and related activities rose by $564,396
(107%) compared to the three months ended September 30, 1996. This increase was
mainly due to the inclusion of revenue from the Company's Newcorn Co corn and
other activities as noted above. The focus of processing aid activity continues
to be towards new product introduction to larger processors. The supply of
product for testing continues, and in some cases has been expanded and/or
accelerated, and as detailed below, costs have been incurred which are yet to
yield significant revenue increases. The main market development work has been,
and continues to be, on potatoes, corn and apples. Some of the initial results
of this work are evidenced by the conclusion of the agreements with Potandon
Produce LLC and Farmington Fresh detailed above. The Company believes that both
of these agreements have the potential to yield significant future revenue
streams to the Company, although no material income is expected in 1997. Product
development continues on broccoli and mushrooms. As mentioned above, the Company
continues to evaluate the most appropriate strategic options with regard to the
development of each fruit or vegetable category.
Sales of US packaging materials grew by approximately 8% or
$51,500 from the same period in 1996. The Company continues to target and to
expand product development activities and to exploit synergies that it believes
exist with the processing aid business, together with increasing business from
the contract with DuPont, although there can be no assurance of success.
Sales of UK and other European packaging materials increased by
$1,011,219 (43%) in the three months ended September 30, 1997 compared to the
same period in 1996. This was due to a full quarter of the business from
Pepsico, which only began during the same period in 1996, plus growth in the
underlying business.
Gross margin for the third quarter of 1997 was 11.2% as compared
to 18.9% for the third quarter of 1996. This reduction was also principally due
to the inclusion in consolidation of sales of UK and other European packaging
materials, which, as noted above, generate a lower average margin than
processing aids. However, as mentioned above, it also reflects the effect of the
disproportionate level of fixed costs in packaging manufacturing operations,
reorganization costs and the costs of operational inefficiencies at the EPL
Flexible site arising from this and significantly increased volumes. As
mentioned above, while action to address these is being taken, the benefits of
this action, to the extent they materialize, are not expected to begin to affect
the Company until late in 1997 and into 1998.
Selling, general and administrative expenses rose to $1,733,442 in
the 1997 quarter from $1,271,651, an increase of $461,791 (36%). This was due to
the inclusion in consolidation of expenses related to the inclusion of acquired
subsidiaries and the continuing development of the sales and marketing effort as
well as projects to support prospective, large customer particularly for field
tests of the Company's fresh potato products (the Company expects that this
level of additional expenditure will continue at least in the short term). In
addition, as mentioned above, the Company continues to spend significant amounts
on patent preparation and filing. Research and development costs increased from
$268,496 to $284,064, an increase of $15,568. This reflects the costs to support
the Company's scientific and technical objectives in relation to the ongoing
sales effort for large, prospective customers, particularly with reference to
the field tests noted above. Again, the Company expects that these expenses will
continue to exceed the expenses in 1996. However, overheads as a percentage of
sales revenue fell from 43.7% in the three months ended September 30, 1996 to
39.2% in the same period in 1997. Depreciation and amortization expense
increased by $53,273 from $275,621 in 1996
-10-
<PAGE> 13
to $328,894 in 1997. The majority of this increase was due to increased
depreciation as a result of capital expenditure.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had $1,165,749 in cash and short
term investments, compared with $1,639,567 at December 31, 1996, a decrease of
$473,818. During the nine months ended September 30, 1997, cash has been used to
fund operating activities of $3,857,272 and to finance the purchase of fixed
tangible and intangible assets of $776,919. The increase in net cash used in
operations of $611,251 in the nine months ended September 30, 1997, as compared
to the nine months ended September 30, 1996 reflects the increased loss in 1997
offset by lower amounts used in inventory and a smaller increase in accounts
receivable balances. Total financing activities were $4,144,715 in this period,
principally through the issuance of new stock and the exercise of options and
warrants as mentioned in Notes 5 and 6 above.
In August 1997, the Company, through its wholly-owned English
subsidiary EPL Technologies (Europe) Limited, completed an additional revolving
term loan with the Bank of Scotland. This totaled (pound)400,000 ($646,000 at an
exchange rate of $1.615) and was drawn in full by September 30, 1997. This term
loan matures and carries an interest rate of 2 1/2% over the Bank of Scotland
Base Rate, which base rate is currently 7%. The term loan, together with the
existing Bank of Scotland banking facilities, are collateralized on the assets
of EPL Technologies (Europe) Ltd. and its two main subsidiaries - Bakery
Packaging Services Limited and EPL Flexible Packaging Limited.
As detailed above in Note 9 (Subsequent Events), effective
November 10, 1997, the Company raised gross proceeds of $12,500,000 through the
issuance of the Series D Stock, in a transaction not involving a public
offering. Part of the proceeds of this offering were used to repay the Trilon
Line (as defined in Note 9) on November 12, 1997, whereupon the Company
instructed Trilon to cancel the Trilon Line and to file appropriate releases of
all collateral securing the Trilon Line.
The Company may seek additional financing through an equity
offering or increase in debt facilities such as those agreed with Trilon (see
Note 9 above - Subsequent Events), if the Company believes results of its sales
objectives over the short term are unsatisfactory, although there can be no
assurance that such capital would be available or if available, obtainable on
acceptable terms in such circumstances. The Company's continued ability to
operate is dependent upon its ability to maintain adequate financing and to
achieve levels of revenue necessary to support its cost structure, of which
there can be no assurance. The nature of the processing aid business is such
that fresh-cut produce processors and other third-party users supplying retail
markets require extensive on-site and, in certain cases, independent testing
prior to utilizing the Company's products and related protocols in their
production and then, for competitive reasons, protect the supply relationship
with confidentiality agreements. This results in an extended sales process. The
Company's management believes that this sales process, is the basis for
developing sustainable growth in revenues which will enable the Company to
achieve profitable operations, although there can be no assurance in this
regard. The Company's management also believes that cash flows from consolidated
operations and the availability of financing from other sources such as
borrowing under its available line of credit, or other private or public
issuances of equity which the Company believes may be obtained on acceptable
terms, will allow the Company to maintain adequate financing for the next year,
assuming minimal sales budgets are met.
At September 30, 1997 the Company had 284,501 warrants (i.e.
excluding those issued in connection with the Series D Stock) outstanding to
purchase shares of common stock at between $1.00 and $5.00 per share, which if
exercised would provide the Company with gross proceeds of approximately
$807,000. In addition, at September 30, 1997 the Company had 2,855,000 options
outstanding to purchase shares of common stock at a weighted average price of
$3.45 per share, which if exercised would provide the Company with gross
proceeds of approximately $9,850,000. There can be no assurance, however, that
any such exercises will occur. At September 30, 1997, there were no material
commitments for capital expenditures.
FORWARD LOOKING STATEMENTS
The discussion above includes certain forward looking statements
regarding the Company's expectations on gross margin, expenses, market
penetration, success in obtaining large new customers, possible acquisitions,
access to debt or equity capital and new product introduction. Consequently,
actual results may vary materially from such expectations. Meaningful factors
that might affect such results include : a) the length and effectiveness of the
sales process for processing aids and packaging, b) raw material availability
and pricing, c) changes in regulatory environment that might adversely affect
marketing of the Company's products, d) the length of time to scale up
production in connection with the apple and potato contracts referred to above,
and e) difficulty with research and development activities regarding new
products, including extension of necessary time periods or increase in expense
for product introduction.
-11-
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit 3.1 - Amended and Restated Articles of Incorporation
of the Company, as amended to date.
Exhibit 3.2 - Amended and Restated By-Laws of the Company,
as amended to date.
Exhibit 4.4 - Series D Preferred Stock - Securities Purchase
Agreement
Exhibit 4.5 - Series D Preferred Stock - Registration Rights
Agreement
Exhibit 10.12 - Trademark License Agreement between IPS
Produce, Inc. and Potandon Produce LLC.*
Exhibit 11.0 - Computation of Loss per share
b) Reports on Form 8-K
On September 25, 1997, the Company filed a report on Form
8-K under Item 5 thereof, in connection with the execution
by IPS Produce, Inc., a subsidiary of the Company, of a
trademark license agreement and strategic alliance with
Potandon Produce LLC.
* Confidential treatment has been requested for certain
portions thereof. Such portions have been filed separately
with the Securities and Exchange Commission.
-12-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EPL TECHNOLOGIES, INC.
Date: November 14, 1997 /s/ Paul L. Devine
--------------------
Paul L. Devine
Chairman and President
(Principal Executive Officer)
Date: November 14, 1997 /s/ Timothy B. Owen
----------------------
Timothy B. Owen
Principal Financial Officer
-13-
<PAGE> 1
EPL Technologies, Inc.
Exhibit 3.1
Amended and Restated Articles of Incorporation
of the Company, as amended to date
<PAGE> 2
Exhibit 3.1
FOR OFFICE USE ONLY
MAIL TO: SECRETARY OF STATE
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202
(303) 894-2251
(303) 894-2242
MUST BE TYPED
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
PLEASE INCLUDE A TYPED TO THE
SELF-ADDRESSED ENVELOPE ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is EPL Technologies, Inc.
----------------------------------------
SECOND: the following amendment to the Articles of Incorporation was adopted on
July 21, 1997, as prescribed by the Colorado Business Corporation Act,
- -------------
in the manner marked with an X below:
No shares have been issued or Directors Elected - Action by Incorporators
- ---
No shares have been issued but Directors Elected - Action by Directors
- ---
Such amendment was adopted by the board of directors where shares have been
- --- issued.
X Such amendment was adopted by a vote of the shareholders. The number of
- --- shares voted for the amendment was sufficient for approval.
See Exhibit A
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows:
<TABLE>
<S> <C>
If these amendments are to have a delayed effective date, please list that date: n/a
(Not to exceed ninety (90) days from the date of filing) ----------------------------
----------------------------
By /s/ Timothy B. Owen
----------------------------
Its Secretary and Treasurer
----------------------------
(Title)
</TABLE>
<PAGE> 3
EXHIBIT A
RESOLVED, that Paragraph A. of Article V of the Articles of Incorporation of the
Company be amended and restated to read in its entirety as follows:
The Corporation shall have the authority to issue fifty million
(50,000,000) shares of common stock with a par value $0.001 per share,
three million two hundred fifty thousand (3,250,000) shares of Series A
10% Cumulative Convertible Preferred Stock with a par value of $1.00
per share ("Series A Preferred Stock"), 531,915 shares of Series B 10%
Cumulative Convertible Preferred Stock with a par value of $0.01 per
share ("Series B Preferred Stock"), 144,444 shares of Series C
Convertible Preferred Stock with a par value of $0.01 per share
("Series C Preferred Stock") and three million, three hundred
twenty-three thousand, six hundred forty-one (3,323,641) shares of
preferred stock with a par value of $0.01 per share ("Board Designated
Preferred Stock"). The Board of Directors of the Corporation may
determine, in whole or in part, the preferences, limitations, and
relative rights of the Board Designated Preferred Stock, within the
limits set forth in Section 7-106-101 of the Colorado Business
Corporation Act, of any class of the Board Designated Preferred Stock,
before the issuance of any shares of that class, or one or more series
within a class of the Board Designated Preferred Stock before the
issuance of any shares of that series. The Board of Directors may
issue, in one or more classes or series, shares of the Board Designated
Preferred Stock with full, limited, multiple, fractional or no voting
rights, and with such designations, preferences, qualifications,
privileges, limitations, restrictions, options, conversion rights, or
other special or relative rights as shall be fixed from time to time by
the Board of Directors, except for and subject to, in each case, the
limits set forth in Section 7-106-101 of the Colorado Business
Corporation Act and in accordance with the provisions and requirements
of Section 7-106-102 of the Colorado Business Corporation Act.
<PAGE> 4
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
EPL TECHNOLOGIES, INC.
Pursuant to the provisions of the Colorado Business Corporation Act,
the undersigned corporation (the "Corporation") adopts the following Amended
and Restated Articles of Incorporation. The Corporation certifies as follows:
FIRST: The name of the Corporation is EPL Technologies, Inc.
SECOND: Paragraph A of Article V of the Articles of Incorporation has been
amended to read as it appears below. The amendment was adopted on
July 22, 1996 by a vote of the shareholders. The number of shares
voted for the amendment was sufficient for approval.
THIRD: The following restatement of the Articles of Incorporation was adopted
on July 22, 1996 by the Board of Directors of the Corporation without
shareholder action, as shareholder action was not required for such
restatement.
FOURTH: The following articles correctly set forth the provisions of the
Articles of Incorporation, as amended, and supersede the original
Articles of Incorporation and all amendments thereto:
ARTICLE I
The name of the Corporation is EPL Technologies, Inc.
ARTICLE II
The period of duration of the Corporation shall be perpetual.
ARTICLE III
The purposes for which the Corporation is organized are: The
transaction of all lawful business for which corporations may be incorporated
pursuant to the laws of the State of Colorado, whether acting singly or in
conjunction with any other person or entity.
ARTICLE IV
In furtherance of the purposes set forth in Article III of these
Articles of Incorporation, the Corporation shall have and may exercise all of
the rights, powers, and privileges now or hereafter conferred upon corporations
organized under and pursuant to the laws of the State of Colorado.
<PAGE> 5
ARTICLE V
A. Authorized Shares. The Corporation shall have the authority to issue
fifty million (50,000,000) shares of common stock with a par value $0.001 per
share, three million two hundred fifty thousand (3,250,000) shares of Series A
10% Cumulative Convertible Preferred Stock with a par value of $1.00 per share
("Series A Preferred Stock") and two million (2,000,000) shares of preferred
stock with a par value of $.01 per share ("Board Designated Preferred Stock").
The Board of Directors of the Corporation may determine, in whole or in part,
the preferences, limitations, and relative rights of the Board Designated
Preferred Stock, within the limits set forth in Section 7-106-101 of the
Colorado Business Corporation Act, of any class of the Board Designated
Preferred Stock, before the issuance of any shares of that class, or one or
more series within a class of the Board Designated Preferred Stock before the
issuance of any shares of that series. The Board of Directors may issue, in one
or more classes or series, shares of the Board Designated Preferred Stock with
full, limited, multiple, fractional or no voting rights, and with such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, or other special or relative rights
as shall be fixed from time to time by the Board of Directors, except for and
subject to, in each case, the limits set forth in Section 7-106-101 of the
Colorado Business Corporation Act and in accordance with the provisions and
requirements of Section 7-106-102 of the Colorado Business Corporation Act.
B. Transfer Restrictions. The Corporation shall have the right, by
appropriate action, to impose restrictions upon the transfer of any shares of
its stock or any interest therein, from time to time provided that any
restrictions imposed, or notice of the substance thereof, shall be set forth
upon the face or back of the Certificates representing the Corporation's shares
of stock.
C. Preemptive Rights. The holders of the shares of the common stock of
the Corporation shall not be entitled, as of right, to purchase or subscribe
for any unissued or treasury stock of any class, or any additional stock of any
class to be issued by reason of any increase of the authorized shares of the
Corporation of any class, or any bonds, certificates of indebtedness,
debenture, or other securities, rights, warrants or options convertible into
shares of the Corporation or carrying any right to purchase shares of any class
in accordance with their proportionate equity in the Corporation.
D. Cumulative Voting. The cumulative system of voting for Directors or
for any other purpose shall not be allowed.
E. Series A Preferred Stock. The terms, preferences and relative,
participating, optional or other special rights of the Series A Preferred Stock
and the limitations and restrictions thereof are as follows:
Dividend Rights. Holders of the Series A Preferred Stock are entitled to
dividends at the rate of 10% per annum of the par value of the stock. At
the option of the Corporation, these dividends may be paid either in
cash or in common stock. If the dividends are paid in common stock, the
common stock will be valued at the conversion price, which is $0.75 per
share (subject to adjustment for stock splits, stock dividends, the
effect of mergers and the like). If the dividends are not paid, the
right to receive unpaid dividends will accumulate, but without interest.
No dividends may be paid on
<PAGE> 6
the common stock at a time when payment of dividends on the Series A
Preferred Stock is in arrears.
Terms of Conversion. Each share of Series A Preferred Stock may be
converted into that number of full shares of common stock of the
Corporation determined by dividing $1.00 by the Conversion Price of $0.75
per share (subject to adjustment for stock splits, stock dividends, the
effect of mergers and the like). Conversion may be elected by the holder of
the Series A Preferred Stock at any time prior to payment of a distribution
in liquidation with respect to the Series A Preferred Stock. Payment in
cash will be made in lieu of issuance of fractional shares.
Voting Rights. Each holder of Series A Preferred Stock is entitled to the
number of votes equal to the number of whole shares of common stock into
which the shares of Series A Preferred Stock are convertible. Except when
voting by class or series is required by law or the Articles of
Incorporation, holders of the Series A Preferred Stock shall vote together
with the holders of the common stock as a single class.
Liquidation Rights. In the event of a liquidation, dissolution or winding
up of the Corporation, the holders of shares of Series A Preferred Stock
are entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders $1.00 per share (subject to adjustment for
stock splits, stock dividends, the effect of mergers and the like affecting
the Series A Preferred Stock). This payment shall be made in full by the
Corporation prior to any payment being made to the holders of the common
stock.
No Other Rights. The Series A Preferred Stock will not have the benefit of
any sinking fund provisions, any redemption provisions, any preemptive
rights to subscribe to any additional shares of any class or series of the
Corporation's stock, or any liability to further calls or assessments. The
Series A Preferred Stock will not have any right to elect a separate class
of Directors of the Corporation. There is no restriction on the repurchase
or redemption of any shares of the Corporation while there is any arrearage
in the payment of dividends on the Series A Preferred Stock.
F. Indemnification. The Corporation shall, to the fullest extent permitted
by law, indemnify Incorporators, Directors, Officers, employees, fiduciaries,
agents, consultants or other parties whom it shall have power to indemnify from
and against any expenses (including attorney's fees), liabilities, claims or
other matters arising by reason of the person's relationship with the
Corporation. The Corporation may obtain and pay for insurance for that purpose.
The indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under these Articles or
any Bylaw, agreement, vote of shareholders, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office. This indemnification shall continue as to a person who has terminated
his position for actions occurring during the period of his relationship with
the Corporation, and shall inure to the benefit of the heirs, executors,
personal representatives, and administrators of such a person.
<PAGE> 7
ARTICLE VI
The Board of Directors of the Corporation shall consist of not less
than three (3) nor more then seven (7) directors, as set forth in the Bylaws
of the Corporation, who need not be shareholders of the Corporation or
residents of the State of Colorado.
ARTICLE VII
No contract or other transaction between the Corporation and one or
more of its Directors, Officers, agents or employees or any other corporation,
firm, association or entity in which one or more of its Directors, Officers,
agents or employees are directors or officers or are financially interested in
shall be either void or voidable because of such relationship or interest, or
because such Directors or Officers are present at a meeting of the Board of
Directors or a Committee thereof which authorizes, approves or ratifies such
contract or transaction, or because their votes were counted for such purpose
if:
A. The fact of such relationship or interest is disclosed or known
to the Board of Directors or Committee which authorizes, approves or ratifies
the contract or transaction by a majority vote of uninterested directors; or
B. The fact of such relationship or interest is disclosed or known
to the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
C. The contract or transaction is fair and reasonable to the
Corporation.
Interested Directors or Officers may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
ARTICLE VIII
In addition to the other powers now or hereafter conferred upon the
Board of Directors by these Articles of Incorporation, the Bylaws of the
Corporation, or by the law of Colorado, the Board of Directors may from time to
time distribute to the shareholders in partial liquidation, out of the stated
capital or the capital surplus of the Corporation, a portion of the corporate
assets, in cash or in kind; subject, however, to the limitations contained in
the Colorado Business Corporation Act.
ARTICLE IX
With respect to any action to be taken by shareholders of this
Corporation, a vote or concurrence of the holders of a majority of the
outstanding shares present or represented at a meeting and entitled to vote
thereon shall be required.
<PAGE> 8
ARTICLE X
The address of the Registered Office of the Corporation is 1675
Broadway, Denver, Colorado 80202. The name of the Registered Agent of the
Corporation at such address is The Corporation Company.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in, or to add any provisions to, its Articles of
Incorporation from time to time, in any manner permitted by law.
EPL TECHNOLOGIES, INC.
By:
---------------------------------
Name: Shawn J. Collins
Title: Secretary
<PAGE> 9
-------------------
FOR OFFICE USE ONLY
MAIL TO: SECRETARY OF STATE
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202
(303) 894-2251
FAX (303) 894-2242
MUST BE TYPED -------------------
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
PLEASE INCLUDE A TYPED
SELF-ADDRESSED ENVELOPE
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is EPL Technologies, Inc.
SECOND: The following amendment to the Articles of Incorporation was adopted on
July 22, 1996, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
/ / No shares have been issued or Directors Elected - Action by
Incorporators
/ / No shares have been issued but Directors Elected - Action by Directors
/X/ Such amendment was adopted by the board of directors where shares have
been issued.
/ / Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: See amendment attached.
If these amendments are to have a delayed effective date, please list that date:
N/A
- --------------------------------------------------------
(Not to exceed ninety (90) days from the date of filing)
EPL Technologies, Inc.
By /s/ SHAWN J. COLLINS
----------------------------
Its Secretary
------------------------
Title
<PAGE> 10
Certificate of Designation, Number, Voting Powers,
Preferences and Rights of the Series of the Preferred Stock
of
EPL TECHNOLOGIES, INC.
To be Designated
Series B Convertible Preferred Stock
EPL Technologies, Inc., a Colorado corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation by
its Articles of Incorporation, and in accordance with the provisions of Section
7-108-101 of the Colorado Business Corporation Act ("CBCA"), certifies that the
Board of Directors of the Corporation, at a meeting duly called and held
pursuant to Section 7-108-201 of the CBCA, duly adopted the following
resolution providing for the establishment and issuance of a series of
Preferred Stock to be designated "Series B Convertible Preferred Stock" and to
consist of 531,915 shares as follows:
RESOLVED, that, pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation in accordance with the provisions
of its Amended and Restated Certificate of Incorporation, as amended, a series
of Preferred Stock of the Corporation be and hereby is established, consisting
of 531,915 shares, to be designated "Series B Convertible Preferred Stock" (the
"Series B Preferred Stock"); the Board of Directors be and hereby is authorized
to issue such shares of Series B Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
subject to the limitations provided by law and by
<PAGE> 11
the Articles of Incorporation, the powers, designations, preferences and
relative, participating, option or other special rights of, and the
qualifications, limitations or restrictions upon, the Series B Preferred Stock
shall be as follows:
2
<PAGE> 12
1. Dividends
In each fiscal year of the Corporation, the holders of shares
of Series B Preferred Stock shall be entitled to receive, before any cash
dividends shall be declared and paid upon or set aside for the Common Stock in
such fiscal year, out of the funds legally available for that purpose,
dividends at a rate of ten percent (10%) per annum, or $.47 per share, and no
more, in cash or in stock, at the Corporation's discretion, (i. e., stock at
the stated conversion price) and in preference and priority to any payment of
any cash dividend on Common Stock or any other shares of capital stock of the
Corporation ranking on liquidation junior to the Series B Preferred Stock by
reason of their ownership thereof ("Junior Shares") and pari passu with the
Series A Preferred Stock or any other shares of capital stock of the
Corporation ranking on liquidation pari passu with the Series B Preferred
Stock.
Dividends shall accrue and be deemed to accrue from day to day
whether or not earned or declared and shall be cumulative so that if at any
time after the issuance of the Series B Preferred Stock such dividends shall
not have been paid, or declared and set apart for payment, the deficiency shall
be fully paid on or declared and set apart for payment before any dividend
shall be paid on or declared or set apart for any shares of Junior Shares is
made by the Corporation, except the repurchase of Junior Shares from employees
of this Corporation upon termination of employment. Any accumulation of
dividends on the Series B Preferred Stock shall not bear interest.
2. Liquidation, Dissolution or Winding Up
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series B Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of any class of series of stock of the
Corporation ranking on liquidation prior and in preference to the Series B
Preferred Stock, but before any payment shall be made to the holders of Common
Stock or any other Junior Shares, an amount
3
<PAGE> 13
equal to $4.70 per share of Series B Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares). If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series B Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series B
Preferred Stock and any other class of series of stock ranking on liquidation
on a parity with the Series B Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full. The Series B Preferred Stock shall
rank on liquidation on a parity with the Series A Preferred Stock and the
Common Stock shall constitute Junior Shares hereunder.
(b) After the payment of all preferential amounts
required to be paid to the holders of any class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series B
Preferred Stock and any other class or series of stock of the Corporation
ranking on liquidation on a parity with the Series B Preferred Stock, upon the
dissolution, liquidation or winding up of the Corporation, the holders of
shares of Common Stock or any other Junior Shares then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation available
for distribution to its stockholders.
3. Voting
(a) Each holder of outstanding shares of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series B Preferred Stock held
by such holder are convertible (as adjusted from time to time pursuant to
Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and
all matters presented to the stockholders of the Corporation for their action
or consideration. Except as required by law or
4
<PAGE> 14
by the provisions of its Amended and Restated Certificate of Incorporation, as
amended from time to time, holders of Series B Preferred Stock and any other
outstanding series of Preferred Stock shall vote together with the holders of
Series A Preferred Stock and the Common Stock as a single class or "voting
group" within the meaning of the Colorado Business Corporation Act.
(b) The Corporation shall not (i) amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, or (ii) amend, alter or
modify its Articles of Incorporation to increase the number of authorized
shares of Series B Preferred Stock, without the written consent or affirmative
vote of the holders of a majority of the then outstanding shares of the Series
B Preferred Stock in writing or by vote at a meeting, consenting or voting (as
the case may be) separately as a class. For this purpose, without limiting
the generality of the foregoing, the authorization of any class or series of
stock with preference or priority over the Series B Preferred Stock as to the
right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up the Corporation shall be deemed to affect adversely
the Series B Preferred Stock, and the authorization of any class or series of
stock on a parity with the Series B Preferred Stock as to the rights to receive
either dividends or amounts distributable upon liquidation, dissolution or
winding up of the Corporation shall not be deemed to affect adversely the
Series B Preferred Stock.
4. Optional Conversion The holders of the Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert Each share of Series B
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $4.70 by the Conversion Price (as defined
below) in effect at the time of conversion for each share of Series B Preferred
Stock. The conversion price at which shares of Common Stock shall be
deliverable upon conversion of Series B Preferred Stock without the payment of
additional consideration by the holder thereof (the "Conversion Price") shall
initially be $4.70. Such initial
5
<PAGE> 15
Conversion Price, and the rates at which shares of Series B Preferred Stock may
be converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a liquidation of the Corporation, the Conversion
Rights shall terminate at the close of business on the first full day preceding
the date fixed for the payment of any amounts distributable on liquidation to
the holders of Series B Preferred Stock.
(b) Fractional Shares No fractional shares of
Common Stock shall be issued upon conversion of the Series B Preferred Stock.
In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price.
(c) Mechanics of Conversion
(i) In order for a holder of Series B Preferred
Stock to convert shares of Series B Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Series B Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of the Series B Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his, her, or its attorney duly
authorized in writing. The date of receipt of such certificates and notice by
the transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be the Conversion Date. The Corporation shall, as soon
as practicable after the Conversion Date, issue and deliver at such office to
such holder, or to his, her, or its nominees, a certificate or certificates for
the number of shares of Common
6
<PAGE> 16
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the
Series B Preferred Stock shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series B Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series B Preferred Stock. Before taking any
action which would cause an adjustment reducing the Conversion Price below the
then par value of the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock at each such adjusted Conversion Price.
(d) Issue of Securities Deemed Issue of Additional Shares
of Common Stock
(i) Adjustment for Merger or Reorganization, etc.
In case of any consolidation or merger of the Corporation with or into another
corporation or the sale of all or substantially all of the assets of the
Corporation to another corporation, each share of Series B Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of
Common Stock of the Corporation deliverable upon conversion of such Series B
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith
by the Board of Directors) shall be made in the application of the provisions
in this Section 4 set forth with respect to the rights and interest thereafter
of the holders of the Series B Preferred Stock, to the end that the provisions
set forth in this Section 4 (including provisions with respect to changes in
and other adjustments of the Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series B Preferred
Stock.
7
<PAGE> 17
(ii) No Impairment
The Corporation will not by amendment of its Restated
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
(iii) Certificate as to Adjustments
Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series B Preferred
Stock.
(5) Notice of Record Date In the event:
(i) that the Corporation declares a dividend (or
any other distribution) on its Common Stock
payable in Common Stock or other securities
of the Corporation;
(ii) that the Corporation subdivides or combines
its outstanding shares of Common Stock;
8
<PAGE> 18
(iii) of any reclassification of the Common Stock
of the Corporation (other than a subdivision
or combination of its outstanding shares of
Common Stock or a stock distribution
thereon), or of any consolidation or merger
of the Corporation into or with another
corporation, or of the sale of all or
substantially all of the assets of the
Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation; then the Corporation shall cause
to be filed at its principal office or at the office of the transfer agent of
the Series B Preferred Stock, and shall cause to be mailed to the holders of
the Series B Preferred Stock at their last addresses as shown on the records of
the Corporation or such transfer agent, at least ten days prior to the record
date specified in (A) below or 20 days before the date specified in (B) below,
a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is
not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination
are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to become
effective, and the date as of which it is expected
that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock
for securities or other property deliverable upon
such reclassification, consolidation, merger,
sale, dissolution or winding up.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed hereto and this Certificate of Designation to
9
<PAGE> 19
be signed by its Chief Executive Officer and attested by its Secretary this
23rd day of July, 1996
/s/ Paul L. Devine
- -----------------------------------------------
Paul L. Devine
Chairman, President and Chief Executive Officer
EPL Technologies, Inc.
/s/ Shawn J. Collins
- -----------------------------------------------
Shawn J. Collins
Secretary
EPL Technologies, Inc.
10
<PAGE> 20
[STAMP: STOCK CHANGE]
MAIL TO: SECRETARY OF STATE FOR OFFICE USE ONLY
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200 19971097232 C
DENVER, CO 80202 $25.00
(303) 894-2251 SECRETARY OF STATE
FAX (303) 894-2242 06-18-97 14:39:21
MUST BE TYPED
FILING FEE: $25.00
MUST SUBMIT TWO COPIES DPC 19871604254
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
PLEASE INCLUDE A TYPED
SELF-ADDRESSED ENVELOPE
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is EPL Technologies, Inc. ncgs
SECOND: The following amendment to the Articles of Incorporation was adopted on
June 18, 1997, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
___ No shares have been Issued or Directors Elected - Action by Incorporators
___ No shares have been Issued but Directors Elected - Action by Directors
X Such amendment was adopted by the board of directors where shares have been
___ issued.
___ Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
A total of 144,444 shares of the duly authorized preferred stock, $.01 par
value, of the corporation shall be designated Series C Convertible Preferred
Stock and shall have the powers, preferences, rights, qualifications and
restrictions set forth on the Certificate of Designation attached hereto as
Exhibit A.
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows: see above
If these amendments are to have a delayed effective date, please list that
date: n/a
(Not to exceed ninety (90) days from the date of filing)
/s/ Timothy B. Owen
---------------
By Timothy B. Owen
---------------
Its Secretary
---------
Title
<PAGE> 21
EXHIBIT A
1. Dividends
In each fiscal year of the Corporation, the holders of shares of
Series C Preferred Stock shall be entitled to receive, when and as declared,
before any cash dividends shall be declared and paid upon or set aside for the
Common Stock in such fiscal year, out of the funds legally available for that
purpose, dividends at a rate of ten percent (10%) per annum, or $.45 per share,
and no more, in cash or in stock, at the Corporation's discretion, (i. e., stock
at the stated conversion price) and in preference and priority to any payment of
any cash dividend on Common Stock or any other shares of capital stock of the
Corporation ranking on liquidation junior to the Series C Preferred Stock by
reason of their ownership thereof ("Junior Shares").
Dividends shall accrue and be deemed to accrue from day to day
whether or not earned or declared and shall be cumulative so that if at any time
after the issuance of the Series C Preferred Stock such dividends shall not have
been paid, or declared and set apart for payment, the deficiency shall be fully
paid on or declared and set apart for payment before any dividend shall be paid
on or declared or set apart for any shares of Junior Shares is made by the
Corporation, except the repurchase of Junior Shares from employees of this
Corporation upon termination of employment. Any accumulation of dividends on the
Series C Preferred Stock shall not bear interest.
2. Liquidation, Dissolution or Winding Up
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its shareholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series C Preferred Stock, but before
any payment shall be made to the holders of Common Stock or any other Junior
Shares, an amount equal to $4.50 per share of Series C Preferred Stock (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares). If upon
any such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its shareholders shall
be insufficient to pay the holders of shares of Series C Preferred Stock the
full amount to which they shall be entitled, the holders of shares of Series C
Preferred Stock and any other class or series
A-1
<PAGE> 22
of stock ranking on liquidation on a parity with the Series C Preferred Stock
shall share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full. The Series
C Preferred Stock shall rank on liquidation on a parity with the Series A
Preferred Stock and Series B Preferred Stock, and the Common Stock shall
constitute Junior Shares hereunder.
(b) After the payment of all preferential amounts required to be
paid to the holders of any class or series of stock of the Corporation ranking
on liquidation prior and in preference to the Series C Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series C Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Common Stock or any
other Junior Shares then outstanding shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to its
shareholders.
3. Voting
(a) Each holder of outstanding shares of Series C Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series C Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of shareholders of the Corporation (and written actions
of shareholders in lieu of meetings) with respect to any and all matters
presented to the shareholders of the Corporation for their action or
consideration. Except as required by law or by the provisions of its Amended and
Restated Certificate of Incorporation, as amended from time to time, holders of
Series C Preferred Stock and any other outstanding series of Preferred Stock
shall vote together with the holders of Series A Preferred Stock, Series B
Preferred Stock and Common Stock as a single class or "voting group" within the
meaning of the Colorado Business Corporation Act.
(b) The Corporation shall not (i) amend, alter or repeal the
preferences, special rights or other powers of the Series C Preferred Stock so
as to affect adversely the Series C Preferred Stock, or (ii) amend, alter or
modify its Articles of Incorporation to increase the number of authorized shares
of Series C Preferred Stock, without the written consent or affirmative vote of
the holders of a majority of the then outstanding shares of the Series C
Preferred Stock in writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class. For this purpose, without limiting the
generality of the foregoing, the
A-2
<PAGE> 23
authorization of any class or series of stock with preference or priority over
the Series C Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up the
Corporation shall be deemed to affect adversely the Series C Preferred Stock,
and the authorization of any class or series of stock on a parity with the
Series C Preferred Stock as to the rights to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall not be deemed to affect adversely the Series C Preferred Stock.
4. Optional Conversion The holders of the Series C Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert Each share of Series C Preferred Stock shall
be convertible, at the option of the holder thereof, at any time into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $4.50 by the Conversion Price (as defined below) in effect at the
time of conversion for each share of Series C Preferred Stock. The conversion
price at which shares of Common Stock shall be deliverable upon conversion of
Series C Preferred Stock without the payment of additional consideration by the
holder thereof (the "Conversion Price") shall initially be $4.50. Such initial
Conversion Price, and the rates at which shares of Series C Preferred Stock may
be converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series C Preferred Stock.
(b) Fractional Shares No fractional shares of Common Stock shall
be issued upon conversion of the Series C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) Mechanics of Conversion
(i) In order for a holder of Series C Preferred Stock to
convert shares of Series C Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
C Preferred Stock at the office of the Corporation's transfer agent (or at the
principal office of the Corporation if the Corporation serves as its own
A-3
<PAGE> 24
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series C Preferred Stock represented by
such certificate or certificates. Such notice shall state such holder's name. If
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his, her, or its attorney duly authorized in writing. The date of receipt of
such certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the Conversion Date. The
Corporation shall, as soon as practicable after the Conversion Date, issue and
deliver at such office to such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series C
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series C Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series C Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at each such
adjusted Conversion Price.
(d) Adjustment of Conversion Price
(i) Adjustment for Anti-Dilution, Merger or Reorganization,
etc. The Conversion Price and the number and kind of securities issuable upon
the conversion of the Series C Preferred Stock shall be subject to adjustment
from time to time, but only upon the occurrence of any of the events as
hereinafter provided:
(A) In the event the Corporation shall issue Common
Stock as a dividend upon Common Stock or in payment of a dividend thereon, the
Conversion Price then in effect shall be proportionately decreased, effective at
the close of business on the record date for the determination of shareholders
entitled to receive the same (it being understood that any issuance of Common
Stock as a dividend on any class or series of the Corporation's preferred stock
shall have no effect on the Conversion Price);
A-4
<PAGE> 25
(B) In the event the Corporation shall at any time
subdivide or combine its outstanding shares of Common Stock, by reclassification
or otherwise, the Conversion Price then in effect shall be proportionately
decreased or increased, as the case may be, effective immediately after the
effective date of such subdivision or combination; and
(C) If any capital reorganization or reclassification of
the capital stock of the Corporation, or consolidation or merger of the
Corporation with another corporation, or the sale of all or substantially all of
its assets to another corporation shall be effected, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holders of the Series C Preferred
Stock shall thereafter have the right to purchase and receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of the
Common Stock of the Corporation purchasable and receivable upon the conversion,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of Common Stock
equal to the number of shares of such Common Stock purchasable and receivable
upon the conversion of the Series C Preferred Stock had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
reorganization, reclassification, consolidation, merger or sale, appropriate
provision shall be made with respect to the rights and interests of the holders
of Series C Preferred Stock to the end that the provisions of the Series C
Preferred Stock (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Series C Preferred Stock) shall thereafter be applicable as nearly as may be in
relation to any shares of stock, securities, or assets thereafter deliverable
upon exercise of stock, securities, or assets thereafter deliverable upon
conversion of Series C Preferred Stock. The Corporation shall not effect any
such consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor corporation (if other than the Corporation)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument, the obligation to deliver to the
holders of Series C Preferred Stock such shares of stock, securities, or assets
as, in accordance with the foregoing provisions, the holders of Series C
Preferred Stock may be entitled to purchase.
(ii) No Impairment
The Corporation will not by amendment of its Amended and
Restated Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger,
A-5
<PAGE> 26
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series C Preferred Stock against
impairment.
(iii) Certificate as to Adjustments
Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series C Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series C Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
then in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the conversion of
Series C Preferred Stock.
(5) Notice of Record Date In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or
other securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the Corporation
(other than a subdivision or combination of its outstanding
shares of Common Stock or a stock distribution thereon), or of
any consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially
all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C Preferred Stock, and shall cause to
be mailed to the holders of the
A-6
<PAGE> 27
Series C Preferred Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten days prior to the record date
specified in (A) below or twenty days before the date specified in (B) below, a
notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled
to such dividend, distribution, subdivision or combination are
to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
A-7
<PAGE> 28
STOCK CHANGE MAIL TO: SECRETARY OF STATE FOR OFFICE USE ONLY
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200 19971132298 C
DENVER, CO 80202 $25.00
(303) 894-2251 SECRETARY OF STATE
FAX (303) 894-2242 08-19-97 15:00:42
MUST BE TYPED
FILING FEE $25.00 DPC 19871604254
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
PLEASE INCLUDE A TYPED
SELF-ADDRESSED ENVELOPE
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is EPL Technologies, Inc. ncgs
---------------------------------------
SECOND: The following amendment to the Articles of Incorporation was adopted on
July 21, 1997, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
No shares have been issued or Directors Elected - Action by Incorporators
- -----
No shares have been issued but Directors Elected - Action by Directors
- -----
Such amendment was adopted by the board of directors where shares have
- ----- been issued.
X Such amendment was adopted by a vote of the shareholders. The number of
- ----- shares voted for the amendment was sufficient for approval.
See Exhibit A
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
If these amendments are to have a delayed effective date, please list that
date: n/a
--------
(Not to exceed ninety (90) days from the date of filing)
/s/ Timothy B. Owen
------------------------------
By Timothy B. Owen
------------------------------
Its Secretary
---------------------------
Title
<PAGE> 29
EXHIBIT A
RESOLVED, that Paragraph A, of Article V of the Articles of Incorporation of
EPL Technologies, Inc. is amended and restated to read in its entirety as
follows:
The Corporation shall have the authority to issue fifty million
(50,000,000) shares of common stock with a par value $0.001 per share,
three million two hundred fifty thousand (3,250,000) shares of Series A
10% Cumulative Convertible Preferred Stock with a par value of $1.00 per
share ("Series A Preferred Stock"), 531,915 shares of Series B Convertible
Preferred Stock with a par value of $0.01 per share ("Series B Preferred
Stock"), 144,444 shares of Series C Convertible Preferred Stock with a par
value of $0.01 per share ("Series C Preferred Stock") and three million,
three hundred twenty-three thousand, six hundred forty-one (3,323,641)
shares of preferred stock with a par value of $0.01 per share ("Board
Designated Preferred Stock"). The Board of Directors of the Corporation
may determine, in whole or in part, the preferences, limitations, and
relative rights of the Board Designated Preferred Stock, within the limits
set forth in Section 7-106-101 of the Colorado Business Corporation Act,
of any class of the Board Designated Preferred Stock, before the issuance
of any shares of that class, or one or more series within a class of the
Board Designated Preferred Stock before the issuance of any shares of that
series. The Board of Directors may issue, in one or more classes or
series, shares of the Board Designated Preferred Stock with full, limited,
multiple, fractional or no voting rights, and with such designations,
preferences, qualifications, privileges, limitations, restrictions,
options, conversion rights, or other special or relative rights as shall
be fixed from time to time by the Board of Directors, except for and
subject to, in each case, the limits set forth in Section 7-106-101 of the
Colorado Business Corporation Act and in accordance with the provisions
and requirements of Section 7-106-102 of the Colorado Business Corporation
Act.
<PAGE> 30
FOR OFFICE USE ONLY
MAIL TO: SECRETARY OF STATE
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202
(303) 894-2251
(303) 894-2242
MUST BE TYPED
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
PLEASE INCLUDE A TYPED TO THE
SELF-ADDRESSED ENVELOPE ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is EPL Technologies, Inc.
----------------------------------------
SECOND: the following amendment to the Articles of Incorporation was adopted on
November 3, 1997, as prescribed by the Colorado Business Corporation Act,
- -------------
in the manner marked with an X below:
No shares have been issued or Directors Elected - Action by Incorporators
- ---
No shares have been issued but Directors Elected - Action by Directors
- ---
X Such amendment was adopted by the board of directors where shares have been
- --- issued.
Such amendment was adopted by a vote of the shareholders. The number of
- --- shares voted for the amendment was sufficient for approval.
See Exhibit A
THIRD: A changing corporate XXX
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be affected, is as follows:
see above
<TABLE>
<S> <C>
If these amendments are to have a delayed effective date, please list that date: n/a
(Not to exceed ninety (90) days from the date of filing) ----------------------------
----------------------------
By /s/ Timothy B. Owen
----------------------------
Its Secretary and Treasurer
----------------------------
(Title)
</TABLE>
<PAGE> 31
EXHIBIT A
CERTIFICATE OF DESIGNATION, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF THE SERIES OF THE PREFERRED STOCK
OF
EPL TECHNOLOGIES, INC.
TO BE DESIGNATED
SERIES D CONVERTIBLE PREFERRED STOCK
Series D Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 12,500 shares of
Preferred Stock, is Series D Convertible Preferred Stock (the "Series D
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
II. Rank
The Series D Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.001 per share (the "Common Stock"); (ii) prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of the holders of Series D Preferred Stock obtained in
accordance with Article IX hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series D
Preferred Stock) (together with the Common Stock, "Junior Securities"); (iii)
pari passu with the Corporation's Series A 10% Cumulative Preferred Stock, par
value $1.00 per share (the "Series A Preferred"), the Corporation's Series B
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred")
and the Corporation's Series C Convertible Preferred Stock, par value $.01 per
share (the "Series C Preferred"), and with any class or series of capital stock
of the Corporation hereafter created (with the consent of the holders of Series
D Preferred Stock obtained in accordance with Article IX hereof) specifically
ranking, by its terms, on parity with the Series D Preferred Stock ("Pari Passu
Securities"); and (iv) junior to any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series D
Preferred Stock obtained in accordance with Article IX hereof) specifically
ranking, by its terms, senior to the Series D Preferred Stock ("Senior
Securities"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
1
<PAGE> 32
III. Dividends
The Series D Preferred Stock shall not bear any dividends. In no event, so
long as any Series D Preferred Stock shall remain outstanding, shall any
dividend whatsoever be declared or paid upon, nor shall any distribution be made
upon, any Junior Securities, nor shall any shares of Junior Securities be
purchased or redeemed by the Corporation nor shall any moneys be paid to or made
available for a sinking fund for the purchase or redemption of any Junior
Securities, without, in each such case, the unanimous written consent or the
vote of the holders of two-thirds (2/3) of the outstanding shares of Series D
Preferred Stock, voting together as a class. Notwithstanding the foregoing,
dividends may be paid on the Series A Preferred, the Series B Preferred and the
Series C Preferred in accordance with the Certificates of Designation for each
such series as filed with the Secretary of State of the State of Colorado prior
to the date hereof.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of forty-five (45) consecutive days and, on account of any such event,
the Corporation shall liquidate, dissolve or wind up, or if the Corporation
shall otherwise liquidate, dissolve or wind up (each such event being considered
a "Liquidation Event"), no distribution shall be made to the holders of any
shares of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series D Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.C) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series D Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series D
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate liquidation preference payable on all
such shares.
B. At the option of any holder of Series D Preferred Stock, the sale,
conveyance or disposition of all or substantially all of the assets of the
Corporation in a single transaction or series of related transactions, the
effectuation by the Corporation of a transaction or series of related
2
<PAGE> 33
transactions (other than an underwritten public offering) in which more than 50%
of the voting power of the Corporation is disposed of, or the consolidation,
merger or other business combination of the Corporation with or into any other
Person (as defined below) or Persons when the Corporation is not the survivor
shall either: (i) be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute upon consummation of such transaction an amount equal to 115% of the
Liquidation Preference with respect to each outstanding share of Series D
Preferred Stock in accordance with and subject to the terms of this Article IV
or (ii) be treated pursuant to Article VI.C(d) hereof. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization. Such option shall be exercised by a
holder not later than thirty (30) days after consummation of the transaction
giving rise to such option.
C. For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series D Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) an amount equal to four percent (4%) per
annum of such Stated Value for the period beginning on the date of issuance of
such share and ending on the date of final distribution to the holder thereof
(pro rated for any portion of such period). The liquidation preference with
respect to any Pari Passu Securities shall be as set forth in the Certificate of
Designation filed in respect thereof.
V. Redemption
A. If any of the following events (each, a "Mandatory Redemption Event")
shall occur:
(i) The Corporation fails to issue shares of Common Stock to any
holder of Series D Preferred Stock upon exercise by such holder of its
conversion rights in accordance with the terms of this Certificate of
Designation (for a period of at least sixty (60) days if such failure is solely
as a result of the circumstances governed by the second paragraph of Article
VI.F below and the Corporation is using all commercially reasonable efforts to
authorize a sufficient number of shares of Common Stock as soon as practicable),
fails to transfer or to cause its transfer agent to transfer (electronically or
in certificated form) any certificate for shares of Common Stock issued to any
holder upon conversion of the Series D Preferred Stock as and when required by
this Certificate of Designation or the Registration Rights Agreement, dated as
of November 6, 1997, by and among the Corporation and the other signatories
thereto (the "Registration Rights Agreement"), fails to remove any restrictive
legend (or fails to withdraw any stop transfer instructions in respect thereof)
on any certificate or any shares of Common Stock issued to any holder of Series
D Preferred Stock upon conversion of the Series D Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
dated as of November 6, 1997, by and between the Corporation and the other
signatories thereto (the "Purchase Agreement") or the Registration Rights
Agreement, fails to fulfill its obligations pursuant to Sections 4(c),4(h),4(i),
4(j) or 5 of the Purchase Agreement, or breaches its obligations under that
certain side letter dated November 6, 1997 regarding restrictions on the payment
of dividends (or makes any announcement or otherwise provides notice to any
holder that it does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any announcement or
statement not to honor its obligations shall not be rescinded) for ten (10)
business days;
3
<PAGE> 34
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") of the Registration Statement (as
defined in the Registration Rights Agreement) prior to April 30, 1998 or such
Registration Statement lapses in effect (or sales otherwise cannot be made
thereunder, whether by reason of the Corporation's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement or otherwise) for more than thirty (30) consecutive days or
sixty (60) days in any twelve (12) month period after such Registration
Statement becomes effective, except in the event of an "Allowed Delay" as
defined in the Registration Rights Agreement;
(iii) The Corporation shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee
for it or for all or substantially all of its property or business; or such a
receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation and shall be unstayed for a period of
forty-five (45) days;
(v) The Corporation shall fail to maintain the listing of the Common
Stock on the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the Nasdaq National
Market, the New York Stock Exchange or the American Stock Exchange and such
failure shall remain uncured for at least ten (10) days;
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v) at the option of
one or more holders of then outstanding shares of Series D Preferred Stock by
written notice (the "Mandatory Redemption Notice") to the Corporation of such
Mandatory Redemption Event, or upon the occurrence of any Mandatory Redemption
Event specified in subparagraphs (iii) or (iv), the Corporation shall purchase
such holders' shares of Series D Preferred Stock for an amount per share equal
to the greater of (1) 115% multiplied by the sum of (a) the Stated Value of the
shares to be redeemed, plus (b) an amount equal to four percent (4%) per annum
of such Stated Value for the period beginning on the date of issuance of such
shares and ending on the date of payment of the Mandatory Redemption Amount (as
defined below) (the "Mandatory Redemption Date") and (2) the "parity value" of
the shares to be redeemed, where parity value means the product of (a) the
number of shares of Common Stock issuable upon conversion of such shares in
accordance with Article VI below (treating the Trading Day (as defined in
Article VI.B below) immediately preceding the Mandatory Redemption Date as the
"Conversion Date" (as hereinafter defined) unless the Mandatory Redemption Event
arises as a result of a breach in respect of a specific Conversion Date in which
case such Conversion Date shall be the Conversion Date, and deeming the five
consecutive Trading Days in the Pricing Period (as hereinafter defined)
preceding the Mandatory Redemption Date that maximize the number of shares of
Common Stock issuable for purposes of this proviso as the Market Price Days (as
hereinafter defined), multiplied by (b) the Closing Price (as hereinafter
defined) for the Common Stock on such Conversion Date (the greater of such
amounts being referred to as the "Mandatory Redemption Amount"). Notwithstanding
the foregoing, any holder of Series D Preferred who does not sign the Mandatory
4
<PAGE> 35
Redemption Notice shall retain such holder's shares of Series D Preferred Stock,
the rights of which shall continue to be governed by the terms of this
Certificate of Designation. The Corporation shall notify all holders promptly of
the receipt by the Corporation of a Mandatory Redemption Notice from any holder.
In the case of a Mandatory Redemption Event, if the Corporation fails to
pay the Mandatory Redemption Amount for each share within five (5) business days
of written notice that such amount is due and payable, then (assuming there are
sufficient authorized shares) in addition to all other available remedies, each
holder of Series D Preferred Stock shall have the right at any time, so long as
the Mandatory Redemption Event continues, to require the Corporation, upon
written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount, with
respect to each outstanding share of Series D Preferred Stock held by such
holder, the number of shares of Common Stock of the Corporation equal to the
Mandatory Redemption Amount divided by the Conversion Price then in effect.
B. If the Series D Preferred Stock ceases to be convertible as a result of
the limitations described in the third paragraph of Article VI.A below (a
"19.99% Redemption Event"), and the Corporation has not prior to, or within
thirty (30) days after, the date that such 19.99% Redemption Event arises, (i)
obtained approval of the issuance of the additional shares of Common Stock by
the requisite vote of the holders of the then-outstanding Common Stock
("Stockholder Approval") (not including any shares of Common Stock held by
present or former holders of Series D Preferred Stock that were issued upon
conversion of Series D Preferred Stock) or (ii) received other permission from
Nasdaq, whether pursuant to Nasdaq Requirement 4460(i) or otherwise, allowing
the Corporation to resume issuances of shares of Common Stock upon conversion of
Series D Preferred Stock, then the Corporation shall be obligated to redeem
immediately all of the then outstanding Series D Preferred Stock, in accordance
with this Article V.B. An irrevocable Redemption Notice shall be delivered
promptly to the holders of Series D Preferred Stock at their registered address
appearing on the records of the Corporation and shall state (1) that 19.99% of
the Outstanding Common Amount (as defined in Article VI.A below) has been issued
upon exercise of the Series D Preferred Stock, (2) that the Corporation is
obligated to redeem all of the outstanding Series D Preferred Stock and (3) the
Mandatory Redemption Date, which shall be a date within five (5) business days
of the date of the Redemption Notice. On the Mandatory Redemption Date, the
Corporation shall make payment of the Mandatory Redemption Amount (as defined in
Article V.A. above) in cash.
C. Notwithstanding anything to the contrary in Article VI below, subject
to the terms of this Article V.C. if the Closing Price (as defined below) of the
Common Stock is below the Floor Price (as defined in Article VI.B) on any
Conversion Date (as defined in Article VI.B. below), the Corporation shall have
the option, in lieu of issuing shares of Common Stock to the converting holders
upon conversion in accordance with the terms of Article VI below, to redeem all
or any portion of the shares of Series D Preferred Stock submitted for
conversion for an amount in cash equal to the number of shares that would have
otherwise been issued upon conversion of the Series D Preferred Stock at the
applicable Conversion Price (as defined in Article VI.B below) multiplied by the
Redemption Market Price (as hereinafter defined). "Redemption Market Price"
shall be equal
5
<PAGE> 36
to the Closing Price of the Common Stock on the Conversion Date. "Closing
Price," as of any date, means the last sale price of the Common Stock (as
reported by Bloomberg Financial Markets ("Bloomberg")) on the Nasdaq SmallCap or
on the principal securities exchange or market on which the Common Stock is then
being traded on such date. From time to time, the holders may request advance
notice as to whether the Corporation will issue shares of Common Stock, deliver
cash in redemption or any combination thereof in respect of the shares of Series
D Preferred Stock submitted for conversion pursuant to Article VI. Such request
shall be made in writing and the Corporation shall respond in writing as
promptly as practicable but in any event within three (3) business days of
receipt of the request. The Corporation will be bound by such response for a
period of twenty (20) Trading Days from the date of its response. A failure to
respond within three (3) business days shall be deemed to be an election to
issue Common Stock on conversion. Any redemption amounts payable hereunder shall
be paid to the converting holder within five (5) Trading Days of the Conversion
Date.
VI. Conversion at the Option of the Holder
A. Each holder of shares of Series D Preferred Stock may, at its option in
accordance with the terms hereof, upon surrender of the certificates therefor,
convert any or all of its shares of Series D Preferred Stock into Common Stock
as follows (an "Optional Conversion"). Each share of Series D Preferred Stock
shall be convertible into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (1) the sum of (a) the Stated Value
thereof, plus, (b) the Premium Amount (as defined below), by (2) the then
effective Conversion Price (as defined below); provided, however, that, unless
the holder delivers a waiver in accordance with the immediately following
sentence, in no event shall a holder of shares of Series D Preferred Stock be
entitled to convert any such shares in excess of that number of shares upon
conversion of which the sum of (x) the number of shares of Common Stock
beneficially owned by the holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series D Preferred Stock or unexercised
portion of warrants or any other securities containing analogous limitations)
and (y) the number of shares of Common Stock issuable upon the conversion of the
shares of Series D Preferred Stock with respect to which the determination of
this proviso is being made, would result in beneficial ownership by a holder and
such holder's affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence, (i)
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of such proviso and (ii) a holder may
waive the limitations set forth therein by written notice to the Corporation
upon not less than sixty-one (61) days prior written notice (with such waiver
taking effect only upon the expiration of such sixty-one (61) day notice
period). The "Premium Amount" means the product of the Stated Value, multiplied
by .04, multiplied by (N/365), where "N" equals the number of days elapsed from
the date of issuance of the Series D Preferred Stock to and including the
Conversion Date (as defined in Article VI.B. below).
Each holder of shares of the Series D Preferred Stock may convert only up
to that percentage (the "Maximum Conversion Amount") of the aggregate number of
shares of Series D Preferred Stock
6
<PAGE> 37
initially issued on the Closing Date by the Corporation to such holder specified
below during the time period set forth opposite such percentage:
Number of Days following issuance
Percentage of Series D Preferred Stock
0% 1-180
25% 181-210
50% 211-240
75% 241-270
100% 271;
provided, however, that there shall be excluded from the foregoing restrictions
and any calculation of the foregoing percentages any conversion(s) occurring:
(A) on any Conversion Date on which the high sales price of the Common Stock, as
reported by Bloomberg, on the Nasdaq SmallCap or on the principal securities
exchange or market on which the Common Stock is then being traded, exceeds
either (i) 115% of the then applicable Market Price, based on Market Price Days
designated by holder, or (ii) the Fixed Conversion Price as then in effect; or
(B) on any Conversion Date on or after (i) the date of a public announcement by
the Corporation that it intends to consolidate or merge with any other
corporation (other than a merger solely for purposes of reincorporation) or sell
or transfer all or substantially all of the assets of the Corporation, or (ii)
the date any person, group or entity (including the Corporation) publicly
announces a tender offer (as such term is used in the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder (the
"Exchange Act")) to purchase 25% or more of the Corporation's outstanding Common
Stock.
Notwithstanding anything to the contrary contained herein, if, at any
time, the aggregate number of shares of Common Stock then issued upon conversion
of the Series D Preferred Stock equals 19.99% of the "Outstanding Common Amount"
(as hereinafter defined), the Series D Preferred Stock shall, from that time
forward, cease to be convertible into Common Stock in accordance with the terms
of this Article VI and Article VII below, unless the Corporation (i) has
obtained approval of the issuance of the Series D Preferred Stock by a majority
of the total votes cast on such proposal, in person or by proxy, by the holders
of the then-outstanding Common Stock (not including any shares of Common Stock
held by present or former holders of Series D Preferred Stock that were issued
upon conversion of Series D Preferred Stock), or (ii) shall have otherwise
obtained permission to allow such issuances from Nasdaq in accordance with
Nasdaq Requirement 4460(i), or otherwise. For purposes of this paragraph,
"Outstanding Common Amount" shall be determined in accordance with Nasdaq
Requirement 4460 or a successor rule, as may be in effect from time to time. The
maximum number of shares of Common Stock issuable as a result of the 19.99%
limitation set forth herein is hereinafter referred to as the "Maximum Share
Amount." With respect to each holder of Series D Preferred Stock, the Maximum
Share Amount shall refer to such holder's pro rata share thereof determined in
accordance with Article X below. In the event that the Corporation obtains
Stockholder Approval, the approval of The Nasdaq Stock Market or otherwise
concludes that it is able to increase the number of shares to be issued above
the Maximum Share Amount (such increased number being the "New Maximum Share
Amount"), the references to
7
<PAGE> 38
Maximum Share Amount, above, shall be deemed to be instead, references to the
greater New Maximum Share Amount. In the event that Stockholder Approval is not
obtained, there are insufficient reserved or authorized shares or a registration
statement covering the additional shares of Common Stock which constitute the
New Maximum Share Amount is not effective prior to the Maximum Share Amount
being issued (if such registration statement is necessary to allow for the
public resale of such securities), the Maximum Share Amount shall remain
unchanged; provided, however, that the holder may grant an extension to obtain a
sufficient reserved or authorized amount of shares or of the period for
obtaining effectiveness of such registration statement. In the event that (a)
the aggregate number of shares of Common Stock issued pursuant to the
outstanding Series D Preferred Stock represents at least twenty percent (20%) of
the Maximum Share Amount and (b) the sum of (x) the aggregate number of shares
of Common Stock issued upon conversion of Series D Preferred Stock plus (y) the
aggregate number of shares of Common Stock that remains issuable upon conversion
of Series D Preferred Stock, together in each case with any shares of Common
Stock that are integrated with the Conversion Shares for purposes of Rule 4460
of the Nasdaq Stock Market, represents at least one hundred percent (100%) of
the Maximum Share Amount (the "Triggering Event"), the Corporation will use its
best efforts to seek and obtain Stockholder Approval (or obtain such other
relief as will allow conversions hereunder in excess of the Maximum Share
Amount) as soon as practicable following the Triggering Event and before the
Mandatory Redemption Date.
B. (a) Subject to subparagraph (b) and (c) and Article VI.C below, the
"Conversion Price" shall be the lesser of (i) the Applicable Percentage (as
defined herein) of the Market Price (as defined herein) (the "Variable
Conversion Price") and (ii) the Fixed Conversion Price. "Market Price" shall
mean the average of the closing bid prices of the Common Stock on Nasdaq
SmallCap, or on the principal securities exchange or other market on which the
Common Stock is then being traded (in each case, as reported by Bloomberg), for
any five (5) consecutive Trading Days (as defined herein) (the "Market Price
Days") in the 25 Trading Day period (the "Pricing Period") ending one (1)
Trading Day prior to the date (the "Conversion Date") the Notice of Conversion
(as defined in Section VI.E) is sent by a holder to the Corporation via
facsimile. "Trading Day" shall mean any day on which the Common Stock is traded
for any period on Nasdaq SmallCap, or on the principal securities exchange or
other securities market on which the Common Stock is then being traded. The
Pricing Period for any shares of Series D Preferred Stock shall not include any
Trading Days prior to the date of original issuance of such Series D Preferred
Stock. The converting holder shall designate the "Market Price Days" on the
Conversion Date, from the Trading Days comprising the Pricing Period and such
selection shall be indicated in the Notice of Conversion. The "Fixed Conversion
Price" shall equal $11.63, or the price described in clause (i) of Article
VI.C(a) if the Corporation makes the election described therein. The "Floor
Price" shall equal $3.88. "Applicable Percentage" shall mean (i) 94%, with
respect to any Conversion Date on which the closing sale price of the Common
Stock on Nasdaq SmallCap, or on the principal securities exchange or market on
which the Common Stock is then traded, as reported by Bloomberg (the "Closing
Price") equals or exceeds the Floor Price and (ii) 100%, with respect to any
Conversion Date on which the Closing Price is less than the Floor Price;
provided, however, that if the Closing Price of the Common Stock is less than
the Floor Price for any thirty (30) consecutive days and the Corporation elects
to reset the Applicable Percentage in accordance with Article VI.C(a) below,
with respect to any Conversion
8
<PAGE> 39
Date thereafter on which the Closing Price is below the Floor Price, the
Applicable Percentage shall be 94% instead of 100%.
(b) Notwithstanding anything contained in subparagraph (a) of this
Paragraph B to the contrary, in the event the Corporation (i) makes a public
announcement that it intends to consolidate or merge with any other corporation
(other than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged and the stockholders of the
Corporation prior to the date of such consolidation or merger continue to own at
least 51% of the surviving or continuing corporation) or sell or transfer all or
substantially all of the assets of the Corporation or (ii) any person, group or
entity (including the Corporation) publicly announces a tender offer (as such
term is used in the Exchange Act) to purchase 50% or more of the Corporation's
Common Stock (the date of the announcement referred to in clause (i) or (ii) is
hereinafter referred to as the "Announcement Date"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for an Optional
Conversion occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (a) of this Article VI.B. For purposes hereof, "Adjusted Conversion
Price Termination Date" shall mean, with respect to any proposed transaction or
tender offer for which a public announcement as contemplated by this
subparagraph (b) has been made, six (6) Trading Days after the date upon which
the Corporation (in the case of clause (i) above) or the person, group or entity
(in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer which caused this
subparagraph (b) to become operative, or the date on which the proposed
transaction or tender offer has been consummated.
(c) In the event that (1) the Corporation fails to obtain
effectiveness with the SEC of the Registration Statement prior to 120 days
following the issuance of the Series D Preferred Stock, or (2) such Registration
Statement lapses in effect, or sales otherwise cannot be made thereunder,
whether by reason of the Corporation's failure or inability to amend or
supplement the prospectus (the "Prospectus") included therein in accordance with
the Registration Rights Agreement or otherwise, after such Registration
Statement becomes effective, then the Pricing Period shall be comprised of, (i)
in the case of an event described in clause (1), the twenty five (25) Trading
Days preceding the 120th day following the issuance of the Series D Preferred
Stock plus all Trading Days through and including the third Trading Day
following the date of effectiveness of the Registration Statement; and (ii) in
the case of an event described in clause (2), the twenty five (25) Trading Days
preceding the date on which the holders are first notified or otherwise first
reasonably determine based on the information available that sales may not be
made under the Prospectus, plus all Trading Days through and including the third
Trading Day following the date on which the holders of Series D Preferred Stock
are notified or otherwise first reasonably determine based on the information
available that such sales may again be made under the Prospectus.
C. The Conversion Price shall be subject to adjustment from time to
time as follows:
9
<PAGE> 40
(a) Reset of Original Fixed Conversion Price or Applicable
Percentage. In the event that the Closing Price is below the Floor Price for any
thirty (30) consecutive Trading Days, the Corporation shall either (i)
permanently reset the Fixed Conversion Price to 115% of the average closing bid
price of the Common Stock during such thirty (30) Trading Day period or (ii)
permanently reset the percentage referred to in clause (ii) of the definition of
Applicable Percentage from 100% to 94%. The Corporation shall notify the holders
of Series D Preferred Stock (in writing on the Trading Day next following the
thirty (30) consecutive Trading Day period giving rise to the Corporation's
obligations hereunder) of its election to reset the Fixed Conversion Price or
the Applicable Percentage as provided above, and the choice of which to reset
shall be the Corporation's.
(b) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when the Series D Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification, below-Market Price
rights offering to all holders of Common Stock or other similar event, the Fixed
Conversion Price and the Floor Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Conversion Price and the Floor Price shall be proportionately increased.
In such event, the Corporation shall notify the transfer agent and the
conversion agent for the Series D Preferred Stock (the "Transfer Agent") of such
change on or before the effective date thereof.
(c) Adjustment to Variable Conversion Price. If at any time when
Series D Preferred Stock is issued and outstanding, the number of outstanding
shares of Common Stock is increased or decreased by a stock split, stock
dividend, combination, reclassification, below-Market Price rights offering to
all holders of Common Stock or other similar event, which event shall have taken
place during the reference period for determination of the Conversion Price for
any Optional Conversion or Automatic Conversion of the Series D Preferred Stock,
then the Variable Conversion Price shall be calculated giving appropriate effect
to the stock split, stock dividend, combination, reclassification or other
similar event for the entire Pricing Period immediately preceding the Conversion
Date. In such event, the Corporation shall notify the Transfer Agent of such
change on or before the effective date thereof. Notwithstanding the foregoing,
solely in the case of a below- Market Price rights offering, the Variable
Conversion Price for a share of Series D Preferred Stock shall be adjusted only
if the holder of such share waives in writing his rights to acquire the purchase
rights associated with such rights offering pursuant to Article VI.C(f).
(d) Adjustment Due to Merger, Consolidation, Etc. Subject to Article
IV.B, if, at any time when Series D Preferred Stock is issued and outstanding
and prior to the conversion of all Series D Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Corporation other than in connection with a plan of complete
liquidation of the Corporation, then the holders of Series D Preferred Stock
shall thereafter
10
<PAGE> 41
have the right to receive upon conversion of the Series D Preferred Stock, upon
the basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the holders of Series D Preferred Stock would
have been entitled to receive in such transaction had the Series D Preferred
Stock been converted in full (without regard to any limitations on conversion
contained herein) immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of Series D Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares of Common Stock issuable upon conversion of
the Series D Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities or assets thereafter deliverable
upon the conversion of Series D Preferred Stock. The Corporation shall not
effect any transaction described in this subsection (d) unless (a) it first
gives, to the extent practical, thirty (30) days' prior written notice (but in
any event at least fifteen (15) business days prior written notice) of such
merger, consolidation, exchange of shares, recapitalization, reorganization or
other similar event or sale of assets (during which time the holders of Series D
Preferred Stock shall be entitled to convert the Series D Preferred Stock) and
(b) the resulting successor or acquiring entity (if not the Corporation) assumes
by written instrument the obligations of this subsection (d). The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.
(e) Adjustment Due to Distribution. Subject to Article III, if the
Corporation shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution
to the Corporation's shareholders in cash or shares (or rights to acquire
shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"),
then the holders of Series D Preferred Stock shall be entitled, upon any
conversion of shares of Series D Preferred Stock after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the holder with respect to the
shares of Common Stock issuable upon such conversion had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(f) Purchase Rights. Subject to Article III and Article VI.C(c), if
at any time when any Series D Preferred Stock is issued and outstanding, the
Corporation issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series D
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series D Preferred Stock (without regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights.
11
<PAGE> 42
(g) Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI.C. the
Corporation, at its expense, shall make available to the holders the information
necessary to determine such adjustment or readjustment. The Corporation shall,
upon the written request at any time of any holder of Series D Preferred Stock,
furnish to such holder a certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series D Preferred Stock.
D. For purposes of Article VI.C(b) and (c) above, "Market Price," which
shall be measured as of the record date in respect of the rights offering means
(i) the average of the last reported sale prices for the shares of Common Stock
as reported by Nasdaq SmallCap, as applicable, for the twenty (20) Trading Days
immediately preceding such date, or (ii) if Nasdaq SmallCap is not the principal
trading market for the shares of Common Stock, the average of the last reported
sale prices on the principal trading market for the Common Stock during the same
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the
Corporation, or (b) at the option of two-thirds (2/3) of the holders, with the
expense divided between such holder and the Corporation equally, of the
outstanding Series D Preferred Stock by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Corporation.
E. In order to convert Series D Preferred Stock into full shares of Common
Stock, a holder of Series D Preferred Stock shall: (i) submit a copy of the
fully executed notice of conversion in the form attached hereto as Exhibit A
("Notice of Conversion") to the Corporation by facsimile dispatched on the
Conversion Date (or by other means resulting in notice to the Corporation on the
Conversion Date) at the office of the Corporation or the Transfer Agent that the
holder elects to convert the same, which notice shall specify the number of
shares of Series D Preferred Stock to be converted, the applicable Conversion
Price, the Market Price Days, and a calculation of the number of shares of
Common Stock issuable upon such conversion (together with a copy of the first
page of each certificate to be converted) prior to 12:00 Midnight, New York City
time (the "Conversion Notice Deadline") on the date of conversion specified on
the Notice of Conversion; and (ii) surrender the original certificates
representing the Series D Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent as soon as practicable
thereafter. The Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, unless
either the Preferred Stock Certificates are delivered to the Corporation or its
Transfer Agent as provided above, or the holder notifies the Corporation or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (a) below). In the case of a
dispute as to the calculation of the Conversion Price, the Corporation shall
promptly issue such number of shares of Common Stock that are not disputed in
accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later
12
<PAGE> 43
than 96 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series D Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon the surrender of
certificates as described above together with a Notice of Conversion, the
Corporation shall issue and, within three (3) business days after such surrender
(or, in the case of lost, stolen or destroyed certificates, after provision of
agreement and indemnification pursuant to subparagraph (a) above) (the "Delivery
Period"), deliver (or cause its Transfer Agent to so issue and deliver) to or
upon the order of the holder (i) that number of shares of Common Stock for the
portion of the shares of Series D Preferred Stock converted as shall be
determined in accordance herewith and (ii) a certificate representing the
balance of the shares of Series D Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including actual damages
and/or equitable relief, the Corporation shall pay to a holder $500 per day in
cash for each day beyond the three (3) day grace period following the Delivery
Period that the Corporation fails to deliver Common Stock issuable upon
surrender of shares of Series D Preferred Stock with a Notice of Conversion
until such time as the Corporation has delivered all such Common Stock. Such
cash amount shall be paid to such holder by the fifth day of the month following
the month in which it has accrued or, at the option of the holder (by written
notice to the Corporation by the first day of the month following the month in
which it has accrued), shall be convertible into Common Stock in accordance with
the terms of this Article VI.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Transfer Agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the holder and its compliance with the provisions
contained in Article VI.A. and in this Article VI.E., the Corporation shall use
its best efforts to cause the Transfer Agent to electronically transmit the
Common Stock issuable upon conversion to the holder by crediting the account of
holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system. The time periods for delivery and penalties described in the
immediately preceding paragraph shall apply to the electronic transmittals
described herein.
(c) No Fractional Shares. If any conversion of Series D Preferred
Stock would result in a fractional share of Common Stock or the right to acquire
a fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon conversion, of the Series
D Preferred Stock shall be the next higher number of shares.
13
<PAGE> 44
(d) Conversion Date. The "Conversion Date" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in notice) to the
Corporation or the Transfer Agent before 12:00 Midnight, New York City time, on
the Conversion Date. Subject to Article VI.H, the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder or holders of such securities as of the
Conversion Date and all rights with respect to the shares of Series D Preferred
Stock surrendered shall forthwith terminate except the right to receive the
shares of Common Stock or other securities or property issuable on such
conversion and except that the holders preferential rights as a holder of Series
D Preferred Stock shall survive to the extent the corporation fails to deliver
such securities.
F. A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Series D Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. As of the date of issuance of the Series D Preferred Stock, 3,225,806
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of the Series D Preferred Stock (the "Reserved
Amount"). The Reserved Amount shall be increased from time to time in accordance
with the Corporation's obligations pursuant to Section 4(h) of the Purchase
Agreement. In addition, if the Corporation shall issue any securities or make
any change in its capital structure which would change the number of shares of
Common Stock into which each share of the Series D Preferred Stock shall be
convertible at the then current Conversion Price, the Corporation shall at the
same time also make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series D Preferred Stock.
If at any time a holder of shares of Series D Preferred Stock submits a
Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion, in
accordance with the provisions of this Article VI (a "Conversion Default"), the
Corporation shall issue to the holder (or holders, if more than one holder
submits a Notice of Conversion in respect of the same Conversion Date), the
number of shares of Common Stock which are available to effect such conversion
up to such holder's pro rata share of the Reserved Amount, as determined in
accordance with Article X. The number of shares of Series D Preferred Stock
included in the Notice of Conversion which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the holder's
option at any time after) the date additional shares of Common Stock are
authorized by the Corporation to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date elected by the holder in respect thereof. The
Corporation shall use its best efforts to effect an increase in the authorized
number of shares of Common Stock as soon as possible following a Conversion
Default. In addition, the Corporation shall pay to the holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (a)
(N/365), multiplied by (b) the sum of the Stated Value plus the Premium Amount
per share of Series D Preferred Stock through the Authorization Date (as
14
<PAGE> 45
defined below), multiplied by (c) the Excess Amount on the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date"), multiplied by (d) .24, where (i) N = the number of
days from the Conversion Default Date to the date (the "Authorization Date")
that the Corporation authorizes a sufficient number of shares of Common Stock to
effect conversion of the full number of shares of Series D Preferred Stock. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payment for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the Conversion Price, at the holder's option, as follows:
(a) In the event the holder elects to receive such payment in cash,
cash payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article VI (so long as there is then a sufficient number
of authorized shares).
Nothing herein shall limit the holder's right to pursue actual damages for
the Corporation's failure to maintain a sufficient number of authorized shares
of Common Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
G. Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Article VI, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series D Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
D Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series D Preferred Stock.
H. Upon submission of a Notice of Conversion by a holder of Series D
Preferred Stock, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such holder's
allocated portion of the Reserved Amount) shall be deemed converted into shares
of Common Stock and (ii) the holder's rights as a holder of such converted
shares of Series D Preferred Stock shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
holder because of a failure by the Corporation to comply with the terms of this
Certificate of Designation. Notwithstanding the foregoing, if a holder has not
15
<PAGE> 46
received certificates for all shares of Common Stock prior to the tenth (10th)
business day after the expiration of the Delivery Period with respect to a
conversion of shares of Series D Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares of Series D Preferred Stock with respect to such unconverted shares
of Series D Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares of Series D Preferred Stock to the holder or, if
such shares of Series D Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series D Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, the right to receive Conversion Default Payments
pursuant to Article VI.F. to the extent required thereby for such Conversion
Default and any subsequent Conversion Default).
VII. Automatic Conversion
So long as the Registration Statement is effective and there is not then a
continuing Mandatory Redemption Event, and so long as the Common Stock is listed
for trading on the Nasdaq Small Cap, the Nasdaq National Market System, the
American Stock Exchange or the New York Stock Exchange, and subject to the
19.99% Limitation and the Reserved Amount, each share of Series D Preferred
Stock issued and outstanding on November 6, 2002, shall be automatically
converted into shares of Common Stock in accordance with the terms hereof (the
"Automatic Conversion Date"). The Automatic Conversion Date shall be delayed by
one (1) Trading Day for each Trading Day occurring prior thereto and prior to
the full conversion of the Series D Preferred Stock that sales cannot be made
pursuant to the Registration Statement, whether by reason of the Corporation's
failure to properly supplement or amend the prospectus included therein in
accordance with the terms of the Registration Rights Agreement or otherwise. The
Automatic Conversion Date shall be the Conversion Date for purposes of
determining the Conversion Price and the time within which certificates
representing the Common Stock must be delivered to the holder. The Automatic
Conversion Date shall be the Conversion Date for purposes of determining the
Conversion Price and the time within which certificates representing the Common
Stock must be delivered to the holder.
VIII. Voting Rights
The holders of the Series D Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Colorado Business Corporation
Act ("CBCA"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder of
Series D Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or
16
<PAGE> 47
property, or to receive any other right, or for the purpose of determining
shareholders who are entitled to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least ten (10) days prior to the record date specified therein (or
thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under the CBCA the vote of the holders of the Series D
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote of
the holders of at least two-thirds (2/3) of the shares of the Series D Preferred
Stock represented at a duly held meeting at which a quorum is present or by the
unanimous written consent of the shares of Series D Preferred Stock (except as
otherwise may be required under the CBCA) shall constitute the approval of such
action by the class. To the extent that under the CBCA holders of the Series D
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series D Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible using the record date for the taking of such vote
of shareholders as the date as of which the Conversion Price is calculated and
deeming the five consecutive Trading Days in the Pricing Period preceding the
record date that maximize the number of shares of Common Stock issuable for
purposes of this proviso as the Market Price Days. Holders of the Series D
Preferred Stock shall be entitled to notice of all shareholder meetings or
written consents (and copies of proxy materials and other information sent to
shareholders) with respect to which they would be entitled to vote, which notice
would be provided pursuant to the Corporation's bylaws and the CBCA.
IX. Protective Provisions
So long as shares of Series D Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote, as
provided by the CBCA) of the holders of at least two-thirds (2/3) of the then
outstanding shares of Series D Preferred Stock or the unanimous written consent
of the then outstanding shares of Series D Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series D Preferred Stock or any other securities of the Corporation so as to
affect adversely the Series D Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series D Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking pari
passu with the Series D Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Pari Passu Securities");
17
<PAGE> 48
(d) increase the authorized number of shares of Series D Preferred
Stock or Senior Securities or Pari Passu Securities; or
(e) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series D Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least two-thirds (2/3) of the then outstanding
shares of Series D Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series D Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series D Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series D Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series D Preferred Stock.
The Corporation shall not offer any inducement to any holder of Series D
Preferred Stock to alter or change the rights, preferences or privileges of any
shares of the Series D Preferred Stock without offering such inducement pro rata
to all holders of Series D Preferred Stock then outstanding.
X. Pro Rata Allocations
The Maximum Share Amount and the Reserved Amount shall be allocated by the
Corporation pro rata among the holders (and their respective transferees) based
on the number of shares of Series D Preferred Stock purchased by each holder
from the Corporation relative to the total aggregate number of shares of Series
D Preferred Stock purchased by all holders from the Corporation. Increases to
the Reserved Amount and Maximum Share Amount shall be allocated pro rata among
holders based on the number of shares of Series D Preferred Stock then
outstanding. Each transferee of Series D Preferred Stock succeeds to the pro
rata allocations associated with the shares of Series D Preferred Stock acquired
by such transferee.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE> 49
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series D Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares
of Series D Preferred Stock, represented by stock certificate No(s). __________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of EPL Technologies, Inc. (the "Corporation") according to the
conditions of the Certificate of Designation of Series D Preferred Stock, as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the holder for any conversion, except for transfer taxes, if any.
A copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series D Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:___________________________
Market Price Days:___________________________
Applicable Conversion Price:____________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series D Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or the
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than three (3) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
19
<PAGE> 1
EPL Technologies, Inc.
Exhibit 3.2
Amended and Restated By-Laws
of the Company, as amended to date
<PAGE> 2
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
EPL TECHNOLOGIES, INC.
ARTICLE I - OFFICES
1.1 PRINCIPAL OFFICE. The principal offices of the Corporation shall
initially be at 2 International Plaza, Suite 245, Philadelphia, Pennsylvania
19113-1507, but the Corporation may, in the discretion of the board of
directors, maintain offices wherever the business of the Corporation may
require.
1.2 REGISTERED OFFICE AND AGENT. The Corporation shall continuously
maintain in the State of Colorado a registered office and a registered agent
whose business office is identical with the registered office. The initial
registered office and the initial registered agent are specified in the original
Articles of Incorporation for the Corporation. The Corporation may change its
registered office, its registered agent, or both, upon filing a statement as
specified by law in the office of the Secretary of State of Colorado.
ARTICLE II - SHAREHOLDERS
2.1 TIME AND PLACE. Any meeting of the shareholders may be held at
such time and place, within or outside the State of Colorado, as may be fixed by
the board of directors or as shall be specified in the notice or waiver of
notice of the meeting. If the place for a meeting is not fixed by the board of
directors, such meeting shall be held at the Corporation's principal office.
2.2 ANNUAL SHAREHOLDERS' MEETING.
(a) An annual meeting of the shareholders of the Corporation
shall be held in each calendar year during the month of July on such date and at
such time fixed by the board of directors (or such other month, date and time as
the board of directors may fix or as fixed by the president in the absence of
action by the board of directors), for the purposes of electing directors and
for the transaction of such other business as may come before the meeting. If
the election of directors is not held on the day fixed as provided herein for
any annual meeting of shareholders, or any adjournment thereof, the board of
directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as it may conveniently be held.
(b) A shareholder may apply to the district court in the
county in Colorado where the Corporation's principal office is located or if the
Corporation has no principal office in Colorado to the district court the county
in which the Corporation's registered office is located to seek an order that a
shareholder meeting be held (i) if an annual meeting was not held on a date
which is within the earlier of six months after the close of the last fiscal
year or fifteen months after the last annual meeting, or (ii) if the shareholder
participated in a proper call of or proper demand for a special meeting, and
notice of the special meeting was not given within thirty days after the date of
the call or the date the last of
<PAGE> 3
the demands necessary to require calling the meeting was received by the
Corporation pursuant to section 7-107-102(1)(b) of the Colorado Business
Corporation Act, or the special meeting was not held in accordance with the
notice.
2.3 SPECIAL SHAREHOLDERS' MEETING. A special shareholders meeting
for any purpose or purposes, may be called by the board of directors or the
president. The Corporation shall also hold a special shareholders meeting in the
event it receives, in the manner specified in Section 8.3, one or more written
demands for the meeting, stating the purpose or purposes for which it is to be
held, signed and dated by the holders of shares representing not less than
one-tenth of all of the votes entitled to be cast on any issue to be determined
at the meeting. Special meetings shall be held at the principal office of the
Corporation or at such other place as the board of directors or the president
may determine.
2.4 RECORD DATE FOR DETERMINATION OF SHAREHOLDERS.
(a) In order to make a determination of shareholders entitled
to (i) notice of or to vote at any shareholders meeting or at any adjournment of
a shareholders meeting, (ii) demand a special shareholders meeting, (iii) take
any other action or (iv) receive payment of a share dividend or a distribution,
or for any other purpose, the board of directors may fix a future date as the
record date for such determination of shareholders. The record date may be fixed
not more than seventy days before the date of the proposed action.
(b) Unless otherwise specified when the record date is fixed,
the time of day for determination of shareholders shall be as of the
Corporation's close of business on the record date.
(c) A determination of shareholders entitled, to be given
notice of or to vote at a shareholders meeting is effective for any adjournment
of the meeting unless the board of directors fixes a new record date, which the
board shall do if the meeting is adjourned to a date more than one hundred
twenty days after the date fixed for the original meeting.
(d) If no record date is otherwise fixed, the record date for
determining shareholders entitled to be given notice of and to vote at an annual
or special shareholders meeting is the day before the first notice is given to
shareholders.
(e) The record date for determining shareholders entitled to
take action without a meeting pursuant to Section 2.11 is the date a writing
upon which the action is taken is first received by the Corporation.
2.5 VOTING LIST.
(a) After a record date is fixed for a shareholders meeting,
the secretary shall prepare a list of the names of all its shareholders who are
entitled to be given notice of the meeting. The list (i) shall be arranged by
voting groups and within each voting group by class or series of shares, (ii)
shall be alphabetical within each class or series and
<PAGE> 4
(iii) shall show the address of, and the number of shares of each such class and
series that are held by, each shareholder.
(b) The shareholders' list shall be available for inspection
by any shareholder, beginning the earlier of ten days before the meeting for
which the list was prepared or two business days after notice of the meeting is
given and continuing through the meeting, and any adjournment thereof, at the
Corporation's principal office or at a place identified in the notice of the
meeting in the city where the meeting will be held.
(c) The secretary shall make the shareholders list available
at the meeting, and any shareholder or agent or attorney of a shareholder is
entitled to inspect the list at any time during the meeting or any adjournment
thereof.
2.6 NOTICE TO SHAREHOLDERS.
(a) The secretary shall give notice to shareholders of the
date, time, and place of each annual and special shareholders meeting no fewer
than ten nor more than sixty days before the date of the meeting; except that,
if the articles of incorporation are to be amended to increase the number of
authorized shares, at least thirty days notice shall be given. Except as
otherwise required by the Colorado Business Corporation Act (the "Act"), the
secretary shall be required to give such notice only to shareholders entitled to
vote at the meeting.
(b) Notice of an annual shareholders meeting need not include
a description of the purpose or purposes for which the meeting is called unless
a purpose of the meeting is to consider an amendment to the articles of
incorporation, a restatement of the articles of incorporation, a plan of merger
or share exchange, disposition of substantially all of the property of the
Corporation, consent by the Corporation to the disposition of property by
another entity, or dissolution of the Corporation.
(c) Notice of a special shareholders meeting shall include a
description of the purpose or purposes for which the meeting is called.
(d) Notice of a shareholders meeting shall be in writing and
shall be given
(i) by deposit in the United States mail, properly
addressed to the shareholder's address shown in the Corporation's current record
of shareholders, first class postage prepaid, and, if so given, shall be
effective when mailed; or
(ii) by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail, or private carrier or by personal delivery to
the shareholder, and, if so given, shall be effective when actually received by
the shareholder.
-3-
<PAGE> 5
(e) If an annual or special shareholders meeting is adjourned
to a different date, time, or place, notice need not be given of the new date,
time, or place if the new date, time, or place is announced at the meeting
before adjournment; provided, however, that, if a new record date for the
adjourned meeting is fixed pursuant to Section 2.4, notice of the adjourned
meeting shall be given to persons who are shareholders as of the new record
date.
(f) If three successive notices are given by the Corporation,
whether with respect to a shareholders meeting or otherwise, to a shareholder
and are returned as undeliverable, no further notices to such shareholder shall
be necessary until another address for the shareholder is made known to the
Corporation.
2.7 QUORUM. Shares entitled to vote as a separate voting group may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. A majority of the votes entitled to be cast on the
matter by the voting group shall constitute a quorum of that voting group for
action on the matter. If a quorum does not exist with respect to any voting
group, the president or any shareholder or proxy that is present at the meeting,
whether or not a member of that voting group, may adjourn the meeting to a
different date, time, or place, and (subject to the next sentence) notice need
not be given of the new date, time, or place if the new date, time, or place is
announced at the meeting before adjournment. If a new record date for the
adjourned meeting is or must be fixed pursuant to Section 2.4, notice of the
adjourned meeting shall be given pursuant to Section 2.6 to persons who are
shareholders as of the new record date. At any adjourned meeting at which a
quorum exists, any matter may be acted upon that could have been acted upon at
the meeting originally called; provided, however, that, if new notice is given
of the adjourned meeting, then such notice shall state the purpose or purposes
of the adjourned meeting sufficiently to permit action on such matters. Once a
share is represented for any purpose at a meeting, including the purpose of
determining that a quorum exists, it is deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or shall be set for that adjourned meeting.
2.8 VOTING ENTITLEMENT OF SHARES. Except as stated in the articles
of incorporation, each outstanding share, regardless of class, is entitled to
one vote, and each fractional share is entitled to a corresponding fractional
vote, on each matter voted on at a shareholders meeting.
2.9 PROXIES, ACCEPTANCE OF VOTES AND CONSENTS.
(a) A shareholder may vote either in person or by proxy.
(b) An appointment of a proxy is not effective against the
Corporation until the appointment is received by the Corporation. An appointment
is valid for eleven months unless a different period is expressly provided in
the appointment form.
-4-
<PAGE> 6
(c) The Corporation may accept or reject any appointment of a
proxy, revocation of appointment of a proxy, vote, consent, waiver, or other
writing purportedly signed by or for a shareholder, if such acceptance or
rejection is in accordance with the provisions of Sections 7-107-203 and
7-107-205 of the Colorado Business Corporation Act.
2.10 WAIVER OF NOTICE.
(a) A shareholder may waive any notice required by the Act,
the articles of incorporation or these bylaws, whether before or after the date
or time stated in the notice as the date or time when any action will occur or
has occurred. The waiver shall be in writing, be signed by the shareholder
entitled to the notice and be delivered to the Corporation for inclusion in the
minutes or filing with the corporate records, but such delivery and filing shall
not be conditions of the effectiveness of the waiver.
(b) A shareholder's attendance at a meeting (i) waives
objection to lack of notice or defective notice of the meeting, unless the
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting because of lack of notice or defective
notice and (ii) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
2.11 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required
or permitted to be taken at a shareholders meeting may be taken without a
meeting if all of the shareholders entitled to vote thereon consent to such
action in writing. Action taken pursuant to this Section 2.11 shall be effective
when the Corporation has received writings that describe and consent to the
action, signed by all of the shareholders entitled to vote thereon. Action taken
pursuant to this Section 2.11 shall be effective as of the date the last writing
necessary to effect the action is received by the Corporation, unless all of the
writings necessary to effect the action specify another date, which may be
before or after the date the writings are received by the Corporation. Such
action shall have the same effect as action taken at a meeting of shareholders
and may be described as such in any document. Any shareholder who has signed a
writing describing and consenting to an action taken pursuant to this Section
2.11 may revoke such consent by a writing signed by the shareholder describing
the action and stating that the shareholder's prior consent thereto is revoked,
if such writing is received by the Corporation before the effectiveness of the
action.
2.12 MEETINGS BY TELECOMMUNICATIONS. Any or all of the shareholders
may participate in an annual or special shareholders meeting by, or the meeting
may be conducted through the use of, any means of communication by which all
persons participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
-5-
<PAGE> 7
ARTICLE III - DIRECTORS
3.1 AUTHORITY OF THE BOARD OF DIRECTORS. The corporate powers shall
be exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, a board of directors.
3.2 NUMBER. The number of directors shall be at least three (3) and
not more than seven (7). Within that range, the number of directors shall be as
stated by resolution adopted by the board of directors from time to time, but no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director.
3.3 QUALIFICATION. Directors shall be natural persons at least
eighteen years old but need not be residents of the State of Colorado or
shareholders of the Corporation.
3.4 ELECTION. The board of directors shall be elected at the annual
meeting of the shareholders or at a special meeting called for that purpose.
3.5 TERM. Each director shall be elected to hold office until the
next annual meeting of shareholders and until the director's successor is
elected and qualified.
3.6 RESIGNATION. A director may resign at any time by giving written
notice of his or her resignation to any other director or (if the director is
not also the secretary) to the secretary. The resignation shall be effective
when it is received by the other director or secretary, as the case may be,
unless the notice of resignation specifies a later effective date. Acceptance of
such resignation shall not be necessary to make it effective unless the notice
so provides.
3.7 REMOVAL. Any director may be removed by the shareholders of the
voting group that elected the director, with or without cause, at a meeting
called for that purpose. The notice of the meeting shall state that the purpose,
or one of the purposes, of the meeting is removal of the director. A director
may be removed only if the number of votes cast in favor of removal exceeds the
number of votes cast against removal.
3.8 VACANCIES.
(a) If a vacancy occurs on the board of directors, including a
vacancy resulting from an increase in the number of directors:
(i) The shareholders may fill the vacancy at the next
annual meeting or at a special meeting called for that purpose; or
(ii) The board of directors may fill the vacancy; or
-6-
<PAGE> 8
(iii) If the directors remaining in office constitute
fewer than a quorum of the board, they may fill the vacancy by the affirmative
vote of a majority of all the directors remaining in office.
(b) Notwithstanding Section 3.8(a), if the vacant office was
held by a director elected by a voting group of shareholders, then, if one or
more of the remaining directors were elected by the same voting group, only such
directors are entitled to vote to fill the vacancy if it is filled by directors,
and they may do so by the affirmative vote of a majority of such directors
remaining in office; and only the holders of shares of that voting group are
entitled to vote to fill the vacancy if it is filled by the shareholders.
(c) A vacancy that will occur at a specific later date, by
reason of a resignation that will become effective at a later date under Section
3.6 or otherwise, may be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs.
3.9 MEETINGS. The board of directors may hold regular or special
meetings within or outside of Colorado. A regular meeting shall be held without
notice immediately after and at the same place as the annual meeting of the
shareholders. The board of directors may, by resolution, establish other dates,
times and places for additional regular meetings, which may thereafter be held
without further notice. Special meetings may be called by the president or by
any two directors and shall be held at the principal office of the Corporation
unless otherwise specified in the notice of the meeting. At any time when the
board consists of a single director, that director may act at any time, date, or
place without notice.
3.10 NOTICE OF SPECIAL MEETING. Notice of a special meeting shall be
given to every director at least seventy-two (72) hours before the time of the
meeting, stating the date, time, and place of the meeting. The notice should
describe the purpose of the meeting. Notice may be given orally to the director,
personally or by telephone or other wire or wireless communication. Notice may
also be given in writing by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail, or private carrier. Notice shall be effective
at the earliest of (a) the time it is received; (b) five days after it is
deposited in the United States mail, properly addressed to the last address for
the director shown on the records of the Corporation, first class postage
prepaid or (c) the date shown on the return receipt if mailed by registered or
certified mail, return receipt requested, postage prepaid, in the United States
mail and if the return receipt is signed by the director to which the notice is
addressed.
3.11 QUORUM. Except as provided in Section 3.8, a majority of the
number of directors fixed in accordance with these Bylaws shall constitute a
quorum for the transaction of business at all meetings of the board of
directors. The act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
otherwise specifically required by law.
-7-
<PAGE> 9
3.12 WAIVER OF NOTICE.
(a) A director may waive any notice of a meeting before or
after the time and date of the meeting stated in the notice. Except as provided
by Section 3.12(b), the waiver shall be in writing and shall be signed by the
director. Such waiver shall be delivered to the secretary for filing with the
corporate records, but such delivery and filing shall not be conditions of the
effectiveness of the waiver.
(b) A director's attendance at or participation in a meeting
waives any required notice to him or her of the meeting unless, at the beginning
of the meeting or promptly upon his or her later arrival, the director objects
to holding the meeting or transacting business at the meeting because of lack of
notice or defective notice and does not thereafter vote for or assent to action
taken at the meeting.
3.13 MEETINGS BY TELECOMMUNICATIONS. One or more directors may
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
3.14 DEEMED ASSENT TO ACTION. A director who is present at a meeting
of the board of directors when corporate action is taken shall be deemed to have
assented to all action taken at the meeting unless
(i) The director objects at the beginning of the
meeting, or promptly upon his or her arrival, to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to any action taken at the meeting;
(ii) The director contemporaneously requests that his or
her dissent or abstention as to any specific action taken be entered in the
minutes of the meeting; or
(iii)The director causes written notice of his or her
dissent or abstention as to any specific action to be received by the presiding
officer of the meeting before adjournment of the meeting or by the secretary
(or, if the director is the secretary, by another director) promptly after
adjournment of the meeting.
The right of dissent or abstention pursuant to this Section 3.14 as to a
specific action is not available to a director who votes in favor of the action
taken.
3.15 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted by law to be taken at a board of directors meeting may be taken
without a meeting if all members of the board consent to such action in writing.
The action shall be deemed to have been so taken by the board at the time the
last director signs a writing describing the
-8-
<PAGE> 10
action taken, unless, before such time, any director has revoked his or her
consent by a writing signed by the director and received by the president or the
secretary or any other person authorized by board of directors to receive such a
revocation. Such action shall be effective at the time and date it is so taken
unless the directors establish a different effective time or date. Such action
has the same effect as action taken at a meeting of directors and may be
described as such in any document.
3.16 Institution of Bankruptcy Proceedings. Any corporate action in
respect of the institution of any proceeding by or against the Corporation
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, or other similar official for
it or for any substantial part of its property, shall be taken by the following
procedure:
(i) the institution of such proceedings must be recommended in
writing by the President of the Corporation to all members
of the Board of Directors of the Corporation; and
(ii) the institution of such proceeding must be approved by
the unanimous consent of the Board of Directors of the
Corporation by resolution at a meeting to be held after
receipt by the Board of Directors of the Corporation of
such written recommendation from the President of the
Corporation.
ARTICLE IV - COMMITTEES OF THE BOARD OF DIRECTORS
4.1 Subject to the provisions of section 7-109-106 of the Act, the
board of directors may create one or more committees and appoint one or more
members of the board of directors to serve on them. The creation of a committee
and appointment of members to it shall require the approval of a majority of all
the directors in office when the action is taken, whether or not those directors
constitute a quorum of the board.
4.2 The provisions of these bylaws governing meetings, action
without meeting, notice, waiver of notice, and quorum and voting requirements of
the board of directors apply to committees and their members as well.
4.3 To the extent specified by resolution adopted from time to time
by a majority of all the directors in office when the resolution is adopted,
whether or not those directors constitute a quorum of the board, each committee
shall exercise the authority of the board of directors with respect to the
corporate powers and the management of the business and affairs of the
Corporation, except that a committee shall not:
(a) authorize distributions;
(b) approve or propose to shareholders action that the
Colorado Business Corporation Act requires to be approved by shareholders;
(c) fill vacancies on the board of directors or on any of its
committees;
(d) amend the articles of incorporation pursuant to section
7-110-102 of the Colorado Business Corporation Act;
(e) adopt, amend, or repeal bylaws;
(f) approve a plan of merger not requiring shareholder
approval;
(g) authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the board of directors; or
-9-
<PAGE> 11
(h) authorize or approve the issuance or sale of shares, or a
contract for the sale of shares, or determine the designation and relative
rights, preferences, and limitations of a class or series of shares, except that
the board of directors may authorize a committee or an officer to do so within
limits specifically prescribed by the board of directors.
4.4 The creation of, delegation of authority to, or action by, a
committee does not alone constitute compliance by a director with applicable
standards of conduct.
ARTICLE V - OFFICERS
5.1 GENERAL. The Corporation shall have as officers a president, a
secretary, and a treasurer, who shall be appointed by the board of directors.
The board of directors may appoint as additional officers a chairman and other
officers of the board. The board of directors, the president, and such other
subordinate officers as the board of directors may authorize from time to time,
acting singly, may appoint as additional officers one or more vice presidents,
assistant secretaries, assistant treasurers, and such other subordinate officers
as the board of directors, the president, or such other appointing officers deem
necessary or appropriate. The officers of the Corporation shall hold their
offices for such terms and shall exercise such authority and perform such duties
as shall be determined from time to time by these Bylaws, the board of
directors, or (with respect to officers whom are appointed by the president or
other appointing officers) the persons appointing them; provided, however, that
the board of directors may change the term of offices and the authority of any
officer appointed by the president or other appointing officers. Any two or more
offices may be held by the same person. The officers of the Corporation shall be
natural persons at least eighteen years old.
5.2 TERM. Each officer shall hold office from the time of
appointment until the time of removal or resignation pursuant to Section 3.6 or
until the officer's death.
5.3 REMOVAL AND RESIGNATION. Any officer appointed by the board of
directors may be removed at any time by the board of directors. Any officer
appointed by the president or other appointing officer may be removed at any
time by the board of directors or by the person appointing the officer. Any
officer may resign at any time by giving written notice of resignation to any
director (or to any director other than the resigning officer if the officer is
also a director), to the president, to the secretary or to the officer who
appointed the officer. Acceptance of such resignation shall not be necessary to
make it effective, unless the notice so provides.
5.4 PRESIDENT. The president shall preside at all meetings of
shareholders, and the president shall also preside at all meetings of the board
of directors unless the board of directors has appointed a chairman, vice
chairman, or other officer of the board and has authorized such person to
preside at meetings of the board of directors instead of the president. Subject
to the direction and control of the board of directors, the president shall be
the chief
-10-
<PAGE> 12
executive officer of the Corporation and, as such shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the board of directors are carried into effect. The president may
negotiate, enter into and execute contracts, deeds, and other instruments on
behalf of the Corporation as are necessary and appropriate to the conduct to the
business and affairs of the Corporation or as are approved by the board of
directors. The president shall have such additional authority and duties as are
appropriate and customary for the office of president and chief executive
officer, except as the same may be expanded or limited by the board of directors
from time to time.
5.5 VICE PRESIDENT. The vice president, if any, or, if there are
more than one, the vice presidents in the order determined by the board of
directors or the president (or, if no such determination is made, in the order
of their appointment), shall be the officer or officers next in seniority after
the president. Each vice president shall have such authority and duties as are
prescribed by the board of directors or the president. Upon the death, absence,
or disability of the president, the vice president, if any, or, if there are
more than one, the vice presidents in the order of seniority as determined
above, shall have the authority and duties of the president.
5.6 SECRETARY. The secretary shall be responsible for the
preparation and maintenance of minutes of the meetings of the board of directors
and of the shareholders and of the other records and information required to be
kept by the Corporation under section 7-116-101 of the Act and for
authenticating records of the Corporation. The secretary shall also give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the board of directors, keep the minutes of such meetings, have
charge of the corporate seal and have authority to affix the corporate seal to
any instrument requiring it (and, when so affixed, it may be attested by the
secretary's signature), be responsible for the maintenance of all other
corporate records and files and for the preparation and filing of reports to
governmental agencies (other than tax returns), and have such other authority
and duties as are appropriate and customary for the office of secretary, except
as the same may be expanded or limited by the board of directors from time to
time.
5.7 ASSISTANT SECRETARY. The assistant secretary, if any, or, if
there are more than one, the assistant secretaries shall, under the supervision
of the secretary, perform such duties and have such authority as may be
prescribed from time to time by the board of directors or the secretary. Upon
the death, absence, or disability of the secretary, the assistant secretary, if
any, or, if there are more than one, the assistant secretaries in the order
designated by the board of directors or the secretary (or, if no such
determination is made, in the order of their appointment), shall have the
authority and duties of the secretary.
5.8 TREASURER. The treasurer shall have control of the funds and the
care and custody of all stocks, bonds, and other securities owned by the
Corporation, and shall be responsible for the preparation and filing of tax
returns. The treasurer shall receive all moneys paid to the Corporation and,
subject to any limits imposed by the board of directors, shall have authority to
give receipts and vouchers, to sign and endorse checks and warrants in
-11-
<PAGE> 13
the Corporation's name and on the Corporation's behalf, and give full discharge
for the same. The treasurer shall also have charge of disbursement of funds of
the Corporation, shall keep full and accurate records of the receipts and
disbursements, and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as shall be
designated by the board of directors. The treasurer shall have such additional
authority and duties as are appropriate and customary for the office of
treasurer, except as the same may be expanded or limited by the board of
directors from time to time.
5.9 ASSISTANT TREASURER. The assistant treasurer, if any, or, if
there are more than one, the assistant treasurers shall, under the supervision
of the treasurer, have such authority and duties as may be prescribed from time
to time by the board of directors or the treasurer. Upon the death, absence, or
disability of the treasurer, the assistant treasurer, if any, or if there are
more than one, the assistant treasurers in the order determined by the board of
directors or the treasurer (or, if no such determination is made, in the order
of their appointment), shall have the authority and duties of the treasurer.
5.10 COMPENSATION. Officers shall receive such compensation for
their services as may be authorized or ratified by the board of directors.
Election or appointment of an officer shall not of itself create a contractual
right to compensation for services performed as such officer.
ARTICLE VI - INDEMNIFICATION
6.1 DEFINITIONS. As used in this Article VI:
(a) "Corporation" includes any domestic or foreign entity that
is a predecessor of the Corporation by reason of a merger or other transaction
in which the predecessor's existence ceased upon consummation of the
transaction.
(b) "Director" means an individual who is or was a director of
the Corporation or an individual who, while a director of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, fiduciary or agent of another domestic or foreign corporation
or other person or of an employee benefit plan. A director is considered to be
serving an employee benefit plan at the Corporation's request if his or her
duties to the Corporation also impose duties on, or otherwise involve services
by, the director to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a director.
(c) "Expenses" includes counsel fees.
(d) "Liability" means the obligation incurred with respect to
a proceeding to pay a judgment, settlement, penalty, fine, including an excise
tax assessed with respect to an employee benefit plan, or reasonable expenses.
-12-
<PAGE> 14
(e) "Official capacity" means, when used with respect to a
director, the office of director in the Corporation and, when used with respect
to a person other than a director as contemplated in Section 6.7, the office in
the Corporation held by the officer or the employment, fiduciary or agency
relationship undertaken by the employee, fiduciary or agent on behalf of the
Corporation. "Official capacity" does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
(f) "Party" includes a person who was, is or is threatened to
be made, a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal.
6.2 AUTHORITY TO INDEMNIFY DIRECTORS.
(a) Except as provided in Section 6.2(d), the Corporation
shall indemnify a person made a party to a proceeding because the person is or
was a director against liability incurred in the proceeding if:
(i) The person conducted himself or herself in good
faith; and
(ii) The person reasonably believed:
(A) In the case of conduct in an official capacity
with the Corporation, that his or her conduct was in the Corporation's best
interests; and
(B) In all other cases, that his or her conduct was
at least not opposed to the Corporation's best interests; and
(iii) In the case of any criminal proceeding, the person
had no reasonable cause to believe his or her conduct was unlawful.
(b) A director's conduct with respect to an employee benefit
plan for a purpose the director reasonably believed to be in the interests of
the participants in or beneficiaries of the plan is conduct that satisfies the
requirement of Section 6.2(a)(ii)(B). A director's conduct with respect to an
employee benefit plan for a purpose that the director did not reasonably believe
to be in the interests of the participants in or beneficiaries of the plan shall
be deemed not to satisfy the requirements of Section 6.2(a)(i).
(c) The termination of a proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the standard of
conduct described in this Section 6.2.
-13-
<PAGE> 15
(d) Except to the extent authorized by a court as provided in
Section 6.5, the Corporation may not indemnify a director under this Section
6.2:
(i) In connection with a proceeding by or in the right
of the Corporation in which the director was adjudged liable to the Corporation;
or
(ii) In connection with any other proceeding charging
that the director derived an improper personal benefit, whether or not involving
action in an official capacity, in which proceeding the director was adjudged
liable on the basis that he or she derived an improper personal benefit.
(e) Indemnification permitted under this Section 6.2 in
connection with a proceeding by or in the right of the Corporation is limited to
reasonable expenses incurred in connection with the proceeding.
6.3 MANDATORY INDEMNIFICATION OF DIRECTORS. The Corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person is
or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
6.4 ADVANCE OF EXPENSES TO DIRECTORS.
(a) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
(i) The director furnishes to the Corporation a written
affirmation of the director's good faith belief that he or she has met the
standard of conduct described in Section 6.2.
(ii) The director furnishes to the Corporation a written
undertaking, executed personally or on the director's behalf, to repay the
advance if it is ultimately determined that he or she did not meet the standard
of conduct; and
(iii) A determination is made that the facts then known
to those making the determination would not preclude indemnification under this
Article VI.
(b) The undertaking required by Section 6.4(a)(ii) shall be an
unlimited general obligation of the director but need not be secured and may be
accepted without reference to financial ability to make repayment.
(c) Determinations and authorizations of payments under this
Section 6.4 shall be made in the manner specified in Section 6.6.
-14-
<PAGE> 16
6.5 COURT-ORDERED INDEMNIFICATION OF DIRECTORS. A director who is or
was a party to a proceeding may apply for indemnification to the court
conducting the proceeding or to another court of competent jurisdiction. On
receipt of an application, the court, after giving any notice the court
considers necessary, may order indemnification in the following manner:
(i) If it determines that the director is entitled to
mandatory indemnification under Section 6.3, the court shall order
indemnification, in which case the court shall also order the Corporation to pay
the director's reasonable expenses incurred to obtain court-ordered
indemnification.
(ii) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of conduct set forth
in Section 6.2(a) or was adjudged liable in the circumstances described in
Section 6.2(d), the court may order such indemnification as the court deems
proper; except that the indemnification with respect to any proceeding in which
liability shall have been adjudged in the circumstances described in Section
6.2(d) is limited to reasonable expenses incurred in connection with the
proceeding and reasonable expenses incurred to obtain court ordered
indemnification.
6.6 DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF DIRECTORS.
(a) Except to the extent authorized by a court as provided in
Section 6.5, the Corporation shall not indemnify a director under Section 6.2
unless authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in Section 6.2. The
Corporation shall not advance expenses to a director under Section 6.4 unless
authorized in the specific case after the written affirmation and undertaking
required by Section 6.4(a)(i) and 6.4(a)(ii) are received and the determination
required by Section 6.4(a)(iii) has been made.
(b) The determinations required by Section 6.6(a) shall be
made:
(i) By the board of directors by a majority vote of
those present at a meeting at which a quorum is present, and only those
directors not parties to the proceeding shall be counted in satisfying the
quorum; or
(ii) If a quorum cannot be obtained, by a majority vote
of a committee of the board of directors designated by the board of directors,
which committee shall consist of two or more directors not parties to the
proceeding; except that directors who are parties to the proceeding may
participate in the designation of directors for the committee.
(c) If a quorum cannot be obtained as contemplated in Section
6.6(b)(i), and a committee cannot be established under Section 6.6(b)(ii), or
even if a
-15-
<PAGE> 17
quorum is obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required to be made by Section 6.6(a) shall be made:
(i) By independent legal counsel selected by a vote of
the board of directors or the committee in the manner specified in Section
6.6(b)(i) or 6.6(b)(ii), or, if a quorum of the full board cannot be obtained
and a committee cannot be established, by independent legal counsel selected by
a majority vote of the full board of directors; or
(ii) By the shareholders.
(d) Authorization of indemnification and advance of expenses
shall be made in the same manner as the determination that indemnification or
advance of expenses is permissible; except that, if the determination that
indemnification or advance of expenses is required or permissible is made by
independent legal counsel, authorization of indemnification and advance of
expenses shall be made by the body that selected such counsel.
6.7 INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS.
(a) The Corporation shall indemnify and advance expenses to an
officer to the same extent as a director.
(b) The Corporation may indemnify and advance expenses to an
employee, fiduciary or agent of the Corporation to the same extent as to a
director.
(c) The Corporation may also indemnify and advance expenses to
an officer, employee, fiduciary or agent who is not a director to a greater
extent than is provided in these bylaws, if not inconsistent with public policy,
and if provided for by general or specific action of its board of directors or
shareholders or by contract.
6.8 INSURANCE. The Corporation may purchase and maintain insurance
on behalf of a person who is or was a director, officer, employee, fiduciary or
agent of the Corporation, or who, while a director, officer, employee, fiduciary
or agent of the Corporation, is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee, fiduciary or agent of
another domestic or foreign corporation or other person or of an employee
benefit plan, against liability asserted against or incurred by the person in
that capacity or arising from his or her status as a director, officer,
employee, fiduciary or agent, whether or not the Corporation would have power to
indemnify the person against the same liability under Section 6.2, 6.3, or 6.7.
Any such insurance may be procured from any insurance company designated by the
board of directors, whether such insurance company is formed under the laws of
this state or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the Corporation has an equity or any
other interest through stock ownership or otherwise.
-16-
<PAGE> 18
6.9 NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR. If the
Corporation indemnifies or advances expenses to a director under this Article VI
in connection with a proceeding by or in the right of the Corporation, the
Corporation shall give written notice of the indemnification or advance to the
shareholders with or before the notice of the next shareholders meeting. If the
next shareholder action is taken without a meeting at the instigation of the
board of directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such action.
ARTICLE VII - SHARES
7.1 CERTIFICATES. Certificates representing shares of the capital
stock of the Corporation shall be in such form as is approved by the board of
directors and shall be signed by the chairman or vice chairman of the board of
directors (if any), or the president or any vice president, and by the secretary
or an assistant secretary or the treasurer or an assistant treasurer. All
certificates shall be consecutively numbered, and the names of the owners, the
number of shares and the date of issue shall be entered on the books of the
Corporation. Each certificate representing shares shall state upon its face:
(a) that the Corporation is organized under the laws of the
State of Colorado;
(b) the name of the person to whom the shares are issued;
(c) the number and class of the shares and the designation of
the series, if any, that the certificate represents;
(d) the par value, if any, of each share represented by the
certificate;
(e) on the front or the back, (i) a summary of the
designations, preferences, limitations, and relative rights applicable to each
class, the variations in preferences, limitations, and rights determined for
each series, and the authority of the board of directors to determine variations
for future classes or series; or (ii) a conspicuous statement that the
Corporation will furnish to the shareholder, on request in writing and without
charge, information concerning the designations, preferences, limitations, and
relative rights applicable to each class, the variations in preferences,
limitations, and rights determined for each series, and the authority of the
board of directors to determine variations for future classes or series; and
(f) any restrictions imposed by the Corporation upon the
transfer of the shares represented by the certificate.
7.2 FACSIMILE SIGNATURES. Where a certificate is signed (a) by a
transfer agent other than the Corporation or its employee, or (b) by a registrar
other than the
-17-
<PAGE> 19
Corporation or its employee, any or all of the officers' signatures on the
certificate required by Section 7.1 may be facsimile. If any officer, transfer
agent or registrar who has signed, or whose facsimile signature or signatures
have been placed upon, any certificate, shall cease to be such officer, transfer
agent or registrar, whether because of death, resignation, or otherwise, before
the certificate is issued by the Corporation, it may nevertheless be issued by
the Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
7.3 TRANSFERS OF SHARES. Transfers of shares shall be made on the
books of the Corporation only upon presentation of the certificate or
certificates representing such shares properly endorsed by the person or persons
appearing upon the face of such certificate to be the owner, or accompanied by a
proper transfer or assignment separate from the certificate, except as may
otherwise be expressly provided by the statutes of the State of Colorado or by
order of a court of competent jurisdiction. The officers or transfer agents of
the Corporation may, in their discretion, require a signature guaranty before
making any transfer. Except to the extent the Corporation otherwise provides
pursuant to Section 7.4 and except for the assertion of dissenters' rights to
the extent provided in Article 113 of the Colorado Business Corporation Act, the
Corporation shall be entitled to treat the person in whose name any shares are
registered on its books as the owner of those shares for all purposes and shall
not be bound to recognize any equitable or other claim or interest in the shares
on the part of any other person, whether or not the Corporation shall have
notice of such claim or interest.
7.4 LOST, STOLEN OR DESTROYED CERTIFICATES. Any Shareholder claiming
that his Certificate for shares is lost, stolen or destroyed may make an
affidavit or affirmation of that fact and lodge the same with the Secretary of
the Corporation with a signed application for a new certificate. Then, upon the
receipt of a satisfactory indemnity bond in an amount not exceeding double the
value of the Shares represented by the lost Certificate (the actual amount
required to be determined by the President and Treasurer), the Corporation shall
issue a new Certificate for the same number of shares and the same class and
series of stock as represented by the Certificate which was lost, stolen or
destroyed.
7.5 SHARES HELD FOR ACCOUNT OF ANOTHER. The board of directors may
adopt by resolution a procedure whereby a shareholder of the Corporation may
certify in writing to the Corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified person or persons. The resolution shall set forth:
(a) the classification of shareholders who may certify;
(b) the purpose or purposes for which the certification may be
made;
(c) the form of certification and the information to be
contained therein;
-18-
<PAGE> 20
(d) if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or the
closing of the stock transfer books within which the certification must be
received by the Corporation; and
(e) such other provisions with respect to the procedure as are
deemed necessary or desirable. Upon receipt by the Corporation of a
certification complying with the procedure, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the shareholder making the certification.
ARTICLE VIII - VOTE OF SECURITIES HELD BY THE CORPORATION
Unless otherwise ordered by the Board, the President shall have full
power and authority to attend, to act and to vote at any meeting of security
holders of other corporations in which the Corporation may hold securities. At
such meetings, the President may exercise any and all of the Corporation's
ownership rights and powers. The Board may, from time to time, confer like
powers upon any other person or persons.
ARTICLE IX - MISCELLANEOUS
9.1 CORPORATE SEAL. The board of directors may adopt a seal,
circular in form and bearing the name of the Corporation and the words "SEAL"
and "COLORADO," which, when adopted, shall constitute the seal of the
Corporation. The seal may be used by causing it or a facsimile of it to be
impressed, affixed, manually reproduced or rubber stamped with indelible ink.
9.2 FISCAL YEAR. The board of directors may, by resolution, adopt a
fiscal year for the Corporation.
9.3 RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder
writings consenting to an action, and other documents or writings shall be
deemed to have been received by the Corporation when they are received:
(a) at the registered office of the Corporation in the State
of Colorado;
(b) at the principal office of the Corporation (as that office
is designated in the most recent document filed by the Corporation with the
Secretary of State for the State of Colorado designating a principal office)
addressed to the attention of the secretary of the Corporation;
(c) by the secretary of the Corporation wherever the secretary
may be found; or
-19-
<PAGE> 21
(d) by any other person authorized from time to time by the
board of directors, the president or the secretary to receive such writings,
wherever such person is found.
9.4 AMENDMENT OF BYLAWS. These Bylaws may at any time and from time
to time be amended, supplemented or repealed by the board of directors.
The undersigned secretary of the Corporation hereby certifies that
the foregoing bylaws are the bylaws of the Corporation in effect on
November 3, 1997.
By: /s/ Timothy B. Owen
--------------------------------------
Timothy B. Owen, Secretary
-20-
<PAGE> 1
EPL Technologies, Inc.
Exhibit 4.4
Series D Preferred Stock - Securities Purchase Agreement
<PAGE> 2
EXHIBIT 4.4
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of November
6, 1997, by and among EPL Technologies, Inc., a Colorado corporation, with
headquarters located at 2 International Plaza, Suite 245 Philadelphia, PA
19113-1507 (the "COMPANY"), and each of the purchasers set forth on the
signature pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended, (the "1933 ACT"), and Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act;
B. The Company has authorized a new series of preferred stock, designated
as its Series D Convertible Preferred Stock (the "PREFERRED STOCK"), having the
voting powers, preferences and rights set forth in the Certificate of
Designation, Number, Voting Powers, Preferences and Rights of the Series D
Convertible Preferred Stock attached hereto as EXHIBIT "A" (the "CERTIFICATE OF
DESIGNATION");
C. The Preferred Stock is convertible into shares of Common Stock, par
value $.001 per share, of the Company (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in the Certificate of
Designation;
D. The Company has authorized the issuance to the Buyers of 403,228
warrants, in the form attached hereto as EXHIBIT "B" (the "WARRANTS");
E. The Buyers desire to purchase from the Company and the Company desires
to issue and sell to the Buyers, upon the terms and conditions and in reliance
on the representations and warranties set forth in this Agreement, (i) an
aggregate of Twelve Thousand (12,500) shares of Preferred Stock, and (ii)
Warrants to purchase 403,228 shares of Common Stock for an aggregate purchase
price of Twelve Million Five Hundred Thousand Dollars ($12,500,000);
F. Each Buyer wishes to purchase from the Company, upon the terms and
conditions stated in this Agreement, the number of shares of Preferred Stock and
Warrants set forth immediately below its name on the signature pages hereto;
G. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide to the Buyers certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws;
<PAGE> 3
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. The Company shall
issue and sell to each Buyer and each Buyer severally agrees to purchase from
the Company such number of shares of Preferred Stock (together with any
Preferred Stock issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"PREFERRED SHARES") and Warrants, at the aggregate purchase price thereof (the
"PURCHASE PRICE") as is set forth immediately below such Buyer's name on the
signature pages hereto. The issuance, sale and purchase of the Preferred Shares
and Warrants shall take place at the closing (the "CLOSING"). Subject to the
satisfaction (or waiver) of the conditions thereto set forth in Section 6 and
Section 7 below, at the Closing, the Company shall issue and sell to each Buyer
and each Buyer shall purchase from the Company the aggregate number of Preferred
Shares and Warrants which such Buyer is purchasing hereunder for the Purchase
Price. The aggregate number of Preferred Shares to be issued at the Closing is
Twelve Thousand Five Hundred (12,500) and the aggregate number of Warrants to be
issued at the Closing is Four Hundred Three Thousand Two Hundred Twenty Eight
(403,228) for an aggregate purchase price of Twelve Million Five Hundred
Thousand Dollars ($12,500,000).
b. Form of Payment. On the Closing Date (as defined below), (i)
each Buyer shall pay the Purchase Price for the Preferred Shares and Warrants to
be issued and sold to it at the Closing by wire transfer of immediately
available funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of a duly executed certificate(s) representing
such number of Preferred Shares and Warrants which such Buyer is purchasing, and
(ii) the Company shall deliver such certificate(s) and Warrants against delivery
of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares and Warrants pursuant to this
Agreement shall be 12:00 noon Eastern Standard Time on November 10, 1997 or such
other mutually agreed upon date or time (the "CLOSING DATE"). The Closing shall
occur on the Closing Date at the offices of Ballard Spahr Andrews & Ingersoll in
Philadelphia, Pennsylvania.
2. BUYERS' REPRESENTATIONS AND WARRANTIES.
Each Buyer severally (and not jointly) represents and warrants to the
Company solely as to such Buyer that:
a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion thereof (the "CONVERSION SHARES") and the Warrants and the shares of
Common Stock issuable upon exercise thereof (the "WARRANTS SHARES", and
collectively with the Preferred Shares, Conversion Shares and Warrants, the
"SECURITIES") for its own account for investment only and not with a present
view
2
<PAGE> 4
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Section 3 below. The Buyer acknowledges receipt of
the "Risk Factors" attached hereto as Exhibit E and understands that its
investment in the Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any applicable state securities
laws and consequently the Buyer may have to bear the risk of owning the
Securities for an indefinite period of time, and the Securities may not be
transferred unless (a) subsequently included in an effective registration
statement thereunder, (b) the Buyer shall have delivered to the Company an
opinion of counsel (which opinion shall be reasonably acceptable to the Company)
to the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (c) sold pursuant
to Rule 144 promulgated under the 1933 Act (or a successor rule) or (d) sold or
transferred to an affiliate (as defined in Rule 144) of the Buyer; (ii) any sale
of such Securities made in reliance on Rule 144 may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case, other
than pursuant to the Registration
3
<PAGE> 5
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.
g. Legends. The Buyer understands that the certificates
representing the Preferred Shares, Warrants and, until such time as the
Conversion Shares and Warrants Shares have been registered under the 1933 Act,
as contemplated by the Registration Rights Agreement, the Conversion Shares and
Warrant Shares, may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The securities
have been acquired for investment and may not be sold, transferred or
assigned in the absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form, substance
and scope reasonably acceptable to the Company, that registration is
not required under said Act or unless sold pursuant to Rule 144 under
said Act."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any certificate upon which it
is stamped, if, unless otherwise required by applicable state securities laws,
(a) the Securities represented by such certificate are registered for sale under
an effective registration statement filed under the 1933 Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
reasonably acceptable to the Company, to the effect that a public sale or
transfer of such Securities may be made without registration under the 1933 Act
or (c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144 under the 1933 Act (or a successor
rule thereto) without any restriction as to the number of Securities acquired as
of a particular date that can then be immediately sold. The Buyer agrees to sell
all Securities, including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable prospectus delivery
requirements, if any, and its covenant under Section 4(d) of the Registration
Rights Agreement, or otherwise in compliance with the requirements for an
exemption from registration under the 1933 Act.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Buyer and are valid and binding agreements of the Buyer
enforceable in accordance with their terms subject to the effect of any
applicable bankruptcy, insolvency, reorganization, or moratorium or similar laws
affecting the rights of creditors generally and the application of general
principles of equity.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
j. No General Solicitation. Neither the Buyers nor any person
acting on the Buyers' behalf (if any) has conducted any "general solicitation,"
as such term is defined in Regulation D, with respect to any of the Securities
being offered hereby.
4
<PAGE> 6
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is organized,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. SCHEDULE 3(a) sets forth a list of all of
the Subsidiaries of the Company and the jurisdiction in which each is organized.
The Company and each of its Subsidiaries is duly qualified to do business and is
in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the business,
operations, assets or financial condition of the Company or its Subsidiaries, if
any, taken as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
"SUBSIDIARIES" means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to file and perform its obligations under the
Certificate of Designation and to enter into, and to perform its obligations
under, this Agreement, the Registration Rights Agreement and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement and the
Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the filing of the
Certificate of Designation, the issuance of the Preferred Shares and the
Warrants and the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board or Directors, or its shareholders is
required, (iii) this Agreement has been duly executed and delivered and the
Certificate of Designation has been duly filed by the Company, and (iv) each of
this Agreement and the Certificate of Designation constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement and
the Warrants, each such agreement will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or moratorium or similar laws affecting the rights of creditors
generally and the application of general principles of equity.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,0000 shares of Common Stock of which
17,956,299 shares are issued and outstanding, 4,514,500 shares are reserved for
issuance pursuant to the Company's stock option plans, 3,246,278 shares are
reserved for issuance pursuant to securities (other than the Preferred Shares
and the Warrants) exercisable for, or convertible into or exchangeable for
shares of Common Stock and 3,629,032 shares are reserved for issuance upon
conversion of the Preferred
5
<PAGE> 7
Shares and exercise of the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); (ii) 3,250,000 shares of
Series A 10% Cumulative Preferred Stock, par value $1.00 per share, of which
2,113,000 shares are issued and outstanding, (iii) 531,915 shares of Series B
10% Cumulative Convertible Preferred Stock, par value $.01 per share, of which
no shares are issued and outstanding, (iv) 144,444 shares of Series C
Convertible Preferred Stock, par value $.01 per share, of which 144,444 shares
are issued and outstanding, and (v) 4,000,000 shares of board designated
preferred stock, par value $0.01 per share, of which 144,444 shares have been
designated as Series C Convertible Preferred Stock and of which no other shares
are issued and outstanding. All of such outstanding shares of capital stock
are, or upon issuance against receipt of consideration therefor will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in
SCHEDULE 3(c) and except for the transactions contemplated hereby, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into, exercisable
for, or exchangeable for any shares of capital stock of the Company or any of
its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of its or their securities under
the 1933 Act (except the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued
by the Company (or in any agreement providing rights to security holders) that
will be triggered by the issuance of the Preferred Shares, Conversion Shares,
Warrants or Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Amended and Restated Articles of Incorporation,
as amended, as in effect on the date hereof ("ARTICLES OF INCORPORATION"), the
Company's By-laws, as amended, as in effect on the date hereof (the"BY-LAWS"),
and the terms of all securities convertible into or exercisable for Common
Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written update of
this representation signed by the Company's Chief Executive or Treasurer on
behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Preferred Shares, Conversion Shares and
Warrant Shares are duly authorized and, upon issuance in accordance with the
terms of this Agreement (including the issuance of the Conversion Shares upon
conversion of the Preferred Shares in accordance with the Certificate of
Designation and the issuance of the Warrant Shares upon exercise of the Warrants
in accordance with the terms thereof) will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims, encumbrances, and
charges with respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of stockholders of the Company. The term
Conversion Shares includes the shares of Common Stock issuable upon conversion
of the Preferred Shares, including without limitation, such additional shares,
if any, as are issuable as a result of the events described in Section 2(c) of
the Registration Rights Agreement. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the
Conversion Shares and Warrant Shares upon conversion or exercise of the
Preferred Shares or Warrants. The Company further acknowledges that its
obligation to issue
6
<PAGE> 8
Conversion Shares upon conversion of the Preferred Shares and Warrant
Shares upon exercise of the Warrants in accordance with this Agreement,
the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may
have on the ownership interests of other stockholders of the Company.
e. Series of Preferred Stock. The terms, designations, powers,
preferences and relative, participating, and optional or special rights, and the
qualifications, limitations, and restrictions of each series of preferred stock
of the Company (other than the Preferred Stock) are as stated in the Articles of
Incorporation, the Bylaws, and the Certificates of Designation with respect to
each such series of preferred stock of the Company, filed on or prior to the
date hereof. The terms, designations, powers, preferences and relative,
participating, and optional or special rights, and the qualifications,
limitations, and restrictions of the Preferred Stock are as stated in the
Articles of Incorporation, the Bylaws, and Certificates of Designation with
respect to the Preferred Stock, attached hereto as Exhibit A.
f. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the filing of the Certificate of
Designation and the issuance and reservation for issuance of the Preferred
Shares, Warrants, Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Articles of Incorporation
or By-laws or (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse of
time or both could become a default) under, or give to others any rights of
termination, amendment, (including without limitation, the triggering of any
anti-dilution provision), acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, breaches, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that (and no event has occurred which,
without notice or lapse of time or both) would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity, the failure to
comply with which would, individually or in the aggregate, have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act
7
<PAGE> 9
and any applicable state securities laws or any listing agreement with
any securities exchange or automated quotation system, the Company is
not required to obtain any consent, authorization or order of, or make
any filing or registration with, any court or governmental agency or
any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Warrants or to perform its
obligations under the Certificate of Designation in each case in
accordance with the terms hereof or thereof. Except as discussed in
SCHEDULE 3(f), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the
date hereof. The Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing. The
Company is not in violation of the listing requirements of the Nasdaq
SmallCap Market ("NASDAQ SMALLCAP") and does not reasonably anticipate
that the Common Stock will be delisted by the Nasdaq SmallCap in the
foreseeable future. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
g. SEC Documents, Financial Statements. Since January 1, 1995, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to each Buyer true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents or as set forth on SCHEDULE 3(g), the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 1997 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company.
8
<PAGE> 10
h. Absence of Certain Changes. Since June 30, 1997, there has been
no material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, or results
of operations of the Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
that could, individually or in the aggregate, have a Material Adverse Effect.
SCHEDULE 3(i) contains a complete list and summary description of any pending
or, to the knowledge of the Company, threatened proceeding against or affecting
the Company or any of its Subsidiaries, without regard to whether it would have
a Material Adverse Effect.
j. Patents, Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent rights, inventions, know-how, trade secrets, trademarks, service
marks, service names, trade names and copyrights ("INTELLECTUAL PROPERTY")
necessary to enable it to conduct its business as now operated (and, except as
set forth in SCHEDULE 3(j) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); there is no claim or
action by any person pertaining to, or proceeding pending, or to the Company's
knowledge threatened which challenges the right of the Company or of a
Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in SCHEDULE 3(j)
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future); to the best of the Company's knowledge, the Company's
or its Subsidiaries' products, services and processes do not infringe on any
Intellectual Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
k. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future,
individually or in the aggregate, to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement
which in the judgment of the Company's officers has or is expected to have a
Material Adverse Effect.
l. Tax Status. Except as set forth on SCHEDULE 3(l), the Company
and each of its Subsidiaries has made or filed all federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount
9
<PAGE> 11
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim.
m. Certain Transactions. Except as set forth on SCHEDULE 3(m) and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(c), none of the officers, directors, or employees of the Company is presently
a party to any material transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company's reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of Securities. The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers' purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
p. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers on the Closing Date.
Except as set forth on SCHEDULE 3(c) or as disclosed in the SEC Documents, the
Company has not issued any of its securities in a private placement in 1997.
10
<PAGE> 12
q. No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Clarco, whose commissions and fees will be paid
for by the Company.
r. Permits; Compliance. The Company and each of its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted except those the failure of which to possess would
not, individually or in the aggregate, have a Material Adverse Effect
(collectively, the "COMPANY PERMITS"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since June 30, 1997, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
s. Environmental Matters.
(i) Except as set forth in SCHEDULE 3(s), and except with
regard to such violations that would not individually or in the aggregate have a
Material Adverse Effect, there are, to the Company's knowledge, with respect to
the Company or any of its Subsidiaries or any predecessor of the Company, no
past or present violations of Environmental Laws (as defined below), releases of
any material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give rise to
any common law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company's knowledge, threatened in connection
with any of the foregoing. The term "ENVIRONMENTAL LAWS" means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, to the Company's knowledge, no
Hazardous Materials are contained on or about any real property currently owned,
leased or used by the Company or any of
11
<PAGE> 13
its Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business and materially in compliance with law.
(iii) Except as set forth in SCHEDULE 3(s), to the Company's
knowledge, there are no underground storage tanks on or under any real property
owned, leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
t. Title to Property. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in SCHEDULE 3(t) or such as would not have
a Material Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
u. Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
v. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
w. Employment Matters. The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours except where failure to be in compliance would
not have a Material Adverse Effect. There are no pending investigations
involving the Company or any of its Subsidiaries by the U.S. Department of Labor
or any other governmental agency responsible for the enforcement of such
federal, state, local or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any of its Subsidiaries
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or any of its Subsidiaries. Except as set forth in
SCHEDULE 3(w), no representation question
12
<PAGE> 14
exists respecting the employees of the Company or any of its Subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of its subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or any of its Subsidiaries. No material
labor dispute with the employees of the Company or any of its Subsidiaries
exists or, to the knowledge of the Company, is imminent.
x. ERISA Matters. The Company has no employee benefit plans subject
to the Employee Retirement Income Security Act of 1974, as amended.
y. Investment Company Status. The Company is not and upon
consummation of the sale of the Securities will not be an "investment company,"
a company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
z. Foreign Corrupt Practices. Neither, the Company nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
aa. No General Solicitation. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby (if any) nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation," as such term is defined
in Regulation D, with respect to any of the Securities being offered hereby.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers pursuant
to this Agreement under applicable securities or "blue sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to each Buyer on or prior to
the Closing Date.
13
<PAGE> 15
c. Reporting Status; Eligibility to Use Form S-3. The Company's
Common Stock is registered under Section 12(g) of the 1934 Act. So long as any
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility" requirements
set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Shares and Warrants in the manner set forth in SCHEDULE
4(d) attached hereto and made a part hereof and shall not otherwise, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its direct or indirect Subsidiaries).
e. Additional Equity Capital. Subject to the exceptions described
below, the Company will not, without the prior written consent of two-thirds
(2/3) in interest of the Buyers, negotiate or contract with any party to obtain
additional equity financing (including debt financing with an equity component)
that (i) involves (A) the issuance of Common Stock at a discount to the market
price of the Common Stock on the date of issuance or (B) the issuance of
convertible securities that are convertible (x) into an indeterminate number of
shares of Common Stock or (y) into shares of Common Stock at a discount to the
market price of the Common Stock on either the date of issuance or the date of
conversion, and (ii) provides for the registration under the 1933 Act of public
resales of the Common Stock referred to in clause (i) above, until the later of
(x) nine (9) months after the Closing Date or (y) six (6) months following the
effective date of the Registration Statement (as defined in the Registration
Rights Agreement). The foregoing limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 1933
Act) or (ii) issuances of securities as consideration for a merger,
consolidation or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity capital),
or in connection with the disposition or acquisition of a business, product or
license by the Company. The Capital Raising Limitations also shall not apply to
the issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
a majority of the Company's disinterested directors.
f. Expenses. The Company shall reimburse Rose Glen Capital
Management, L.P. ("RGC") for all expenses incurred by it in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
attorneys' and consultants' fees and expenses. The Company's obligation to
reimburse RGC's expenses under this Section 4(f) shall be limited to Thirty
Thousand Dollars ($30,000).
g. Financial Information. The Company agrees to file all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the
14
<PAGE> 16
reporting requirements of the 1934 Act. The financial statements of the Company
will be prepared in accordance with generally accepted accounting principles,
consistently applied, and will fairly present in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries
and results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). The Company agrees to send the following reports to each Buyer
until such Buyer transfers, assigns, or sells all of the Securities: (i) within
ten (10) days after the filing with the SEC, a copy of its Annual Report on Form
10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K;
(ii) promptly after release, copies of all press releases issued by the Company
or any of its Subsidiaries; and (iii) contemporaneously with the making
available or giving to the stockholders of the Company, copies of any notices or
other information the Company makes available or gives to such stockholders.
h. Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection therewith
(based on the Conversion Price of the Preferred Shares in effect from time to
time) and the full exercise of the Warrants and the issuance of the Warrant
Shares in connection therewith (based upon the Exercise Price of the Warrants in
effect from time to time). The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of the Preferred Shares or
exercise of the Warrants without the consent of each Buyer, which consent will
not be unreasonably withheld. The Company shall use its best efforts at all
times to maintain the number of shares of Common Stock so reserved for issuance
at no less than two (2) times the number that is then actually issuable upon
full conversion of the Preferred Shares and full exercise of the Warrants (based
on the Conversion Price of the Preferred Shares or Exercise Price of the
Warrants in effect from time to time). If at any time the number of shares of
Common Stock authorized and reserved for issuance is below the number of
Conversion Shares and Warrant Shares issued and issuable upon conversion of the
Preferred Shares and exercise of the Warrants (based on the Conversion Price of
the Preferred Shares and Exercise Price of the Warrants then in effect), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, and using its best efforts to obtain shareholder
approval of an increase in such authorized number of shares.
i. Listing. The Company shall timely secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain such listing
of all Conversion Shares and Warrant Shares from time to time issuable upon
conversion or exercise of the Preferred Shares and the Warrants. The Company
will obtain and maintain the listing and trading of its Common Stock on the
Nasdaq SmallCap, the Nasdaq National Market System ("NASDAQ NMS"), the New York
Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives regarding the continued eligibility of
the
15
<PAGE> 17
Common Stock for listing on Nasdaq SmallCap, Nasdaq NMS or other principal
exchange or quotation system on which the Common Stock is listed or traded. The
Company will use its best efforts to obtain the listing of its Common Stock, and
the Conversion Shares and Warrant Shares, on the Nasdaq NMS as soon as
practicable following the Closing Date.
j. Corporate Existence. So long as a Buyer beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its corporate existence
in good standing under the laws of the jurisdiction in which it is incorporated
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on Nasdaq
NMS, Nasdaq SmallCap, NYSE or AMEX.
k. Compliance with Law. The Company will conduct its business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and regulations the
failure to comply with which would have a Material Adverse Effect.
l. Insurance. The Company shall maintain liability, casualty and
other insurance (subject to customary deductions and retentions) with
responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size to the Company.
m. No Integration. The Company will not conduct any future offering
that will be integrated with the issuance of the Securities solely for purposes
of Rule 4460(i) of the Nasdaq Stock Market.
n. No Qualified Opinion. The Company did not receive a qualified
opinion from its auditors with respect to its most recent fiscal year end and
does not anticipate or know of any basis upon which its auditors might issue a
qualified opinion in respect of its current fiscal year.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
to issue certificates, registered in the name of each Buyer or its nominee, for
the Conversion Shares and Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon proper conversion or exercise of the
Preferred Shares and the Warrants (the "Irrevocable Transfer Agent
Instructions"). All such certificates shall bear the restrictive legend as and
when specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares or Warrant Shares, prior to
registration of the Conversion Shares or Warrant Shares under the 1933 Act),
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and
16
<PAGE> 18
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel,
reasonably satisfactory to the Company in form, substance and scope, that
registration of a resale by such Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares or Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by such Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security being
required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares and the Warrants to a Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the following conditions
thereto, provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The Certificate of Designation shall have been filed with the
Secretary of State of the State of Colorado.
d. The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
17
<PAGE> 19
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred Shares
and the Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date of each of the following conditions, provided that these conditions
are for such Buyer's sole benefit and may be waived by such Buyer at any time in
its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Certificate of Designation shall have been filed with the
Secretary of State of the State of Colorado, and a file-stamped copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
c. The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request) representing the
Preferred Shares and the Warrants being so purchased in accordance with Section
1(b) above.
d. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the Chief Executive
Officer or the Treasurer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer including, but not limited to certificates with respect to the
Company's Articles of Incorporation, By-laws, Board of Directors' resolutions
relating to the transactions contemplated hereby and the incumbency and
signatures of each of the officers of the Company who shall execute on behalf of
the Company any document delivered on the Closing Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. Trading in the Common Stock on Nasdaq SmallCap shall not have
been suspended by the SEC or Nasdaq.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "D"
attached hereto.
18
<PAGE> 20
h. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
i. The Buyer shall have received executed lock-up agreements from
certain of the Company's executive officers whereby such persons agree not to
sell any shares of Common Stock for a period commencing on the Closing Date and
ending on April 30, 1998.
j. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by
and interpreted in accordance with the laws of the Commonwealth of Pennsylvania
without regard to the principles of conflict of laws. The parties hereto hereby
submit to the exclusive jurisdiction of the United States Federal and state
courts located in Philadelphia, Pennsylvania with respect to any dispute arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
b. Counterparts; Signatures by Facsimile. This Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. This Agreement, once executed by
a party, may be delivered to the other parties hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the parties so delivering
this Agreement.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall
19
<PAGE> 21
be effective five days after being placed in the mail, if mailed by regular U.S.
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
EPL Technologies, Inc.
2 International Plaza, Suite 245
Philadelphia, PA 19113-1507
Attn: Secretary
Fax: 610-521-5985
With copy to:
Ballard Spahr Andrews & Ingersoll
Attn: Raymond D. Agran, Esq.
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Facsimile: 215-864-8999
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, any Buyer may assign its rights hereunder to any
person that purchases Securities in a private transaction from a Buyer or to any
of its "affiliates," as that term is defined under the 1934 Act, without the
consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder notwithstanding any due diligence investigation conducted
by or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers, directors, employees, partners,
members, affiliates, and agents for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4 hereof
or any of its covenants and obligations under this Agreement or the Registration
Rights Agreement, including advancement of expenses as they are incurred.
20
<PAGE> 22
j. Publicity. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any press
releases, or relevant portions of any SEC, Nasdaq or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of each of the Buyers, to make any press release or SEC, Nasdaq or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although each of the Buyers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. Equitable Relief. The Company recognizes that in the event that
it fails to perform, observe, or discharge any or all of its obligations under
this Agreement, any remedy at law may prove to be inadequate relief to the
Buyers. The Company therefore agrees that the Buyers shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
EPL Technologies, Inc.
By:_________________________________
Timothy B. Owen
Secretary and Treasurer
21
<PAGE> 23
RGC International Investors, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.
By:_________________________________
Name: Wayne D. Bloch
Its: Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Fax: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<S> <C>
Number of Shares of Series D Convertible Preferred Stock: 7,000
Number of Warrants: 225,807
Aggregate Purchase Price: $7,000,000
</TABLE>
22
<PAGE> 24
Capital Ventures International
By: Heights Capital Management, Inc.,
its authorized agent
By: ____________________________
Name:
Title:
RESIDENCE: Cayman Islands
c/o Heights Capital Management
425 California Street, Suite 1100
San Francisco, CA 94104
Facsimile: (415) 403-6525
Telephone: (415) 403-6500
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<S> <C>
Number of Shares of Series D Convertible Preferred Stock: 2,500
Number of Warrants: 80,646
Aggregate Purchase Price: $2,500,000
</TABLE>
23
<PAGE> 25
Halifax Fund, L.P.
By: Palladin Group, L.P., as attorney-in-fact
By: Palladin Capital Management LC, its general partner
By:_____________________________
Andrew Kaplan
Managing Director
RESIDENCE: Cayman Islands
c/o Andrew Kaplan
Palladin Group
40 W. 57th Street, 19th Floor
New York, New York 10019
Facsimile: (212) 698-0599
Telephone: (212) 698-0515
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<S> <C>
Number of Shares of Series D Convertible Preferred Stock: 3,000
Number of Warrants: 96,775
Aggregate Purchase Price: $3,000,000
</TABLE>
24
<PAGE> 1
EPL Technologies, Inc.
Exhibit 4.5
Series D Preferred Stock - Registration Rights Agreement
<PAGE> 2
EXHIBIT 4.5
EXHIBIT C
TO SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of November
6, 1997, by and among EPL Technologies, Inc., a Colorado corporation, with
headquarters located at 2 International Plaza, Suite 245, Philadelphia, PA
19113-1507 (the "COMPANY"), and each of the undersigned (together with their
respective affiliates and any assignee or transferee of all of their respective
rights hereunder, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) 12,500 shares of its
Series D Convertible Preferred Stock (the "PREFERRED STOCK") 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 Certificate of Designations, Preferences and Rights
with respect to such Preferred Stock (the "CERTIFICATE OF DESIGNATION") and (ii)
warrants (the "WARRANTS") to acquire 403,228 shares of Common Stock (the
"WARRANT SHARES"), upon the terms and subject to the limitations and conditions
set forth in the Warrants dated of even date herewith; and
B. To induce the Initial Investors to execute and deliver the
Securities 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 each
of the Initial Investors hereby agree as follows:
<PAGE> 3
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferee or assignee 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").
(iii) "REGISTRABLE SECURITIES" means the Conversion Shares
and the Warrant Shares (including any Conversion Shares issuable with respect to
Conversion Default Payments under the Certificate of Designation or in
redemption of any Preferred Stock and any Warrant Shares issuable with respect
to Exercise Default Payments under the Warrants) issued or issuable with respect
to the Warrants and the Preferred Stock and any shares of capital stock issued
or issuable, from time to time (with any adjustments), as a distribution on or
in exchange for or otherwise with respect to any of the foregoing. As to any
particular securities, such Securities shall cease to be Registrable Securities
when they have been sold pursuant to an effective registration statement or in
compliance with Rule 144 or are eligible to be sold pursuant to Rule 144(k)
under the 1933 Act (or any similar rule then in force).
(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 Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or
prior to the date which is thirty (30) days after the date of the Closing under
the Securities Purchase Agreement (the "CLOSING DATE"), 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 all of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities underlying the Preferred Stock and Warrants
issued or issuable pursuant to the Securities Purchase Agreement, 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 Preferred Stock and exercise
of the Warrants (i) to prevent dilution resulting from
2
<PAGE> 4
stock splits, stock dividends or similar transactions or (ii) by reason of
changes in the Conversion Price of the Preferred Stock in accordance with the
terms of the Certificate of Designation or the Exercise Price of the Warrants in
accordance with the terms thereof. The number of shares of Common Stock
initially included in such Registration Statement shall be no less than one and
one-half times the sum of the number of Conversion Shares and Warrant Shares
that are then issuable upon conversion of the Preferred Stock or exercise of the
Warrants without regard to any limitation on the Investor's ability to convert
the Preferred Stock or Warrants. The Company shall use its best efforts to
obtain effectiveness of the Registration Statement as soon as practicable.
b. [Intentionally Omitted].
c. Payments by the Company. 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 one hundred
twenty (120) days after the Closing Date or if, after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant to the
Registration Statement, or (ii) the Common Stock is not listed or included for
quotation on the Nasdaq National Market ("NASDAQ"), the Nasdaq SmallCap Market
("NASDAQ SMALLCAP"), the New York Stock Exchange (the "NYSE") or the American
Stock Exchange (the "AMEX") after being so listed or included for quotation,
then the Company will make payments to the Investors in such amounts and at such
times as shall be determined pursuant to this Section 2(c) 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 the Preferred Stock or Registrable Securities an
amount equal to the aggregate "Purchase Price" (as defined below) of the
Preferred Stock ("AGGREGATE SHARE PRICE") multiplied by the Payment Percentage
(as defined below) times the sum of: (i) the number of months (prorated for
partial months) after the end of such 120-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 3(h) below 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 (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement or when such prospectus
otherwise contains a material misstatement or omission) 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 SmallCap, NYSE or AMEX or that
trading thereon is halted after the Registration Statement has been declared
effective. The Payment Percentage shall be one and three-quarters hundredths
(.0175) for the first month of the pendency of any event set forth above and two
hundredths (0.02) per month for each month thereafter. (For example, if the
Registration Statement becomes effective one (1) month after the end of such
120-day period, the Company would pay $17,500 for each $1,000,000 of Purchase
Price. If thereafter, sales could not be made pursuant to the Registration
Statement for an additional period of one (1) month, the Company would pay an
additional $20,000 for each
3
<PAGE> 5
$1,000,000 of Purchase Price; provided, however, that the maximum amount payable
per month shall be $20,000 per $1,000,000 of Purchase Price.) Such amounts shall
be paid in cash or, at each Investor's option, may be convertible into Common
Stock at the "CONVERSION PRICE" (as defined in the Certificate of Designation).
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 under Article VI of the Certificate of Designation), 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 five
(5) 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
Preferred Stock. Notwithstanding the foregoing, the Company shall not be
required to make such payments during any "Allowed Delay" as defined in Section
3.f. below.
d. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option, stock purchase or
other employee benefit plans), the Company shall send to each Investor who is
entitled to registration rights under this Section 2(d) written notice of such
determination and, if within fifteen (15) days after the effective date of such
notice, such Investor shall so request in writing, the Company shall include in
such Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution (including achieving
pricing acceptable to the Company), then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors in the aggregate; provided,
however, that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders of which
are not entitled to inclusion of such securities in such Registration Statement
or are not entitled to pro rata inclusion with the Registrable Securities; and
provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any registration
required under Section 2(a) hereof. If an offering in
4
<PAGE> 6
connection with which an Investor is entitled to registration under this Section
2(d) is an underwritten offering, then each Investor whose Registrable
Securities are included in such Registration Statement shall, unless otherwise
agreed by the Company, offer and sell such Registrable Securities in an
underwritten offering using the same underwriter or underwriters and, subject to
the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering, including
customary indemnification. Notwithstanding anything to the contrary set forth
herein, the registration rights of the Investors pursuant to this Section 2(d)
shall only be available in the event the Company fails to timely file, obtain
effectiveness or maintain effectiveness of the Registration Statement to be
filed pursuant to Section 2(a) in accordance with the terms of this Agreement,
and shall not apply during periods in which there is an effective Registration
Statement.
e. Eligibility for Form S-3. The Company represents and warrants
that it meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investors and any
other Investors 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.
f. Rule 416. The Company and the Investors each acknowledge that an
indeterminate number of Registrable Securities shall be registered pursuant to
Rule 416 under the Securities Act so as to include in such Registration
Statement any and all Registrable Securities which may become issuable (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions and (ii) by reason of reductions in the Conversion Price of the
Preferred Stock in accordance with the terms thereof, including, but not limited
to, the terms which cause the Variable Conversion Price to decrease to the
extent the closing bid price of the Common Stock decreases (collectively, the
"RULE 416 SECURITIES"). In this regard, the Company agrees to take all steps
necessary to ensure that all Registrable Securities are registered pursuant to
Rule 416 under the Securities Act in the Registration Statement and, absent
guidance from the SEC or other definitive authority to the contrary, the Company
shall affirmatively support and not take any action adverse to the position that
the Registration Statements filed hereunder cover all of the Rule 416
Securities. If the Company determines that the Registration Statements filed
hereunder do not cover all of the Rule 416 Securities, the Company shall
immediately provide to each Investor written notice (a "RULE 416 NOTICE")
setting forth the basis for the Company's position and the authority therefor.
g. To the extent that Rule 416 is determined by the SEC not to
permit the registration of an indeterminate number of shares, the initial number
of Registrable Securities included on any Registration Statement and each
increase (if any) to the number of Registrable Securities included thereon shall
be allocated pro rata among the Investors based on the number of Registrable
Securities held by each Investor at the time of such establishment or increase,
as the case may be. In the event an Investor shall sell or otherwise transfer
any of such holder's Registrable Securities prior to the effectiveness of the
Registration Statement, each transferee shall be allocated a pro rata portion of
the number of Registrable Securities to be included on a Registration Statement.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by
5
<PAGE> 7
such Investors. For the avoidance of doubt, the number of Registrable Securities
held by any Investor shall be determined as if all shares of Preferred Stock and
Warrants then outstanding were converted into or exercised for Registrable
Securities.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. Subject to any Allowed Delay, the Company shall prepare and, on
or prior to the date which is thirty (30) days after the Closing Date, file with
the SEC, 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, and, subject to any Allowed
Delay, 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 and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors) may be
immediately sold without restriction (including without limitation as to volume
by each holder thereof) without registration under the 1933 Act (the
"REGISTRATION PERIOD"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein not misleading.
b. Subject to any Allowed Delay, 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 that Rule 416 is determined by the SEC not to permit the registration of
an indeterminate number of shares, and 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
Preferred Stock or exercise of the Warrants, 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 to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any event
within twenty (20) business 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. The provisions of Section 2(c)
above shall be applicable with respect to such obligation, with the one hundred
twenty (120) days running from the day after the date on which the Company
reasonably first determines (or reasonably should have determined) the need
therefor.
6
<PAGE> 8
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 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 of any
thereof which contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a 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. The Company will immediately notify each Investor by
facsimile of the effectiveness of the Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly file an acceleration request as soon as
practicable following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that the Registration Statement or
any amendment thereto will not be subject to review.
d. The Company shall use reasonable 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 who hold a majority-in-interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; 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. [Intentionally omitted].
f. 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 omits 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 correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor
7
<PAGE> 9
as such Investor may reasonably request; provided that, for not more than
fifteen (15) consecutive trading days (or a total of not more than thirty (30)
trading days in any twelve (12) month period), the Company may delay the
disclosure of material non-public information concerning the Company (as well as
prospectus or Registration Statement updating) the disclosure of which at the
time is not, in the good faith opinion of the Company in the best interests of
the Company (an "Allowed Delay"); provided, further, that the Company shall
promptly (i) notify the Investors in writing of the existence of (but in no
event, without the prior written consent of an Investor, shall the Company
disclose to such investor any of the facts or circumstances regarding) material
non-public information giving rise to an Allowed Delay and (ii) advise the
Investors in writing to cease all sales under the Registration Statement until
the end of the Allowed Delay. Upon expiration of the Allowed Delay, the Company
shall again be bound by the first sentence of this Section 3(f) with respect to
the information giving rise thereto.
g. The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, and, if such an order is issued, 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.
h. 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 (as well as all requests for acceleration or
effectiveness thereof) 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 and will not request acceleration of the Registration Statement without
prior notice to such counsel. The sections of the Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning after the effective date of the Registration Statement.
j. [Intentionally omitted].
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for
8
<PAGE> 10
purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investor's ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and 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.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each 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 the Nasdaq or, if not eligible for the Nasdaq on the Nasdaq
SmallCap and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
9
<PAGE> 11
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered 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 Investors may reasonably request and registered in such names as the
Investors may request, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, to the transfer agent for the Registrable Securities
(with copies to the Investors whose Registrable Securities are included in such
Registration Statement) an instruction in the form attached hereto as EXHIBIT 1
and a letter from the Company, which letter has been acknowledged by the
Company's transfer agent as sufficient to permit the issuance of unlegended
Conversion Shares and Warrant Shares which are not subject to a stop transfer
notation in the form attached hereto as EXHIBIT 2.
p. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
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 shall sell all Registrable Securities, including
those represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any, and in
compliance with the succeeding paragraph, or otherwise in compliance with the
requirements for an exemption from registration under the 1933 Act.
10
<PAGE> 12
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements 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.
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 qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof shall be borne by the Company, subject to the
maximum of $30,000 (including all expenses incurred in connection with the
transactions contemplated under the Securities Purchase Agreement and
hereunder), as set forth in the Securities Purchase Agreement. In addition, the
Company shall pay all of the Investors' reasonable costs (including legal fees)
incurred in connection with the successful enforcement of the Investors' rights
hereunder.
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,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any underwriter
(as defined in the 1933 Act) for the Investors, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or 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
11
<PAGE> 13
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 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 Indemnified Persons, 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 which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (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, 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 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, any
underwriter 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 or underwriter 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 by such Investor, 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
12
<PAGE> 14
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 be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential 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 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 a
majority-in-interest of the Initial Investors), 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.
13
<PAGE> 15
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 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 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, for
as long as there shall be any Series D Preferred Stock, Warrants, Conversion
Shares or Warrant Shares held by an Investor, to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investor to any transferee of one-third (1/3) or more of such Investor's
Preferred Shares, Warrants or 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,
14
<PAGE> 16
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
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein, (v) such transfer
shall have been made in accordance with the applicable requirements of the
Securities 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 and shall have made appropriate representations to that effect to the
Company.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
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. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. Each party shall provide notice
to the other party of any change in address. The addresses for such
communications shall be:
If to the Company:
EPL Technologies, Inc.
2 International Plaza, Suite 245
Philadelphia, PA 19113-1507
Attention: Secretary
Facsimile: 610-521-5985
15
<PAGE> 17
With copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Attn: Raymond D. Agran
Philadelphia, PA 19103-7599
Facsimile: 215-864-8999
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
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 Pennsylvania 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 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
United States Federal Courts located in Pennsylvania with respect to any dispute
arising under this Agreement or the transactions contemplated hereby.
e. This Agreement, the Securities Purchase Agreement (including all
schedules and exhibits thereto), and the Warrants 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
Securities Purchase Agreement and the Warrants 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 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.
16
<PAGE> 18
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. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock and Warrants then outstanding
have been converted into or exercised for Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
17
<PAGE> 19
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
EPL TECHNOLOGIES, INC.
By:____________________________
Timothy B. Owen
Secretary and Treasurer
RGC International Investors, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.
By:____________________________
Wayne D. Bloch
Managing Director
Capital Ventures International
By: Heights Capital Management, Inc.,
Its Authorized Agent
By:________________________________
Name:______________________________
Title:_____________________________
Halifax Fund, L.P.
By: Palladin Group, L.P., as attorney-in-fact
By: Palladin Capital Management LC, its general partner
By:________________________________
Andrew Kaplan
Managing Director
18
<PAGE> 1
EPL Technologies, Inc.
Exhibit 10.12
Trademark License Agreement between
IPS Produce, Inc. and Potandon Produce LLC
<PAGE> 2
EXHIBIT 10.12
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS BRACKETED ON PAGES 2, 3, 4, 6, 11, 15 AND 16 AND
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
TRADEMARK SUBLICENSE AND SERVICE AGREEMENT
THIS AGREEMENT is entered into this 22nd day of September 1997 (hereinafter the
"Effective Date"), between IPS Produce, Inc., a Pennsylvania corporation
(hereinafter referred to as "LICENSEE") and POTANDON PRODUCE LLC., a Delaware
limited liability company (hereinafter referred to as "LICENSOR").
WITNESSETH:
WHEREAS, LICENSOR entered into a Trademark License Agreement with The
Pillsbury Company ("TPC") (hereinafter referred to as the "LICENSE AGREEMENT");
WHEREAS, LICENSOR has been granted the right to use certain
trademarks and trade names including those listed in Exhibit A and the trade
dress used in connection therewith (hereinafter such trademarks and trade names
listed on Exhibit A are referred to as the "LICENSED MARKS"), which LICENSED
MARKS have been used in commerce and extensively advertised and promoted by
various means. The LICENSED MARKS are well known and recognized by the general
public and have gained a high reputation with the general public, which high
reputation and goodwill has been and continues to be a unique benefit to TPC and
LICENSOR;
WHEREAS, LICENSEE recognized the benefits to be derived from
utilizing the LICENSED MARKS and desires to utilize said LICENSED MARKS solely
upon and in connection with the marketing, advertising, sale and distribution of
fresh and perishable potatoes as defined in Exhibit B (the "Licensed Products");
WHEREAS, LICENSOR has developed a network of suppliers of potatoes
and LICENSEE wishes LICENSOR's assistance in the sourcing of potatoes and
LICENSOR is willing to provide certain services to LICENSEE on the terms and
conditions contained herein; and
WHEREAS, LICENSEE has requested LICENSOR to provide certain
marketing assistance and LICENSOR has requested THE SHOLL GROUP, INC., a
Minnesota corporation ("SGI") to provide such assistance as LICENSOR'S agent
pursuant to a separate arrangement between SGI and LICENSOR.
NOW, THEREFORE, in consideration of mutual promises contained herein,
and for other good and valuable consideration, the receipt and adequacy of which
is expressly acknowledged, the parties agree as follows:
1
<PAGE> 3
1. GRANT OF LICENSE
(a) Licensed Products. Upon the terms and conditions set forth in
this Agreement, as of Effective Date, LICENSOR grants to LICENSEE the right,
license and privilege to utilize the LICENSED MARKS (hereinafter the
"Sublicense") solely upon and in connection with the advertising, marketing,
sale and distribution of Licensed Product to "Non-Retail Customer" only.
Non-Retail Customers are those accounts which do not sell Licensed Product,
either directly or indirectly, to or through retail outlets such as grocery
stores.
(b) Limited License. This Sublicense is limited to Licensed
Products which meet or exceed the quality standards set forth in a quality
assurance manual to be jointly developed by LICENSEE and LICENSOR and subject to
LICENSOR's final approval prior to the production of any Licensed Products (such
quality assurance manual, with such changes thereto as LICENSOR may reasonably
determine are required in response to technological, legal, regulatory or other
industry developments, hereinafter referred to as "LICENSOR's Quality Assurance
Manual"). NO LICENSE IS GRANTED HEREUNDER FOR ANY USE OTHER THAN SOLELY IN
CONNECTION WITH THE LICENSED PRODUCTS, AND NO LICENSE IS GRANTED FOR ANY USE IN
COMBINATION WITH PRODUCTS THAT ARE NOT LICENSED PRODUCTS, AS DEFINED, WITHOUT
PRIOR WRITTEN CONSENT OF LICENSOR. Except as otherwise consented to by LICENSOR
in writing, the Licensed Products shall be sold to the public only in the manner
in which other similar articles are customarily merchandised. LICENSEE shall be
free to set the prices at which it sells or distributes License Products, and
LICENSOR shall have no right to dictate such price(s), provided, however, that
the Licensed Products shall at all times be sold and marketed as high quality
products consistent with LICENSOR's and TPC's image and reputation for overall
high quality.
(c) Exclusive Accounts. The Sublicense hereby granted shall be
with respect only to Non-Retail Customers and shall be exclusive with respect to
Non-Retail Customers. LICENSEE shall use commercially reasonable efforts to
avoid diversion of Licensed Products to accounts other than Non-Retail
Customers.
(d) Term. The term of the Sublicense granted hereunder shall
commence on the Effective Date and, unless sooner terminated as otherwise
provided for herein, shall continue until August 31, 2007 and shall continue
thereafter until terminated by either LICENSOR or LICENSEE providing the other
party not less than 180 days written notice of its election to terminate.
2. ROYALTY PAYMENT
(a) Royalties. LICENSEE shall pay LICENSOR a royalty of [ ] of all
Licensed Product "sold" during the [ ] of the term of the Sublicense and
2
<PAGE> 4
[ ] of all Licensed Product "sold" during the [ ] of the term of the Sublicense.
The amount of royalty for each subsequent [ ] shall be [ ] of Licensed Product
"sold" times a fraction in which the numerator is the Consumer Price Index for
all Urban Consumers as published by the U.S. Department of Labor Statistics
("CPI") at the end of the preceding [ ] and the denominator is the CPI as of the
Effective Date but in no event shall such fee be less than [ ] nor more than [
]. The applicable rate shall be rounded to the [ ]. In the event the CPI data is
not available for any relevant date, LICENSOR may substitute such other
governmental index for purposes of the above computation as LICENSOR my
reasonably determine accurately reflects consumer inflation between the relevant
dates.
The [ ] payment shall be in lieu of any royalty payment during the [ ] of the
Sublicense.
Licensed Product shall be considered "sold" upon the date such Licensed Product
is billed, invoiced, or paid for, which ever event occurs first. No royalty
shall be due for Licensed Product which is returned to LICENSEE by its customer
no later than 14 days after the receipt of the Licensed Product by such
customer.
A Year(s) for purposes of the Agreement shall mean one year period(s) commencing
as of the Effective Date and each anniversary of the Effective Date.
(b) No Deduction. There shall be no deduction from the royalties
owed to LICENSOR for uncollectible accounts, or for taxes, fees, assessments,
allowances, advertising or other expenses of any kind which may be incurred or
paid by LICENSEE.
(c) Periodic Statements. On or before the fifth (5th) business day
of each month, LICENSEE shall furnish to LICENSOR a complete and accurate
statement showing (I) the number and description of each of the Licensed
Products covered by this Sublicense sold by LICENSEE during the preceding month
by customer name, type and quantity of Licensed Product sold and (ii) the
royalties due hereunder. Such statement shall be certified by an officer of
LICENSEE as being accurate and in compliance with generally accepted accounting
principles consistently applied. The foregoing statement shall be provided to
LICENSOR even if no royalty is due.
(d) Royalty Payments. LICENSEE shall pay all royalties owing to
LICENSOR hereunder for any month within fifteen (15) business days following the
end of such month. Payment shall be sent and made payable to Potandon Produce
LLC at the address given in Section 15 below. The receipt or acceptance by
LICENSOR of any of the statements furnished pursuant to this Sublicense or of
any royalties paid hereunder (or the cashing of any royalty checks paid
hereunder) shall not preclude LICENSOR from questioning the correctness thereof
at any time, and in the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately bye rectified
and the appropriate payment made by LICENSEE.
3
<PAGE> 5
(e) Records. LICENSEE agrees to keep accurate books of account
covering all transactions relating to the Licensed Products. LICENSOR or TPC and
their authorized representatives shall have the right at all reasonable hours of
the day at LICENSEE's usual place of business to examine and copy said books of
account and records and all other documents and material in the possession or
under the control of LICENSEE insofar as they relate to the calculation of
royalty payable hereunder. If any such examination shall reveal a deficiency in
royalties paid or payable hereunder of more than five percent (5%) of the
correct royalty for the period audited or if examination is made because of the
LICENSEE's failure to pay any amounts due hereunder, then LICENSEE shall bear
all reasonable costs incurred by LICENSOR or TPC in connection with the
examination. All books of account and records shall be kept available for at
least seven (7) years after the end of the period to which such books and
records relate.
(f) Up-front Payments. LICENSEE shall pay LICENSOR a [ ] upon
execution of this Agreement which payment shall be in lieu of any royalty
payment for all Licensed Product sold during the [ ]. Within 30 days from the
first day of each [ ], LICENSEE shall pay LICENSOR a [ ]. The [ ] shall be
applied against LICENSEE's royalty obligations for such [ ] at which time
LICENSEE will resume payment of royalty. [ ]
(g) Best Efforts. LICENSEE shall use commercially reasonable
efforts, consistent with the provisions of this Sublicense, to exploit the
LICENSED MARKS and sell the maximum volume of Licensed Products.
(h) Minimum Royalty. The minimum amount of royalty payable
hereunder shall be:
[ ]
[ ]
[ ]
[ ]
[ ]
In the event the amount of royalty paid by LICENSEE to LICENSOR in any Year is
less than the amount specified above for such Year, LICENSEE shall pay LICENSOR
an amount of money equal to the difference between such amount and the amount or
royalty actually paid by LICENSEE within thirty days from the end of such Year.
3. EXCLUSIVITY
4
<PAGE> 6
(a) Exclusivity. The Sublicense granted herein shall be exclusive
for sale of Licensed Products to Non-Retail Customers in the United States and
Canada (the "Territory"). LICENSEE shall not knowingly sell Licensed Products to
any customer who resells such Licensed Products to any account other than a
Non-Retail Customer. LICENSEE agrees that all potato products produced, marketed
or sold by it shall be exclusively Licensed Products and LICENSEE shall not sell
any potato products under any trademark other than the LICENSED MARKS.
(b) Reservation. Notwithstanding anything contained herein to the
contrary, LICENSOR, TPC or The Sholl Group II, Inc.("SGII") may continue to
utilize, and grant others the right and license to utilize, the LICENSED MARKS
in connection with the sale of any products other than Licensed Products. THIS
LICENSE DOES NOT RESTRICT OR LIMIT TPC's, LICENSOR's or SGII's RIGHTS TO UTILIZE
THE LICENSED MARKS IN ANY MANNER WHATSOEVER EXCEPT SOLELY WITH RESPECT TO SALES
OF LICENSED PRODUCTS.
4. PROCUREMENT SERVICES
(a) Procurement. LICENSOR shall assist LICENSEE in the procurement
of raw potato products which are to be utilized by LICENSEE in the manufacture
of the Licensed Products.
(b) Scope. LICENSOR agrees to use all commercially reasonable
efforts to supply LICENSEE with all of its requirements of raw potatoes and
LICENSEE agreed to purchase exclusively from LICENSOR all of the LICENSEE's
requirements of potatoes to be used by the LICENSEE in the manufacture of the
Licensed Products. LICENSEE shall have the right to purchase raw potatoes from
other suppliers only in the event that LICENSOR is unable to provide such
potatoes. LICENSOR's failure to provide product with respect to any particular
transaction shall not relieve LICENSEE from its obligation to purchase from
LICENSOR with respect to future transactions. LICENSEE may request LICENSOR to
sell potatoes directly to its contract manufacturers. LICENSEE agrees that if
LICENSOR sells product to such parties at the request of LICENSEE, LICENSEE
shall promptly pay any invoice which is not paid in accordance with its terms by
such third party.
(c) Orders. LICENSEE shall submit all order for the Products to
LICENSOR in writing by facsimile or by letter which shall set forth, at a
minimum:
(I) An identification of the type of products ordered,
(II) Quantity,
(III)Requested delivery dates,
(IV) Manner and place of delivery, and
5
<PAGE> 7
(V) Other requirements.
LICENSEE shall insure that its orders (each, an "Order") are received by
LICENSOR at least three (3) days prior to the shipment date requested in the
Order. LICENSOR shall promptly confirm all Orders upon receipt.
(d) Delivery Terms. The LICENSEE shall pay the cost of
transportation from, and storage after, the delivery point, and the LICENSEE
shall insure products with a reputable insurer for the full invoice amount of
such shipment. Such insurance shall provide for full coverage from the time the
products are delivered at the delivery point until paid for in full.
(e) Price and Payment Terms. The price for all potatoes sold to
LICENSEE hereunder shall be [ ] that LICENSOR pays for such potatoes from its
supplier [ ] In no event shall such price [ ]. In addition LICENSEE shall pay
LICENSOR [ ] of the FOB price for all product which is sold in not less than
full truckload quantities and [ ] of the delivered price for all product which
is sold on a less than truckload basis. LICENSOR shall invoice LICENSEE for the
purchase price of all product upon shipment thereof which invoices shall be due
within 21 days of the invoices. LICENSOR shall invoice LICENSEE for all Fees at
the end of each month for all product which was shipped during such month which
invoices shall be due within 21 days of the invoices. LICENSOR shall invoice
LICENSEE for all Fees at the end of each month for all product which was shipped
during such month which invoices shall be due within 21 days of the invoices.
(f) Warranty and Damages. LICENSOR warrants that as of the date of
shipment, the raw potatoes are merchantable and are not adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act and
shall comply in all material respects with applicable federal and state laws.
ALL OTHER WARRANTIES AND REPRESENTATIONS, EITHER EXPRESSED OT IMPLIED, ARE
HEREBY EXCLUDED. If any of the raw potato products are unmerchantable,
adulterated or otherwise not in compliance with any laws or regulations
("Unmarketable Products"), LICENSOR's sole obligation to LICENSEE shall be (a)
provide a credit to LICENSEE for the purchase price of the Unmarketable
Products, the Fee associated with such Unmarketable Products and the amount of
freight charges (which credit may be used for the purchase of replacement
product or other product)and (b) promptly provide replacement product. IN NO
EVENT SHALL LICENSOR BE LIABLE FOR ANY DAMAGE EXCEPT AS SPECIFIED ABOVE
INCLUDING, WITHOUT LIMITATION, ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
LICENSOR and LICENSEE agree that adjustments to the purchase price of
raw potatoes resulting from quality claims will be resolved in a manner
customary in the industry.
6
<PAGE> 8
5. MARKETING ASSISTANCE
LICENSOR and LICENSEE will meet periodically, at the request of
either LICENSOR or LICENSEE, to review sales of the Licensed Products, marketing
programs, promotional activity and new product development. Such assistance
shall be provided by SGI, as agent for LICENSOR in accordance with a separate
agreement between SGI and LICENSOR.
6. GOODWILL, ETC.
(a) Acknowledgment. LICENSEE recognizes the great value of the
goodwill associated with the LICENSED MARKS and acknowledges that the LICENSED
MARKS and all rights therein and goodwill pertaining thereto belong exclusively
to TPC, and that the LICENSED MARKS have a secondary meaning in the minds of the
public. Upon expiration or termination of the right to use the LICENSED MARKS
pursuant to this Sublicense, except for LICENSEE's rights to sell out its
inventory pursuant to Section 13(d) below, LICENSEE shall cease all use of the
LICENSED MARKS promptly and will not use any of the LICENSED MARKS thereafter.
(b) No Impairment. LICENSEE agrees that during the term of this
Sublicense or thereafter it will not attack the title or any rights of TPC or
LICENSOR in and to the LICENSED MARKS, attack the validity of this Sublicense,
or do anything either by an act of omission or commission which might impair,
violate or infringe the LICENSED MARKS. LICENSEE will not claim adversely to TPC
or LICENSOR or anyone claiming through TPC or LICENSOR with respect to any
right, title or interest in or to said LICENSED MARKS and will not misuse or
harm or bring the LICENSED MARKS into public disrepute; provided, however, that
misuse, harm or public disrepute may not be inferred from advertising or
promotional materials with respect to which LICENSOR has given its prior
approval unless there has been a material change in applicable laws or
governmental regulations or LICENSOR has otherwise given reasonable notice to
LICENSEE withdrawing such approval. If at any time LICENSOR reasonably
determines that any such advertising or promotional material with respect to
which LICENSOR has given its prior approval do constitute misuse, or could cause
harm or public disrepute, LICENSEE will modify such advertising or promotional
material upon LICENSOR's request. LICENSEE agrees that it has not and will not
for its benefit, directly or indirectly, register(ed) or apply(ied) for
registration of the LICENSED MARKS or any mark which is, in LICENSOR's
reasonable opinion, the same as or confusingly similar to the LICENSED MARKS.
(c) Other Trademarks. Except as required by state law marketing
mandates, LICENSEE may not, without LICENSOR's prior written consent, use other
7
<PAGE> 9
trademarks that are not LICENSED MARKS in connection with any Licensed Products
bearing a LICENSED MARK (or any associated packaging, labeling or advertising);
provided that if such is granted, the LICENSED MARKS shall be the primary
trademark and other trademarks shall be secondary to the LICENSED MARKS.
(d) Cooperation. LICENSEE agrees to cooperate fully and in good
faith with TPC and/or LICENSOR, at TPC's or LICENSOR's expense, for the purpose
of securing and preserving TPC's rights in and to the LICENSED MARKS.
(e) Registration. If any of the trademarks, service marks, trade
names or logos licensed hereunder shall not be registered in the applicable
class of products hereunder, LICENSEE acknowledges that TPC may register the
LICENSED MARKS for the Licensed Products in its own name and that LICENSEE's use
thereof shall inure to the benefit of TPC for such purpose, as well as for all
other purposes. LICENSEE shall cooperate with TPC in any such registration or
application, excluding incurring or payment of any expenses of TPC.
7. INFRINGEMENT
(a) Notice of Infringement. LICENSEE and LICENSOR shall each
notify the other in writing of any infringements, misappropriation or imitations
by others of the LICENSED MARKS which may come to their attention, and LICENSOR
and TPC shall have the right to determine whether or not any action shall be
taken on account of any such infringements or misappropriation of the LICENSED
MARKS. Either LICENSOR or TPC, if it so desires, may at its own expense commence
or prosecute any claims or suits in its own name or in the name of LICENSOR
and/or LICENSEE or join LICENSOR and/or LICENSEE as a party thereto, but it is
understood and agreed that neither LICENSOR or TPC is under any obligation
whatsoever to institute any suit or take any action on account of any such
infringement, misappropriation or imitation.
(b) Irreparable Harm. LICENSEE expressly recognizes that the
LICENSED MARKS possess a special, unique and extraordinary character which makes
difficult the assessment of monetary damages which LICENSOR or TPC would sustain
by unauthorized use. LICENSEE expressly recognizes and agrees that an
irreparable injury would be caused to LICENSOR and TPC by unauthorized or
improper use or any use in breach of this Sublicense, and agrees that
preliminary and permanent injunctive and other equitable relief (including but
not limited to attorneys' fees)would be appropriate in the event of a breach of
this Sublicense by LICENSEE, provided that such remedy shall not be exclusive of
legal remedies otherwise available.
8
<PAGE> 10
8. LICENSED PRODUCT, APPROVAL
(a) Quality. LICENSEE hereby covenants and agrees that the
Licensed Products (including all advertising) covered by this Agreement shall
meet or exceed the quality standards set forth in LICENSOR'S Quality Assurance
Manual, comply with approved specifications, and be of high standards and of
such quality, style and appearance as shall be reasonably adequate and suited to
their exploitation to the best advantage and to the protection and enhancement
of the LICENSED MARKS and goodwill pertaining thereto; that such Licensed
Products shall be manufactured, sold and distributed in accordance with all
applicable laws; and that the policy of sale, distribution and/or exploitation
by LICENSEE shall be of high standards and to the best advantage of the LICENSED
MARKS and that the same shall in no manner reflect adversely upon the good name
of LICENSOR or TPC, or any of their programs or of the LICENSED MARKS. LICENSEE
agrees that it shall not sell or distribute any Licensed Product which was
returned to it or other wise rejected due to quality reasons without the prior
consent of LICENSOR.
(b) Production Facility Approval. LICENSEE agrees to produce
Licensed Products only in facilities which have been reviewed on site by
LICENSOR or a designated agent or LICENSOR and found through inspection and
review to meet or exceed the standards set forth in LICENSOR's Quality Assurance
Manual for "Approval". LICENSOR may elect to rely upon LICENSEE's representation
that a facility meets or exceeds the standards set forth in LICENSOR's Quality
Assurance Manual for "Approval" instead of itself reviewing such facility. In
the event LICENSOR elects to review the facility itself it shall do so at its
own cost and shall do so promptly so as not to delay production at such
facility.
LICENSEE also agrees that authorized representatives of LICENSOR
and TPC will be permitted to inspect and audit any and all facilities from time
to time to determine the facility's degree of compliance to LICENSOR's Quality
Assurance Manual. LICENSOR shall bear the costs for these facility reviews.
In the event that LICENSOR or TPC reasonably determines through
inspection, audit or other resalable means that a facility supplying LICENSEE
has not been approved by LICENSOR or fails to meet the standards defined in
LICENSOR's Quality Assurance Manual in the reasonable judgement of LICENSOR's or
TPC's authorised representative, LICENSOR reserves the right to take one of the
following actions:
(1) Place the facility in a "conditionally approved" status for
minor noncompliances from LICENSOR's Quality Assurance
Manual and/or agreed upon specifications and request a written
corrective action plan from LICENSEE within ten days of LICENSOR's
conditional approval. In the event a corrective action plan is
submitted by LICENSEE and approved by LICENSOR, which approval shall
not be unreasonably withheld and in any case such approval shall be
granted or
9
<PAGE> 11
withheld within 48 hours of submission of the corrective action to
LICENSOR or, if LICENSOR is required to submit the corrective action
plan to TPC, within 48 hours of submission of the corrective action
plan to TPC (if LICENSOR does not respond within such time period,
LICENSEE's plan as submitted shall be deemed to have been approved),
it is LICENSEE's responsibility to verify that corrective actions are
completed as prescribed and in a timely manner. Any costs of
corrective action shall be the responsibility of LICENSEE or the
facility, and not LICENSOR or TPC. LICENSEE may restore the
"conditionally approved" facility to "Approved" status once LICENSOR
is reasonably satisfied that corrective actions are complete.
LICENSOR and TPC reserve the right to re-inspect any facility which
has been restored to "Approved" status. In the absence of an approved
corrective action plan, LICENSOR or TPC may require discontinuance of
production at the conditionally approved facility. This will result
in a rating change to "Unapproved" for the facility of concern.
LICENSEE shall be responsible for any and all costs of
discontinuation.
(2) Place the facility in an "Unapproved" status for major
non-compliances from LICENSOR's Quality Assurance Manual and/or
agreed upon specifications, require LICENSEE to discontinue
production immediately and request a written corrective action plan
from LICENSEE. LICENSOR shall either grant or withhold its approval
within 48 hours of the submission of the plan to LICENSOR or, if
LICENSOR is required to submit the corrective action plan to TPC,
within 48 hours of submission of the corrective action plan to TPC.
LICENSOR shall not unreasonably withhold its approval. LICENSEE shall
be responsible for any and all costs of discontinuation of production
and LICENSEE or facility shall bear any costs of corrective action.
Once LICENSOR is reasonable satisfied with the corrective action,
LICENSEE may request LICENSOR to re-inspect the unapproved facility and restore
it to a "Conditionally Approved" or "Approved" status. The costs reasonably
incurred by LICENSOR or TPC of this reinspection shall be the responsibility of
LICENSEE.
(c) Quality Assurance Manual. LICENSEE agrees to comply in all
respects with LICENSOR's Quality Assurance Manual. If LICENSOR makes changes to
LICENSOR's Quality Assurance Manual, LICENSEE will be allowed a reasonable
period of time in which to come into compliance with the changed requirement.
(d) Confidential. LICENSEE agrees that LICENSOR's Quality
Assurance Manual is the confidential and proprietary information of TPC and
LICENSOR and shall be retained in confidence in accordance with the provisions
and restrictions of Section 13 below.
(e) Excessive Complaints and Defective Products. In the event that
10
<PAGE> 12
LICENSOR reasonably determines that Licensed Products contain serious defects
and/or are causing increased levels of consumer dissatisfaction, LICENSOR
reserves the right to request reasonable corrective action by LICENSEE to
minimize the negative impact on consumers and protect the LICENSED MARKS. The
corrective action will be conducted within a time frame reasonably acceptable to
LICENSOR and the costs of corrective action shall be for the sole account of
LICENSEE. In the event LICENSEE is negligent in addressing LICENSOR identified
priorities for defects or excessive complaints, LICENSOR reserved the right to
require immediate discontinuation of the Licensed Product of concern.
(f) Compliance with Laws. LICENSEE warrants and represents that
all Licensed Products procured, sold or distributed by it shall not be
adulterated, contaminated or misbranded within the meaning of the U.S. Food,
Drug and Cosmetic Act or any other applicable law or regulation. LICENSEE agrees
to comply with all applicable laws and regulations in connection with the
processing, distribution or sale of Licensed Products including, without
limitation, the laws and regulations of Canada and its provinces.
(g) [ ] and [ ] Manufacturer. LICENSEE agrees that in the event it
elects to retain the services of a contract manufacturer of Licensed ProductS in
(i) the [ ], it shall consult with LICENSOR and with [ ] and will give due
consideration to [ ] as LICENSEE's contract manufacturer for such region and
(ii) [ ], it shall consult with LICENSOR and with [ ] and will give due
consideration to [ ] as LICENSEE's contract manufacturer for such region.
9. ADVERTISING, PROMOTION AND MERCHANDISING
(a) Submission for Approval. LICENSEE shall submit all advertising
and promotional copy pertaining to the Licensed Products to LICENSOR for written
approval before release for publication, which approval shall not be
unreasonably withheld, provided, it is agreed that if TPC withholds approval for
any reason, LICENSOR's refusal to grant approval shall not be deemed
unreasonable. LICENSOR reserves the right to disapprove any proposed release
without the necessity of stating a reason, provided that LICENSOR does suggest
how the submitted material will obtain LICENSOR's approval.
(b) TPC or LICENSOR Advertising. If LICENSOR or TPC believes it is
desirable to produce or place catalogs, promotional brochures or inserts, point
of sale displays or other advertising matter displaying the Licensed Products in
conjunction with other product of TPC or LICENSOR and/or others, LICENSOR and
TPC shall each have the right to do so without payment or obligation to
LICENSEE.
(c) Use of LICENSEE's Name. LICENSOR and TPC shall have the right,
but not the obligation, to use the name of LICENSEE in LICENSOR's or TPC's
programs without any payment or obligation to LICENSEE whatsoever. LICENSOR
agrees that such publicity will be in good tasted in accordance with accepted
industry standards. Any and
11
<PAGE> 13
each use of any trademark or trade name of LICENSEE must have the prior written
approval of LICENSEE, which approval shall not be unreasonably withheld.
10. INDEMNIFICATION AND INSURANCE
(a) By LICENSEE. LICENSEE hereby agrees to indemnify LICENSOR and
TPC and their respective directors, officers, agents and employees and to hold
each of them harmless in all respects, including reasonable attorneys' fees,
from and against any and all claims, demands, suits or causes of action of
whatever kind or nature and resulting settlements, awards of judgements arising
directly or indirectly out of any act or omission or alleged activity of
LICENSEE in connection with the Licensed Products and/or the Sublicense,
including any defects or alleged defects in the Licensed Products but excluding
(I) the use of the LICENSED MARKS in any manner permitted hereunder, and (ii)
any act carried out by LICENSEE at the specific written request of LICENSOR so
long as carried out with due care and in compliance with applicable laws and
regulations; provided LICENSEE is given prompt notice of such claim, demand,
suit, or cause of action, and the opportunity to defend, with LICENSOR's and/or
TPC's cooperation. This indemnity shall survive the termination of this
Agreement.
(b) Insurance. LICENSEE shall, at its own expense, obtain and
maintain throughout the term of this Sublicense, Commercial General Liability
Insurance, on an "occurrence" form, with minimum limits of U.S. $2,000,000
combined single limit per occurrence, U.S. $4,000,000 general aggregate, and
U.S. $2,000,000 products/completed operations aggregate. If requested by
LICENSOR, the foregoing minimum policy limits shall be increased by a percentage
equal to the percentage increase in the Consumer Price Index for all Urban
Consumers as published by the U.S. Department of Labor Statistics since the date
of this Agreement. Such insurance shall be provided by insurance carrier(s) with
a financial condition comparable to, or better than, Best's "A" rating, and
shall not contain any endorsement or policy provision which in any way limits or
restricts coverage for contractual liability provided in the policy. Each policy
shall be endorsed to name LICENSOR and TPC as an additional insures and to
provide that it cannot be canceled without thirty (30) days prior written notice
to LICENSOR. As proof of insurance, LICENSEE shall furnish to LICENSOR a
Certificate of Insurance at least ten (10) days before any Licensed Products are
distributed and/or sold, and thereafter prior to the expiration of any policy.
Compliance with this Section concerning insurance shall in no way limit or
restrict LICENSEE's indemnification obligations.
11. RIGHT OF TERMINATION BY LICENSOR; AUTOMATIC TERMINATION
A. Without prejudice to any other rights that LICENSOR may have,
LICENSOR shall have the right to terminate this Sublicense upon five (5) days
written notice sent by
12
<PAGE> 14
registered or certified mail:
(a) If LICENSEE shall be unable to pay its liabilities
when due or shall become subject to any bankruptcy, insolvency or
receivership proceeding of any nature (other than an involuntary
proceeding of which LICENSEE obtains a dismissal within 60 days after
filing), or it is business is placed in the hands of a receiver or
trustee by the exercise of any judicial power of a court of competent
jurisdiction;
(b) If LICENSEE assigns or sublicenses this Sublicense of
any of its rights hereunder;
(c) If LICENSEE fails to abide by any of the material
requirements of this agreement or otherwise fails to perform any of
its other obligations hereunder, and LICENSEE fails to cure such
breach or failure within thirty (30) days after notice from LICENSOR;
or
(d) If LICENSEE fails to attain the Minimum Requirements
in any Year as specified in Section 2 (h).
B. This Sublicense shall terminate automatically if the LICENSE
AGREEMENT is terminated for any reason whatsoever other than an election by TPC
to terminate the LICENSE AGREEMENT pursuant to Section 11 of the LICENSE
AGREEMENT. In the event of termination by TPC pursuant to Section 11 of the
LICENSE AGREEMENT, TPC may elect to allow this Sublicense to continue in effect
as between LICENSEE and TPC or may elect to terminate the Sublicense in the
manner prescribed in Section 12 below. Without regard to the manner in which the
LICENSE AGREEMENT may be terminated, including termination by TPC for cause,
LICENSOR shall have no liability to LICENSEE arising from such termination.
12. TERMINATION OPTION
(a) In addition to LICENSOR's rights to terminate this Sublicense
pursuant to Section 11 above, and whether or not any of the events described in
Section 11 above have occurred or exist, TPC shall have the irrevocable right
and option (the "Termination Option") to terminate LICENSEE's rights hereunder,
whether or not it elects to terminate the LICENSE AGREEMENT, in consideration of
the payment by TPC of a cancellation fee equal to the fair market value, as of
the date of the Termination Option is exercised, of LICENSEE's rights under this
Sublicense as determined pursuant to (c) below.
(b) To exercise the Termination Option, TPC shall deliver to
LICENSEE a written notice (the "Termination Notice") indicating TPC's election
to exercise the Termination Option pursuant to this Section. For a period of 30
days after exercise of the
13
<PAGE> 15
Termination Option, LICENSEE shall afford TPC full access to all of LICENSEE's
documents and information which TPC may request. TPC may rescind the Termination
Notice at any time within 15 days after such 30-day due diligence period or
after the final determination of the appraisers pursuant to (C) below. Such
rescission shall be by written notice and be without liability to either party;
provided that TPC may not exercise the Termination Option more than once in any
calendar year. If the Termination Option is exercised and the Termination Notice
is not rescinded, TPC shall pay the Termination Notice is not rescinded, TPC
shall pay the Termination Payment in cash and LICENSEE's sublicense rights
hereunder shall thereupon terminate.
(c) The fair market value of LICENSEE's rights under this
Sublicense as of the date of exercise of the Termination Option (i.e. the
Termination Option exercise price) shall be determined by appraisal by one
mutually acceptable appraiser; provided that, if TPC and LICENSEE are unable to
agree on a single appraiser within ten days after exercise of the Termination
Option, each party shall designate one appraiser and the two appraisers so
designated shall, within ten days after their designation, jointly designate a
third appraiser or, if they are unable to agree, such third appraiser shall,
upon the petition of either party, be designated by the Senior Judge of the
District Court for Hennepin County, State of Minnesota. All appraisers shall be
experienced in business appraisal. The appraisers shall accomplish the appraisal
under such rules and procedures as they may reasonably establish to determine
the fair value of LICENSEE's right to use the LICENSED MARKS in its operations
(independent of the value of any other tangible or intangible assets or business
operations of LICENSEE) as of the date of exercise of the Termination Option
based on the success of LICENSEE's exploitation of the LICENSED MARKS to such
date and after deducting royalties due hereunder. Each party will cooperate with
such appraisers to the fullest extent. The decision of the appraisers shall be
rendered in writing by a majority within thirty (30) days after the selection of
the third appraiser, which decision shall be final and binding upon all parties.
The fees and expenses of the appraisers shall be divided equally between the
parties.
(d) LICENSOR shall have no liability to LICENSEE arising from a
termination pursuant to this Section 12.
13. EFFECT OF TERMINATION
(a) Cessation of Rights. Subject to the limited right to dispose
of inventory pursuant to Section 13(d), upon expiration or termination of this
Sublicense, all rights granted to LICENSEE hereunder shall cease and LICENSEE
will refrain from further use of the LICENSED MARKS or anything confusingly
similar to the LICENSED MARKS in connection with the growing, harvesting, sale
or distribution of LICENSEE's products.
(b) LICENSOR's and TPC's Remedies. LICENSEE acknowledges that its
failure (except as otherwise provided herein) to cease use of the LICENSED
14
<PAGE> 16
MARKS at the termination or expiration of this Sublicense will result in
immediate and irreparable damage to TPC and LICENSOR and to the rights of any
subsequent licensee. LICENSEE acknowledges and admits that there is no adequate
remedy at law for such failure, and LICENSEE agrees that in the event of such
failure TPC and/or LICENSOR shall be entitled to equitable relief by way of
temporary and permanent injunctions and such other further relief as any court
with jurisdiction may deem just and proper. Resort to any remedies referred to
herein shall not be construed as a waiver of any other rights
and remedies to which TPC and/or LICENSOR is entitled under this Sublicense or
otherwise.
(c) Final Statement. Thirty (30) days after the expiration or
termination of this Sublicense, a statement showing the number and description
of Licensed Product on hand or in process shall be furnished by LICENSEE to
LICENSOR. LICENSOR shall have the right to take a physical inventory count to
ascertain or verify such inventory and statement, and failure of LICENSEE to
furnish such statement or refusal by LICENSEE to submit to such physical
inventory count by LICENSOR shall forfeit LICENSEE's right to dispose of such
inventory, TPC and LICENSOR retaining all other legal and equitable rights they
may have under such circumstances.
(d) Disposal of Inventory. LICENSEE may sell on a non-exclusive
basis, for a period of (3) months after expiration or termination of this
Sublicense, Licensed Products that utilized the LICENSED MARKS covered by this
Sublicense which are on hand or in processing at the time of expiration or
termination, provided that royalties with respect to such period are paid and
statements are furnished for that period in accordance with Section 2 of this
Sublicense and such Licensed Products otherwise comply in all respects with the
terms of this Sublicense. During such period, LICENSEE may also use up its
remaining inventory of LICENSOR approved packaging, boxes and labels using the
LICENSED MARKS. Any inventory of packaging, boxes or labels using the LICENSED
MARKS remaining after such 3 month period shall be destroyed or otherwise be
disposed of in a manner approved by LICENSOR in writing and LICENSEE shall
provide LICENSOR with a statement certifying the proper handling of such
packaging, boxes and labels in the manner prescribed herein.
(e) Compliance With Other Terms. Notwithstanding anything to the
contrary herein, LICENSEE shall not manufacture, sell or dispose of any Licensed
Product utilizing the LICENSED MARKS after termination because of the departure
by LICENSEE from the quality requirements of this Agreement.
14. JOINT VENTURE OPTION
LICENSOR shall have the option, [ ] of this Agreement, to
participate in LICENSEE's business of manufacturing, marketing and selling of
LICENSED
15
<PAGE> 17
PRODUCTS by providing LICENSEE written notice of its election to so participate.
In the event LICENSOR exercises its option, this Sublicense shall terminate with
effect upon start-up of business of the "Joint Venture". If LICENSOR exercises
its option, the parties shall negotiate in good faith (I) the information of a
limited liability company or such other form of business entity the parties may
agree upon (the "Joint Venture") and (ii) all other terms and conditions of the
Joint Venture. LICENSOR shall [ ] to the LICENSED MARKS and shall [ ]. LICENSEE
will provide [ ].
15. NOTICES
All notices and requests and statements to be given and all
payments to be made hereunder shall be given or made at the respective addresses
of LICENSOR and LICENSEE set forth below unless notification of a change of
address is given in writing. Such notices and requests and statements shall be
deemed to have been duly given if in writing and delivered personally or sent by
certified mail.
As to LICENSEE:
IPS Produce Inc.
2 International Plaza
Suite 245
Philadelphia, Pa. 19113-1507
As to LICENSOR:
Potandon Produce LLC
1819 Hoopes Ave.
Idaho Falls, Id. 83404
16. CONFIDENTIALITY
LICENSOR and LICENSEE acknowledges that a confidential
relationship exists between them by virtue of the relationship contemplated by
this Sublicense and, accordingly, the parties acknowledge and agree that:
A. Confidential information will be disclosed by one party
to the other solely for the purposes incidental to the business
relationship contemplated by this Sublicense.
B. Each party will treat all confidential information
disclosed to it by the other party as secret and confidential and
shall strictly protect and safeguard such
16
<PAGE> 18
confidential information from disclosure to third parties.
C. Neither party hereto will use any confidential
information of the other party for any purpose not incidental to the
purposes contemplated by this Sublicense and
will not disclose any such information to anyone other than its
employees, agents, or representative having a need to know such
information for purposes incidental to this Sublicense and who have
executed a confidentiality agreement in a form that is acceptable to
the other party.
D. Each party acknowledges that irreparable injury may be
caused to the other party in the event of any disclosure of
confidential information in violation of this Sublicense and each
party agrees that, if it should make or attempt to make, any such
disclosure in violation of the provisions hereof, the other party
shall be entitled, in addition to such other remedies, damages and
relief as may be available under applicable law, to an injunction
prohibiting such a disclosure or specifically enforcing the
provisions of this article, as the case may be. The obligations of
the parties as set forth in this Section 16 shall survive termination
of this Sublicense.
E. For purposes of this Section, "confidential information"
shall mean any trade secrets or other unpublished information which
has blue by virtue of not being generally known and which has been
disclosed by one of the parties hereto to the other in writing and
which has been clearly marked as confidential. Both parties agree
that it shall not submit confidential information to the other party
unless it first notifies the other party in writing of its intention
of doing so and describing in such communication the general nature
of what it intends to disclose. If the recipient of such
communication requests in writing, within 10 days of receipt of
such communication, that such information not be disclosed to it and
the other party nevertheless sends such information, such information
shall not be confidential information. LICENSOR acknowledges that
LICENSEE may mark statements or reports that it is required to
provide to LICENSOR as "confidential". The fact that such statements
or reports are marked confidential shall render the material
contained therein confidential if such material is not of a
confidential nature or such material is subject to any of the
following exceptions. The parties agree that the identity of certain
large or well-known foodservice accounts are not confidential.
LICENSOR and LICENSEE agree that confidential information shall not
include, and that the obligations of secrecy, confidence and non-use
set forth herein shall not apply to any information that (I) is or
becomes publicly known without the fault of the recipient; (ii) was
known by the recipient prior to its disclosure by the other party as
evidenced by written and dated records kept in the ordinary course of
business by the other party; or (iii) is independently disclosed to
the recipient by a third party source without breach of a
confidential relationship to the other party with regard to such
information.
17
<PAGE> 19
17. NO JOINT VENTURE
Nothing herein contained shall be construed to place LICENSOR and
LICENSEE in the relationship of partners or joint venturers and neither shall
have any power to obligate or bind the other in any manner whatsoever.
18. CONSENT TO ASSIGNMENT OR SUBLICENSE
This Agreement and any rights granted herein may not be assigned,
transferred, mortgaged, sublicensed or otherwise encumbered by LICENSEE without
the prior written consent of LICENSOR. No transfer by operation of law shall be
effective against LICENSOR or TPC.
19. LICENSOR AUTHORITY
LICENSOR does hereby represent and warrant to LICENSEE that it
has the right and authority to grant the sublicense to LICENSEE on the terms and
conditions herein contained.
20. NO WAIVER; MODIFICATION; SEVERABILITY
None of the terms of this Agreement can be waived or modified
except expressly in writing signed by both parties. The failure of either party
to insist on compliance with any provision hereof shall not constitute a waiver
or modification of such provision. If any provision hereof is held to be invalid
or unenforceable by any court of competent jurisdiction or any other authority
vested with jurisdiction, such holding shall not affect the validity or
enforceability of any other provision hereto.
21. WHOLE AGREEMENT; GOVERNING LAW; CONSTRUCTION; BENEFIT
(a) Whole Agreement. Upon execution, this Sublicense cancels,
terminates and supersedes any prior agreement or understanding relating to the
subject matter between the parties, including any which may have existed between
LICENSOR and EPL TECHNOLOGIES, INC. ("EPL"), and there are no representations,
promises, warranties,, covenants, projections, or undertakings other than those
contained herein. Notwithstanding the foregoing, that certain confidentiality
agreement dated April 10, 1995, between EPL and LICENSOR shall remain in effect
in accordance with its terms with respect only to those formulas provided to
LICENSOR by EPL, which formulas are attached to that certain letter sent to
Thomas Remick from LICENSOR dated September 10, 1997, a copy of which letter has
been sent to EPL.
18
<PAGE> 20
(b) Governing Laws. This Sublicense shall be governed by and
interpreted in accordance with the laws of the State of Delaware including all
matters of construction, validity, enforcement and performance, without giving
effect to principles of conflict of laws.
(c) Titles and Headings; Construction. This Agreement shall be
construed without regard to any presumption or other rule requiring construction
hereof against the party causing this Agreement to be drafted.
(d) Benefit. Nothing in this Agreement or the agreements referred
to herein, expressed or implied, shall confer on any person other than the
parties hereto or thereto, or their respective permitted successors or assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, the agreements referred to herein, of the transactions contemplated
herein or therein. Notwithstanding the foregoing, the parties acknowledge that
there are numerous provisions in this Sublicense which refer provisions which
refer to any rights of TPC and TPC is entitled to the rights conferred upon it
herein all as if it were a party hereto. LICENSEE acknowledges that LICENSOR has
various obligations to TPC pursuant to the License including certain obligations
to obtain TPC's approval or consent. LICENSEE agrees that if TPC refuses to
grant any approval or consent to LICENSOR with respect to which LICENSEE is
seeking LICENSOR's approval or consent, LICENSOR's subsequent refusal to grant
approval or consent to LICENSEE shall not be deemed to be unreasonable.
(e) Public Announcement. No press releases, announcements or
other disclosure related to this Sublicense or the transactions contemplated
herein will be issued or made without the written approval of each of TPC,
LICENSOR and LICENSEE, except for any public disclosure which TPC, LICENSOR or
LICENSEE in good faith believes is required by law (in which case the disclosing
party will consult with the other parties prior to making such disclosure).
IN WITNESS WHEREOF, the parties hereto have executed this Trademark
Sublicense Agreement as of the day and year first above written.
POTANDON PRODUCE LLC
By: /s/ Steve Ottum
---------------------------
IPS PRODUCE, INC.
By: /s/ Paul L. Devine
---------------------------
19
<PAGE> 21
EXHIBIT A
Licensed Marks
The following LICENSED MARKS (and any modifications thereto made by
LICENSOR or TPC or its successor in interest during the term of this Agreement)
may be used by LICENSEE only in connection with the Licensed Products and in
accordance with the terms and conditions of the Sublicense:
(1) "Green Giant Fresh"
(2) "Green Giant" and logo
<PAGE> 22
EXHIBIT B
Licensed Products
1) Definition
Potatoes shall be "Licensed Products" hereunder if and only to the
extent that (1) such potatoes are "fresh and perishable", (2) any of the
LICENSED MARKS are used in connection with the advertising, marketing, sale or
distribution thereof, (3) such potatoes are (I) whole peeled or (ii) cut, diced
or sliced and not whole and (4) the product utilizes technology disclosed in
United States Patent #4,937,085.
For purposes of this Sublicense, "fresh and perishable" shall mean
that (I) such potatoes have a shelf life (measured from the date such potatoes
are distributed into the food service channels) not longer than specified below,
(ii) no chemicals or preservatives (except as specified in (4) above and in the
growing and harvesting thereof), except for coatings and other current customary
practices used in marketing of fresh vegetables have been added or applied to
such potatoes or the packaging thereof having the effect of extending the shelf
life thereof, (iii) such potatoes have not been blanched, cooked, or heat
treated for purposes of preservation, frozen, dehydrated, refrigerated (except
normal refrigeration used in the manufacturing process and in the delivery of
the product), irradiated and (iv) such potatoes have not been placed in a can,
jar, or bottle, nor in any other container or packaging intended to prolong the
shelf life in excess of the respective shelf life set forth below from the date
distributed into the food service channels.
2) Shelf Life
180 days
1
<PAGE> 23
GUARANTY AND INDEMNITY
To induce LICENSOR to execute and deliver to LICENSEE, the attached
Agreement (the "Agreement") and to perform its obligations thereunder, EPL
TECHNOLOGIES INC., a Colorado corporation ("EPL") does hereby:
(a) absolutely and unconditionally guarantee to LICENSOR, the full,
faithful and punctual performance by LICENSEE of all of LICENSEE's obligations
under the Agreement;
(b) indemnify and hold harmless LICENSOR from and against any and all
losses, damages and costs which LICENSOR at any time shall or may sustain or
incur by reason of the failure of LICENSEE to fully, faithfully, and punctually
perform its obligations under the Agreement; and
(c) waive notice of, consent to, and agree that this Guaranty and
Indemnity shall not be affected or impaired by, any amendments, extensions,
settlements, compromises, favors, releases, renewals, indulgences or changes in,
or modifications of, any of the obligations of LICENSEE under the Agreement, or
any neglect or omission on the part of LICENSOR to realize upon any of such
obligations or liabilities thereunder.
EPL waives any rights to require a proceeding first against LICENSEE,
presentment, demand of payment, protest, notice of dishonor or nonpayment and
demands of any kind.
Capitalized terms used herein without definition which are defined in
the Agreement are used herein as therein defined.
This Guaranty and Indemnity shall be binding upon EPL and its
successors and assigns and shall be governed and construed in accordance with
the laws of Idaho.
IN WITNESS WHEREOF, EPL has caused this Guaranty and Indemnity to be
executed as of this 22 day of September, 1997.
EPL TECHNOLOGIES INC.
By: /s/ Paul L. Devine
--------------------------
2
<PAGE> 1
EPL Technologies, Inc.
Exhibit 11.0
Computation of Earnings per Common Share and
Fully Diluted Earnings per Common Share
<PAGE> 2
EXHIBIT 11.0
EPL TECHNOLOGIES, INC.
COMPUTATION OF LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Loss $ (4,666,755) $ (3,313,217) $ (1,671,465) $ (1,136,591)
Deduct:
Effect of 10% cumulative
preferred dividend 338,917 248,357 92,230 111,250
------------ ------------ ------------ ------------
Net loss for common stockholders $ (5,005,672) $ (3,561,574) $ (1,763,695) $ (1,247,841)
============ ============ ============ ============
Weighted average number
of common shares outstanding 16,300,847 14,660,958 17,259,527 15,441,561
============ ============ ============ ============
Primary Loss Per Share $ (0.31) $ (0.24) $ (0.10) $ (0.08)
============ ============ ============ ============
Net Loss for fully diluted loss
per share computation $ (4,666,755) $ (3,313,217) $ (1,671,465) $ (1,136,591)
============ ============ ============ ============
Weighted average number
of common shares outstanding 16,300,847 14,660,958 17,259,527 15,441,561
Common share equivalent applicable to:
Series A convertible preferred stock 3,138,963 3,543,704 2,950,667 3,402,222
Series B convertible preferred stock 413,712 531,915 177,305 531,915
Series C convertible preferred stock 64,197 144,444
Series A warrants 218,175 252,384 188,797 248,532
Other warrants 196,110 611,666 222,670 150,333
Stock options 3,110,278 2,370,194 2,873,500 2,520,250
Weighted average number of common shares
and common share equivalents used to compute ------------ ------------ ------------ ------------
fully diluted loss per share 23,442,282 21,970,821 23,816,910 22,294,813
============ ============ ============ ============
Fully diluted loss per share $ (0.20) $ (0.15) $ (0.07) $ (0.05)
============ ============ ============ ============
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,165,749
<SECURITIES> 0
<RECEIVABLES> 2,973,065
<ALLOWANCES> 0
<INVENTORY> 2,195,201
<CURRENT-ASSETS> 7,644,302
<PP&E> 6,040,549
<DEPRECIATION> (1,919,588)
<TOTAL-ASSETS> 15,373,516
<CURRENT-LIABILITIES> 6,296,130
<BONDS> 2,107,032
[BLANK]
2,143,144
<COMMON> 17,676
<OTHER-SE> 4,668,250
<TOTAL-LIABILITY-AND-EQUITY> 15,373,516
<SALES> 14,047,404
<TOTAL-REVENUES> 14,047,404
<CGS> 12,604,440
<TOTAL-COSTS> 12,604,440
<OTHER-EXPENSES> 6,025,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,488
<INCOME-PRETAX> (4,666,755)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,666,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,666,755)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.20)
</TABLE>
