Exhibit 4.6
Form of Subscription Agreement Relating to
the Series B Convertible Preferred Shares
SUBSCRIPTION AGREEMENT
AMERICAN BIO MEDICA CORPORATION
THE SECURITIES WHICH ARE THE SUBJECT TO THIS SUBSCRIPTION AGREEMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF AMERICAN BIO MEDICA
CORPORATION'S INTENDED COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE
SECURITIES ACT OF 1933, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND
SIMILAR EXEMPTIONS UNDER STATE LAW. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY ANY REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The undersigned purchaser (hereafter, the "Purchaser") hereby offers to
purchase certain 8% Series B Convertible Preferred Stock, par value $.01 per
share (referred to herein as a "Share" or collectively as "Shares"), of American
Bio Medica Corporation (the "Company"), a publicly held corporation formed under
the laws of the State of New York. This offer to purchase may, for any reason
whatsoever, be revoked by the Purchaser or rejected by the Company prior to
acceptance of this offer by the Company.
Section 1.1 Purchase and Sale of Shares. Upon the following terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company, the number of Shares indicated herein, which
Shares shall have the rights, designations and preferences set forth in Schedule
I hereto, incorporated herein by reference.
Section 1.2 Purchase Price. The purchase price for the Shares (the
"Purchase Price") shall be $10,000 per Share.
Section 1.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the "Closing"),
shall take place at the offices of Xxxx Xxxxxxx, Esq. (Counsel for the
Company), 000 Xxxxx Xxxxxx - Xxxxx 000, Xxx Xxxx, Xxx Xxxx 00000, at
10:00 a.m., local New York, New York time, on the later of the
following: (i) the date on which the last to be fulfilled or waived of
the conditions set forth in Section 4.1 and 4.2 hereof and applicable
to the Closing shall be fulfilled or waived in accordance herewith, or
(ii) such other time and place and/or on such other date as the
Purchaser and the Company may agree. The date on which the Closing
occurs is referred to herein as the "Closing Date."
(b) On the Closing Date, the Company shall deliver to the Purchaser
certificates representing the Shares registered in the name of the
Purchaser or deposit such Shares into accounts designated by the
Purchaser, and the Purchaser shall deliver to the Company the Purchase
Price for all the Shares by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in
writing by the Company. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to the Closing.
1
Section 1.4 Covenant to Register.
(a) For purposes of this Section, the following definitions shall apply:
(i) The terms "register," "registered," and "registration" refer to a
registration under the Securities Act of 1933, as amended (the
"Act"), effected by preparing and filing a registration statement
or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration
statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the shares of the
Company's Common Shares, par value $.01 per shares (the "Common
Stock") issuable upon conversion of shares of the Shares, or upon
conversion of any other stock, if any, issued in payment of
dividends on the Shares, or otherwise issuable pursuant to this
Agreement or the provisions of Schedule I hereto, and any
securities of the Company or securities of any successor
corporation issued as, or issuable upon the conversion or
exercise of any warrant, right or other security that is issued
as a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the Shares.
(iii)The term "holder of Registrable Securities" means the Purchaser
and any permitted assignee of registration rights pursuant to
Section 1.4(h).
(b)
(i) The Company shall, as soon as practicable after the Closing Date,
file a registration statement on Form X-0, XX-0 or S-3 covering
all the Registrable Securities, and shall use its best efforts to
cause such registration statement to become effective on or
before one hundred twenty (120) days after the Closing Date (the
"Initial Registration"). In the event such registration is not so
declared effective or does not include all Registrable
Securities, a holder of Registrable Securities shall have the
right to require by notice in writing that the Company register
all or any part of the Registrable Securities held by such holder
(a "Demand Registration") and the Company shall thereupon effect
such registration in accordance herewith (which may include
adding such shares to an existing shelf registration). The
parties agree that if the holder of Registrable Securities
demands registration of less than all of the Registrable
Securities, the Company, at its option, may nevertheless file a
registration statement covering all of the Registrable
Securities. If such registration statement is declared effective
with respect to all Registrable Securities and the Company is in
compliance with its obligations under Subsection (d) of this
Section 1.4, the demand registration rights granted pursuant to
this Subsection (b)(i) shall cease. If such registration
statement is not declared effective with respect to all
Registrable Securities or if the Company is not in compliance
with such obligations, the demand registration rights described
herein shall remain in effect.
2
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (b)(i) above: (A) if all of the
Registrable Securities held by the holder of Registrable
Securities which are demanded to be covered by the Demand
Registration are, at the time of such demand, included in an
effective registration statement and the Company is in compliance
with its obligations under Subsection (d) of this Section 1.4;
(B) if all of the Registrable Securities may be sold under Rule
144(k) of the Act and the Company's transfer agent has accepted
an instruction from the Company to such effect; or (C) at any
time after two (2) years from the Closing Date.
(iii)Subject to Subsection (iv)(B) hereof, the Company may suspend the
effectiveness of any such registration effected pursuant to this
Subsection (b) in the event and for such period of time as, such
a suspension is required by the rules and regulations of the
Securities and Exchange Commission ("SEC"). The Company will use
its best efforts to cause such suspension to terminate at the
earliest possible date.
(iv) (A) If the effectiveness of the Registration Statement is
suspended or a current prospectus meeting the requirements of
Section 10 of the Act is not available for delivery by the
Purchaser (either referred to herein as a "suspension"), the
Company shall pay Purchaser as liquidated damages an amount equal
to two percent (2%) of the total Purchase Price of Shares and any
Registrable Securities then held by Purchaser for the first
thirty (30) day period after the date of the suspension, plus
amount equal to two percent (2%) of the total Purchase Price of
Shares and any Registrable Securities then held by Purchaser for
each subsequent thirty (30) day period thereafter. Such amounts
shall be pro-rated daily and paid to the Purchaser by cashier's
check or wire transfer in immediately available funds to such
account as shall be designated in writing by the Purchaser.
(B) Any amount payable pursuant to the foregoing provisions of
this subsection (iv) shall be delivered on or before the fifth
(5th) day following the end of the calendar month in which such
payment obligation arose. The "Purchase Price" of Registrable
Securities shall be (1) if derived from conversion or
substitution of Shares, the Purchase Price of the Shares, and (2)
if received in satisfaction of a Company obligation, the dollar
amount of such obligation.
(C) This subsection is in addition to the provisions of Section
7.2(a) hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the
Purchaser) any of its stock or other securities under the Act in
connection with a public offering of such securities (other than a
registration on Form X-0, Xxxx X-0 or other limited purpose form) and
all Registrable Securities have not theretofore been included in a
registration statement under Subsection (b) of this Section 1.4 which
remains effective, the Company shall, at such time, promptly give all
holders of Registrable Securities written notice of such registration.
Upon the written request of any holder of Registrable Securities given
within twenty (20) days after receipt of such notice by the holder of
Registrable Securities, the Company shall use its best efforts to
cause to be registered under the Act all Registrable Securities that
such holder of Registrable Securities requests to be registered.
However, the Company shall have no obligation under this Subsection
3
(c) if (i) the Registrable Securities may be sold without registration
under Rule 144(k) and the Company's transfer agent has accepted an
instruction from the Company to such effect, (ii) the Registration
Statement is filed more than two (2) years after the Closing Date, or
(iii) to the extent that, with respect to any underwritten offering
initiated by the Company later than one calendar year following the
Closing, the managing underwriter of such offering reasonably notifies
such holder(s) in writing of its determination that the Registrable
Securities or a portion thereof shall be excluded therefrom.
(d) Whenever required under this Section 1.4 to effect the registration of
any Registrable Securities including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the SEC a registration statement or
amendment thereto with respect to such Registrable Securities and
use its best efforts to cause such registration to become
effective as provided in Section 1.4(b)(i), provide notice to
each holder of Registrable Securities by telefacsimile on the day
a registration statement filed hereunder becomes effective
advising that the registration statement has become effective,
and keep such registration statement effective for so long as any
holder of Registrable Securities desires to dispose of the
securities covered by such registration statement; provided,
however, that in no event shall the Company be required to keep
the Registration Statement effective for a period greater than
two (2) years from the Closing Date;
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of
all securities covered by such registration statement and notify
the holders of the filing and effectiveness of such Registration
Statement and any amendments or supplements;
(iii)Furnish to each holder of Registrable Securities such numbers of
copies of a current prospectus, including a preliminary
prospectus, conforming with the requirements of the Act, copies
of the registration statement any amendment or supplement to any
thereof and any documents incorporated by reference therein and
such other documents, all free of charge, as such holder of
Registrable Securities may reasonably require in order to
facilitate the disposition of Registrable Securities owned by
such holder of Registrable Securities;
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other
securities or "Blue Sky" laws of such jurisdictions as shall be
reasonably requested by the holder of Registrable Securities;
(v) Notify each holder of Registrable Securities immediately of the
happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus;
4
(vi) Furnish, at the Company's expense upon the request of any holder
of Registrable Securities in connection with a registration
statement filed pursuant to this agreement or any underwritten
public offering, (A) an opinion of counsel of the Company, dated
the effective date of the registration statement, in form and
substance reasonably satisfactory to the holder and its counsel
and covering, without limitation, such matters as the due
authorization and issuance of the securities being registered and
certain matters pertaining to disclosure under and compliance
with securities laws by the Company in connection with the
registration thereof and/or (B) a "comfort" letter or letters of
the Company's independent public accountants provided at the
Company's expense in form and substance reasonably satisfactory
to the holder and its counsel;
(vii)Use its best efforts to list and maintain the listing of the
Registrable Securities covered by such registration statement
with any national market or securities exchange on which such
securities are then listed;
(viii) Make available for inspection by any holder of Registrable
Securities, upon request by such holder, all SEC Documents (as
defined below) filed subsequent to the Closing and require the
Company's officers, directors and employees to supply all
information reasonably requested by any holder of Registrable
Securities in connection with such registration statement; and
(ix) Furnish to each holder of Registrable Securities prompt notice of
the commencement of any stop-order proceedings under the Act,
together with copies of all documents in connection therewith,
and use its best efforts to obtain withdrawal of any such stop
order as soon as possible.
(e) Upon request of the Company, each holder of Registrable Securities
will furnish to the Company in connection with any registration under
this Section such information regarding itself, the Registrable
Securities and other securities of the Company held by it, and the
intended method of disposition of such securities as shall be
reasonably required to effect the registration of the Registrable
Securities held by such holder of Registrable Securities. The intended
method of disposition (Plan of Distribution) of such securities as so
provided by each such holder shall be included without alteration in
the Registration Statement covering the Registrable Securities and
shall not be changed without the prior written consent of such holder.
(f) (i) The Company shall indemnify, defend and hold harmless each holder
of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c) hereof
and each of its officers, directors, employees, agents, partners or
controlling persons (within the meaning of the Act) (each, an
"indemnified party") from and against, and shall reimburse such
indemnified party with respect to, any and all claims, suits, demands,
causes of action, losses, damages, liabilities, costs or expenses
("Liabilities") to which such indemnified party may become subject
under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or (B) the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided,
however, that the Company shall not be liable in any such case to the
extent that any such Liability arises out of or is based upon an
untrue statement or omission so made in strict conformity with
information furnished by such indemnified party in writing
specifically for use in a registration statement.
5
(ii) In the event of any registration under the Act of
Registrable Securities pursuant to Subsections (b) or (c)
hereof, each holder of such Registrable Securities hereby
severally agrees to indemnity, defend and hold harmless the
Company, and its officers, directors, employees, agents,
partners, or controlling persons (within the meaning of the
Act) (each, an "indemnified party") from and against, and
shall reimburse such indemnified party with respect to, any
and all Liabilities to which such indemnified party may become
subject under the Act or otherwise, arising from or relating
to (A) any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement
thereto, or (B) the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
provided, that such holders will be liable in any such case to
the extent and only to the extent, that any such Liability
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such
registration statement, prospectus or amendment or supplement
thereto in reliance upon and in conformity with written
information furnished by such holder specifically for use in
the preparation thereof.
(iii) Promptly after receipt by any indemnified party of
notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made
against another party (the "indemnifying party") hereunder,
notify such party in writing thereof, but the omission so to
notify such party shall not relieve such party from any
Liability which it may have to the indemnified party other
than under this Section and shall only relieve it from any
Liability which it may have to the indemnified party under
this Section if and to the extent an indemnifying party is
materially prejudiced by such omission. In case any such
action shall be brought against any indemnified party and such
indemnified party shall notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled
to participate in and, to the extent it shall wish, to assume
and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from
the indemnifying party to the indemnified party of its
election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to the indemnified
party under this Section for any legal expenses subsequently
incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected; provided, however,
that if the defendants in any such action include both parties
and the indemnified party shall have reasonably concluded that
there may be reasonable defenses available to them which are
different from or additional to those available to the
indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have
the right to select a separate counsel and to assume such
legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of one such
separate counsel and other reasonable expenses related to such
participation to be reimbursed by the indemnifying party as
incurred.
6
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsections (b) or (c), all fees,
costs and expenses of and incidental to such registration, inclusion
and public offering shall be borne by the Company; provided, however,
that any security holders participating in such registration shall
bear their pro-rata share of the underwriting discounts and
commissions, if any, incurred by them in connection with such
registration.
(ii) The fees, costs and expenses of registration to be borne
by the Company as provided in this Subsection (g) shall
include, without limitation, all registration, filing and NASD
fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, all expenses associated with any
opinion or "comfort" letters, and all legal fees and
disbursements and other expenses of complying with state
securities or Blue Sky laws of any jurisdiction or
jurisdictions in which securities to be offered are to be
registered and qualified. Subject to appropriate agreements as
to confidentiality, the Company shall make available to the
holders of Registrable Securities and their counsel its
documents and personnel for due diligence purposes. Except as
otherwise provided herein, fees and disbursements of counsel
and accountants for the selling security holders shall be
borne by the respective selling security holders.
(h) The rights to cause the Company to register all or any portion of
Registrable Securities pursuant to this Section l.4 may be assigned by
Purchaser to a transferee or assignee. Within a reasonable time after
such transfer, the Purchaser shall notify the Company of the name and
address of such transferee or assignee, and the securities with
respect to which such registration rights are being assigned. Such
assignment shall be effective only if, immediately following such
transfer, the further disposition of such securities by the transferee
or assignee is restricted under the Act. Any transferee asserting
registration rights hereunder shall be bound by the applicable
provisions of this Agreement.
(i) The Company shall not agree to allow the holders of any securities of
the Company to include any of their securities in any registration
statement filed by the Company pursuant to Subsection (b) unless such
inclusion will not reduce the amount of the Registrable Securities
included therein.
Section 1.5 Company Standoff. Except in a business combination, or under
existing employee stock incentive or purchase plans, the Company shall not for
its own account effect any public sale or distribution of any securities similar
to the Registrable Securities or any securities exercisable for or convertible
or changeable into the Registrable Securities during the thirty (30) days prior
to, and during the sixty (60) days immediately following, the effective date of
any registration statement filed pursuant to Section 1.4(b) hereof; provided,
however, that the Company may effect such public sale or distribution during the
thirty (30) days immediately following the effective date of such registration
statement if such sale or distribution of securities is at a price equal to or
greater than 130% of the last trade price of the Company's Common Stock on the
Closing Date.
7
Section 2.1 Representations and Warranties of the Purchaser. The Purchaser
makes the following representations and warranties to the Company:
(a) Accredited Investor. The Purchaser is an "accredited investor", as
such term is defined in Rule 501(a) of Regulation D, promulgated under
the Act.
(b) Speculative Investment. The Purchaser is aware that an investment in
the Shares is highly speculative and subject to substantial risks. The
Purchaser is capable of bearing the high degree of economic risk and
the burden of this venture, including, but not limited to, the
possibility of complete loss of the Purchaser's investment in the
Shares and underlying Common Stock which make liquidation of this
investment impossible for the indefinite future.
(c) Disposition. The Purchaser understands that neither the Shares nor the
underlying Common Stock have been registered under the Act. The Shares
are being acquired by reason of a specific exemption under the Act as
well as under certain state statutes for transactions by an issuer not
involving any public offering and that any disposition of the Shares
may, under certain circumstances, be inconsistent with this exemption
and may make the Purchaser an "underwriter" within the meaning of the
Act. The Purchaser acknowledges that the Shares purchased must be held
and may not be sold, transferred, or otherwise disposed of for value
unless they are subsequently registered under the Act, sold pursuant
to Rule 144 of the Act, or an exemption from registration under the
Act is available.
(d) Privately Offered. The offer to acquire the Shares was directly
communicated to the Purchaser in such manner that the Purchaser was
able to ask questions of and receive answers concerning the terms and
conditions of this transaction. At no time was the Purchaser presented
with or solicited by or through any leaflet, public promotional
meeting, television advertisement, or any other form of general
advertising.
(e) Purchase for Investment. The Shares are being acquired solely for the
Purchaser's own account, for investment, and are not being purchased
with view to the resale, distribution, subdivision or
fractionalization thereof without a valid registration with applicable
governmental authorities.
Section 2.2 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization and Qualification. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State
of New York and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The
Company does not have any subsidiaries. The Company is duly qualified
as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary other than
those in which the failure so to qualify would not have a Material
Adverse Effect. "Material Adverse Effect", for purposes of this
Subscription Agreement (as it may be amended from time to time, the
"Agreement"), means any adverse effect on the business, operations,
properties, prospects, or financial condition of the entity with
respect to which such term is used and which is material to such
entity and other entities controlled by such entity taken as a whole.
8
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement
and to issue the Shares and Registrable Securities in accordance with
the terms hereof, (ii) the execution and delivery of this Agreement by
the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, (iii)
this Agreement has been duly executed and delivered by the Company,
(iv) this Agreement constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of
general application) and (v) prior to the Closing Date, any necessary
Certificate of Amendment to the Company's the Company's Certificate of
Incorporation as in effect on the date hereof (the "Charter")
authorizing Company to issue all of the Shares and Registerable
Securities, in accordance with Schedule I, will have been filed with
the New York Department of State and will be in full force and effect,
enforceable against the Company in accordance with the terms of such
amended Charter.
(c) Authorized Capital; Rights or Commitments to Stock. The authorized
capital stock of the Company consists of 30,000,000 shares of Common
Stock, and 5,000,000 shares of Preferred Stock; there are 13,680,627
shares of Common Stock issued and outstanding and there are no shares
of such Preferred Stock issued and outstanding; and, upon issuance of
the Shares in accordance with the terms hereof, there will be
13,680,627 shares of Common Stock and 105 shares of 8% Series B
Preferred Stock issued and outstanding.
All of the outstanding shares of the Company's Common Stock have been
validly issued and are fully paid and nonassessable. Except as set
forth in Exhibit A, attached hereto and incorporated herein by
reference, or as described in the SEC Documents, no shares of Common
Stock are entitled to preemptive rights or registration rights and
there are no outstanding options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of
the Company, or contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue
additional shares of capital stock of the Company or options,
warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible into shares,
of capital stock of the Company. The Company has furnished or made
available to the Purchaser true and correct copies of the Company's
Charter, and the Company's By-Laws, as in effect on the date hereof
(the "By-Laws").
(d) Issuance of Shares. The issuance of the Shares has been duly
authorized and, when paid for and issued in accordance with the terms
hereof, the shall be validly issued, fully paid and non-assessable and
entitled to the rights and preferences set forth in Schedule I hereto.
The Common Stock issuable upon conversion of the Shares will be duly
authorized and reserved for issuance and, upon conversion, will be
validly issued, fully paid and non-assessable and the holders shall be
entitled to all rights and preferences accorded to a holder of Common
Stock.
9
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in a
violation of the Company's Charter or By-Laws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or
result in a violation of any federal, state, local or foreign law,
rule, regulation, order, judgment or decree (including Federal and
state securities laws and regulations) applicable to the Company or by
which any property or assets of the Company or any of its subsidiaries
is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as
to Federal, state, local or foreign law, rule or regulation, no
representation is made herein with respect to any of the same
applicable solely to the Purchaser and not to the Company. The
business of the Company is not being conducted in violation of any
law, ordinance or regulations of any governmental entity, except for
violations which either singly or in the aggregate do not and will not
have a Material Adverse Effect. The Company is not required under
Federal, state or local law, rule or regulation in the United States
to obtain any consent, authorization or order of, or make any filing
(other than any filing of a vote establishing a class or series of
stock with the New York Department of State) or registration with, any
court or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or issue and sell
the Shares in accordance with the terms hereof (other than any SEC,
NASD or state securities filings which may be required to be made by
the Company subsequent to the Closing, and any registration statement
which may be filed pursuant hereto); provided that, for purposes of
the representation made in this sentence, the Company is assuming and
relying upon the accuracy of the relevant representations and
agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of the Company
is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and, except as set forth in
Exhibit A, the Company has filed on a timely basis all reports,
schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or
15(d), in addition to one or more registration statements and
amendments thereto heretofore filed by the Company with the SEC under
the Act (all of the foregoing including filings incorporated by
reference therein being referred to herein as the "SEC Documents").
The Company directly or through its agent has delivered to the
Purchaser true and complete copies of the SEC Documents. The Company
has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement.
10
Except as set forth in Exhibit A, as of their respective dates the SEC
Documents complied in all material respects with the requirements of
the Act or the Exchange Act as the case may be and the rules and
regulations of the SEC promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents 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. Except as set forth in Exhibit A, the
financial statements of the Company included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of
unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company
as of the dates thereof and the results of operations and cash flows
for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) No Material Adverse change. Since the date through which the most
recent quarterly report of the Company on Form 10-Q has been prepared
and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with
respect to the Company.
(h) No Undisclosed Liabilities. The Company has no material liabilities or
obligations not disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's business since the
date of the most recently filed SEC Documents which, individually or
in the aggregate, do not or would not have a Material Adverse Effect
on the Company.
(i) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or any of its
subsidiaries or their respective businesses, properties, prospects,
operations or financial condition 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.
(j) No General Solicitation. Neither the Company nor any of its affiliates
or, to the best of the Company's knowledge, any person acting on its
or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Act)
in connection with the offer or sale of the Shares.
(k) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Shares under the Act.
11
Section 3.1 Securities Compliance. The Company shall notify the SEC and the
NASD, in accordance with their respective requirements, if any, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares, and the Common
Stock issuable upon conversion thereof, to the Purchaser.
Section 3.2 Registration and Listing. Until at least two (2) years after
all Shares have been converted into Registrable Securities, the Company will
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under such Exchange Act, will comply with all requirements
related to any registration statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Acts, except as permitted herein. Until at least two (2) years after
all Shares have been converted into Common Stock, the Company will take all
action within its power to continue the listing or trading of its Common Stock
on the Principal Market (as defined in Section 7.10 hereof) and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market authority. The covenants set forth
in this Section 3.2 shall not be deemed to prohibit a merger, sale of all assets
or other corporate reorganization if the entity surviving or succeeding to the
Company is bound by this Agreement with respect to its securities issued in
exchange for or in replacement of the Shares or Common Stock or the
consideration received for or in replacement of the Shares or Common Stock is
cash.
Section 3.3 Right of First Refusal and Most-Favored-Nation Clause. If at
any time before the end of the thirty (30) day period following the effective
date of a registration statement filed pursuant to Section 1.4 hereof the
Company proposes to issue Common Stock or securities convertible into or
exercisable for Common Stock or other convertible securities, pursuant to an
offering exempt from registration under the Act, the Company shall provide to
Purchaser reasonable advance notice of all the terms of such proposed issuance.
The Purchaser shall have the right to purchase or refuse to purchase all or any
part of such securities proposed to be issued in such offering, and shall have
at least seventy two (72) hours after receipt of such notice to review the terms
of the proposed issuance.
If the Company issues Common Stock or securities convertible into or
exercisable for Common Stock or other convertible securities at a time when any
of the Shares remain outstanding at an effective price per share of Common Stock
which is lower than the conversion price of the Shares at that time, then the
Company shall issue to each holder upon conversion an additional number of
shares of Common Stock necessary to reduce the effective conversion price to
such lower issue price. This Section shall not be applicable to issuances of
Common Stock, or options granted at market price, pursuant to any
shareholder-approved option plan covering not more than 10% of the Company's
outstanding stock.
12
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and/or sell the
Shares to the Purchaser is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below. These conditions may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser 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 particular date).
(b) Performance by the Purchaser. The Purchaser shall have performed all
agreements and satisfied all conditions required to be performed or
satisfied by the Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) Legal action. No legal action, suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Purchase the Shares. The obligation hereunder of the Purchaser to acquire and
pay for the Shares is subject to the satisfaction, at or before the Closing, of
each of the conditions set forth below. These conditions may be waived by the
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. 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 that time (except for
representations and warranties that speak as of a particular date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or
satisfied by the Company at or prior to the Closing.
(c) Suspension. From the date hereof to the Closing Date, trading in the
Company's Common Stock shall not have been suspended by the SEC or the
Principal Market (except for any suspension of trading of limited
duration agreed to between the Company and the Principal Market solely
to permit dissemination of material information regarding the
Company), and trading in securities generally as reported by the
Principal Market shall not have been suspended, or limited or minimum
prices shall not have been established on securities whose trades are
reported by the Principal Market.
(d) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(e) Opinion of Counsel, Etc. The Purchaser shall have received before or
at the Closing an opinion of counsel to the Company (covering, without
limitation, such of the matters set forth in Section 2.2(a) through
(e)), as are in form and substance reasonably satisfactory to the
Purchaser and its counsel, and such other certificates and documents
as the Purchaser or its counsel shall reasonably require incident to
the Closing.
13
Section 5.1 Legend on Stock. Each certificate representing the Shares and,
if necessary, Common Stock issued upon conversion thereof, shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
The Company agrees to reissue certificates representing the Shares or, if
applicable, the Common Stock issued upon conversion thereof without the legend
set forth above at such time as (a) the holder thereof is permitted to dispose
of such Shares (or securities issued upon conversion thereof) pursuant to Rule
144(k) under the Act, (b) the securities are sold to a purchaser or purchasers
who (in the opinion of counsel to such holders, in form and substance reasonably
satisfactory to the Company and its counsel) are able to dispose of such
securities publicly without registration under the Act, or (c) such securities
are registered under the Act.
Section 6.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company
and the Purchaser.
Section 6.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors or other governing body of the Purchaser or the
Company at any time if the Closing shall not have been consummated by the fifth
(5th) business day following the date of this Agreement, provided that the party
seeking to terminate the Agreement is not in breach of the Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh (7th) business day following the date of this
Agreement, provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.
Section 7.1 Fees and Expenses. Except as otherwise set forth in Section 1.4
hereof, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Shares and Common Stock
pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchaser acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition
to any other remedy to which either of them may be entitled by law or
equity.
14
(b) The Company and the Purchaser each (i) hereby irrevocably submits to
the jurisdiction of the United States District Court and other courts
of the United States sitting in Texas for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement and
(ii) hereby waives, and agrees not to assert in any such suit, action
or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action
or proceeding is improper. The Company and the Purchaser each consents
to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by law.
Section 7.3 Entire Agreement: Amendment. This Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein, neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second (2nd) business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: Xxxx Xxxxxxxxx, President
America Bio Medica Corporation
000 Xxxxxx Xxxx
Xxxxxxxxxx, Xxx Xxxx 00000
to the Purchaser: At the address set forth at the foot of this Agreement
or as specified in writing by Purchaser.
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days' written notice of such changed address to the
other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
15
Section 7.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.7 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the present state
of incorporation of the Company without regard to such state's principles of
conflict of laws.
Section 7.8 Survival. The representations and warranties of the Company and
the Purchaser contained in herein and the agreements and covenants set forth in
Sections 1.1 through 1.5, 3.1 through 3.4 and 7.1 through 7.15 shall survive the
Closing.
Section 7.9 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.10 Principal Market. The term "Principal Market" refers to the
NASD Bulletin Board, NASDAQ Small Cap Market, or other principal market or
national securities exchange, on which the Common Stock of the Company is
principally traded.
Section 7.11 Acceptance. Execution and delivery of this Agreement shall
constitute an offer to purchase the Shares, which offer, unless previously
revoked by the Purchaser, may be accepted or rejected by the Company, in its
sole discretion for any cause or for no cause and without liability to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing as
indicated on the signature page hereof.
Section 7.12 Binding Agreement. Upon acceptance of this Agreement by the
Company, the Purchaser agrees that he may not cancel, terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or disability of the Purchaser and shall be binding upon heirs,
successors, assigns, executors, administrators, guardians, conservators or
personal representatives of the Purchaser.
Section 7.13 Incorporation by Reference. All information set forth on the
signature page is incorporated as integral terms of this Agreement.
Section 7.14 Counterparts. This Agreement may be signed in multiple
counterparts, which counterparts shall constitute one and the same original
instrument.
THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.
THE SIGNATURE PAGE FOLLOWS.
16
IN WITNESS WHEREOF, the Purchaser has executed this Agreement on the date
set forth below.
For the purchase price of $10,000 per Share, the Purchaser tenders herewith
the full purchase price of:
The exact name(s) (Including correct, legible spelling) and the information
under which title to the Shares will be taken is as follows (Please print or
type):
Address of Purchaser:
Social Security or IRS Employer Identification Number(s):
Signature of Purchaser:
Name of Purchaser:
By: Dated:
Name:
Title:
Accepted by:
AMERICA BIO MEDICA CORPORATION, a New York corporation
By:
Print Name:
Title:
17
SCHEDULE I
AMERICAN BIO MEDICA CORPORATION
RESOLUTION ESTABLISHING RIGHTS AND PREFERENCES
FOR 8% SERIES B CONVERTIBLE PREFERRED STOCK
RESOLVED, that there shall be a series of shares of the Corporation
designated "8% Series B Convertible Preferred Stock"; that the number of
shares of such series shall be 1,000, that the Corporation issue such
shares, and that the rights and preferences of such series (the "8%
Preferred") and the limitations or restrictions thereon, shall be as set
forth herein.
The following terms and conditions shall be adopted and incorporated by
reference into the foregoing resolutions as if fully set forth therein:
1. Dividends.
(a) The holders of the 8% Preferred shall be entitled to receive out of
any assets legally available therefor cumulative dividends at the rate
of $800 per share per annum, payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, in preference and
priority to any payment of any dividend on the Common Stock or any
other class or series of stock of the Corporation. Such dividends
shall accrue on any given share from the day of original issuance of
such share and shall accrue from day to day whether or not earned or
declared. If at any time dividends on the outstanding 8% Preferred at
the rate set forth above shall not have been paid or declared and set
apart for payment with respect to all preceding periods, the amount of
the deficiency shall be fully paid or declared and set apart for
payment, but without interest, before any distribution, whether by way
of dividend or otherwise, shall be declared or paid upon or set apart
for the shares of any other class or series of stock of the
Corporation.
(b) All dividends on the 8% Preferred shall be paid in cash. If the
Corporation shall have received the prior written consent of all
holders of the 8% Preferred at least ten (10) days before the record
date for a dividend, which consent may be arbitrarily withheld, the
dividend may be payable in shares of 8% Preferred valued at $10,000
per share; provided the Common Stock issuable upon conversion of such
8% Preferred has been registered for resale under the Securities Act
of 1933, as amended (the "Act"), and the registration statement
including a current prospectus with respect thereto remains in effect
at the date of delivery of such shares.
2. Liquidation Preference; Redemption.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the 8%
Preferred shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of any
other class or series of shares the amount of $10,000 per share plus
any accrued but unpaid dividends (the "Liquidation Preference").
(b) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation, shall, at the option of the holders of
the 8% Preferred, be deemed a liquidation, dissolution or winding up
within the meaning of this Section 2 if the shares of stock of the
Corporation outstanding immediately prior to such transaction
represent immediately after such transaction less than a majority of
the voting power of the surviving corporation (or of the acquirer of
the Corporation's assets in the case of a sale of assets). Such option
may be exercised by the vote or written consent of holders of a
majority of the 8% Preferred at any time within thirty (30) days after
written notice (which shall be given promptly) of the essential terms
of such transaction shall have been given to the holders of the 8%
Preferred in the manner provided by law for the giving of notice of
meetings of shareholders.
(c) The Corporation may, at its option, cause all outstanding shares of
the 8% Preferred to be redeemed after the date on which a registration
statement under the Act ("Registration Statement") has been declared
effective (the "effective date"), provided the Corporation has given
notice of its intention to redeem to the holders of the 8% Preferred
at least five (5) days prior to the redemption date. On the redemption
date, the Corporation shall pay such holders by cashier's check or
wire transfer in immediately available funds the amount of $14,000 per
share if the redemption date is on or before the ninetieth (90th) day
after the effective date, plus any accrued but unpaid dividends.
Promptly thereafter, the holders shall surrender the certificate or
certificates representing the 8% Preferred, duly endorsed, at the
office of the Corporation or of any transfer agent for such shares, or
at such other place designated by the Corporation.
3. 8% Preferred - Forced Conversion.
(a) The Corporation may, at its option, cause all outstanding shares of
the 8% Preferred to be converted into Common Stock at any time
beginning one (1) year after the date of issuance, on at least twenty
(20) days' advance notice, at a conversion price determined as set
forth in Section 4 hereof (the "Conversion Price") as of the date
specified in such notice (the "Conversion Date") and otherwise on the
terms set forth in Section 4 hereof; provided, that the Corporation
may not exercise such right of conversion unless (i) the Closing Price
(last trade price) of the Common Stock as reported by the Principal
Market (as defined in Section 3(d)(iv) hereof) for the twenty (20)
consecutive trading days prior to the date the Conversion Notice is
mailed has not on any day been less than one hundred forty percent
(140%) of the last trade price of the Company's Common Stock on the
day of Closing (subject to adjustment for stock dividends, stock
splits and reverse stock splits), and (ii) the shares issuable upon
conversion of the 8% Preferred are registered for resale by an
effective Registration Statement which became effective not more than
one hundred twenty (120) days after the date of issuance of the 8%
Preferred, and a current prospectus meeting the requirements of
Section 10 of the Act is available for delivery at the Conversion
Date.
(b) At least twenty (20) days prior to the Conversion Date, written notice
(the "Conversion Notice") shall be mailed, first class postage
prepaid, by the Corporation to each holder of record of the 8%
Preferred, at the address last shown on the records of the Corporation
for such holder, notifying such holder of the conversion which is to
be effected, specifying the Conversion Date and calling upon each such
holder to surrender to the Corporation, in the manner and at the place
designated, a certificate or certificates representing the number of
shares of 8% Preferred held by such holder. Subject to the provisions
of the following subsection (c), on or after the Conversion Date, each
holder of 8% Preferred shall surrender to the Corporation the
certificate or certificates representing the shares of 8% Preferred
owned by such holder as of the Conversion Date, in the manner and at
the place designated in the Conversion Notice, and thereupon the
shares issuable upon such conversion shall be delivered as provided in
Section 4(b) hereof.
(c) If, on the Conversion Date, the registration condition specified in
clause (ii) of subsection (a) shall not be satisfied, then no shares
shall be converted and the Conversion Notice shall be deemed to be
withdrawn. In such event, any certificates for 8% Preferred which have
been surrendered for conversion shall be returned to the persons
surrendering the same; provided, however, that if a holder has
received shares of Common Stock upon conversion of 8% Preferred after
the Conversion Notice was given but before the Conversion Date, such
holder may elect either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the
Corporation.
(d) On the second anniversary of the issuance of the 8% Preferred, all
then outstanding shares of 8% Preferred shall be automatically
converted into Common Stock at the Conversion Price and otherwise
pursuant to the applicable provisions set forth in Section 4 hereof.
4. 8% Preferred - Optional Conversion. The holders of the 8% Preferred shall
have optional conversion rights as follows:
(a) Right to Convert. Subject to the succeeding sentence, Shares of 8%
Preferred shall be convertible, at the option of the holder thereof,
into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing (A) the Liquidation Preference of
the 8% Preferred determined pursuant to Section 2 hereof on the date
the notice of conversion is given, by (B) the Conversion Price
determined as hereinafter provided in effect on the applicable
conversion date. No holder of Shares, except for ProFutures Special
Equities Fund, L.P. and Deere Park Capital Management, Inc. (nominee),
shall be entitled to convert Shares, and enter into any short sale or
long sale transaction with respect to the Company's Common Stock,
directly or indirectly, at any time before the period ending sixty
(60) days after the effective date of any registration statement filed
pursuant to Section 1.4(b) hereof (the "Open Selling Date"). The
Corporation shall prohibit any other party purchasing restricted
convertible securities of the Corporation at any time during the
period beginning thirty (30) days prior to the Closing Date and ending
on the Open Selling Date from converting any of such securities during
such period.
(b) Mechanics of Conversion. To convert shares of 8% Preferred into shares
of Common Stock, the holder shall give written notice to the
Corporation (which notice may be given by telefacsimile transmission)
that such holder elects to convert the shares and shall state therein
date of the conversion, the number of shares to be converted and the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. Promptly
thereafter, the holder shall surrender the certificate or certificates
representing the shares of 8% Preferred to be converted, duly
endorsed, at the office of the Corporation or of any transfer agent
for such shares, or at such other place designated by the Corporation;
provided, that the holder shall not be required to deliver all
certificates representing such shares if the holder is waiting to
receive all or part of the certificates from the Corporation. The
Corporation shall, immediately upon receipt of such notice, issue and
deliver to or upon the order of such holder, against delivery of the
certificates representing the shares which have been converted, a
certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled and such certificate or
certificates shall not bear any restrictive legend; provided (A) the
Common Stock evidenced thereby are sold pursuant to an effective
registration statement under the Act, (B) the holder provides the
Corporation with an opinion of counsel reasonably acceptable to the
Corporation to the effect that a public sale of such shares may be
made without registration under the Act, or (C) such holder provides
the Corporation with reasonable assurance that such shares can be sold
free of any limitations imposed by Rule 144, promulgated under the
Act. The Corporation shall cause such issuance to be effected as soon
as possible days and shall cause the transmission of the certificates
by messenger or overnight delivery service to reach the address
designated by such holder within three (3) business days after the
receipt of such notice. Absent any circumstances substantially beyond
the control of the Corporation, the Corporation shall immediately pay
such holder in cash or by wire transfer in immediately available funds
$500 per day as liquidated damages for each day such shares have not
been delivered to the holder after the end of such three (3) business
day period. The notice of conversion may be given by a holder via
telefacsimile at any time during the day up to 5:00 p.m. New York, New
York time and such conversion shall be deemed to have been made on the
date that such notice is transmitted to the Corporation. The person or
persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock at the close of business on
such date.
(c) Conversion Required. The Corporation acknowledges and understands that
a delay in the issuance of the Common Stock pursuant to the provisions
hereof below could result in economic loss to the holders of the 8%
Preferred. As compensation to any holder when the Corporation has
failed with respect to such holder to comply with the Corporation's
obligations under Subsection (a) above, and not as a penalty, the
Corporation shall pay, in addition to any amounts due under subsection
4(b) above, to such holder liquidated damages an amount equal to two
percent (2%) of the total Purchase Price of 8% Preferred and any
Common Stock then held by the holder for the first thirty (30) day
period after the date on which the Common Stock should have been
issued by the Corporation (i.e., the end of the three (3) business day
period described in Subsection (b)), plus amount equal to two percent
(2%) of the total Purchase Price of 8% Preferred and any Common Stock
then held by the holder for each subsequent thirty (30) day period
thereafter. Such amounts shall be pro-rated daily and paid to the
holder by cashier's check or wire transfer in immediately available
funds to such account as shall be designated in writing by the holder.
(d) Determination of Conversion Price.
(i) Subject to adjustment hereunder, the "Conversion Price" for
purposes of hereof shall be equal to seventy five percent (75%)
(the "Conversion Percentage") of the average closing bid price of
the Common Stock as reported by the Principal Market during the
five (5) consecutive trading days preceding the conversion date
(but not including such date); provided, however, that in no
event may the Conversion Price be more than three dollars and
fifty cents ($3.50) per share (the "Maximum Conversion Price").
If the registration statement covering all Common Stock
registrable upon conversion of the 8% Preferred is not effective
by the one hundred twentieth (120th) day after the date of
issuance of the 8% Preferred, the Conversion Percentage shall be
decreased by two percent (2%) (pro-rated daily) beginning on the
one hundred twenty first (121st) day, and shall be decreased by
an additional two percent (2%) (pro-rated daily) for each thirty
(30) day period thereafter until such registration statement
becomes effective. (For example, if the registration statement
becomes effective on the 151st day after the date of issuance,
the Conversion Percentage will be 71% [75% minus a total of 4%].)
(ii) The "closing bid price" of the Common Stock on a trading day
shall be the closing bid price of the Common Stock on the
Principal Market. The term "trading day" means a day on which
trading is reported on the Principal Market on which prices of
the Common Stock are reported.
(iii)If, during the period of consecutive trading days provided for
above, the Corporation shall declare or pay any dividend on the
Common Stock payable in Common Stock or in rights to acquire
Common Stock, or shall effect a stock split or reverse stock
split, or a combination, consolidation or reclassification of the
Common Stock, the Conversion Price and Maximum Conversion Price
shall be proportionately decreased or increased, as appropriate,
to give effect to such event.
(iv) The term "Principal Market" refers to the NASD Bulletin Board,
NASDAQ Small Cap Market, or other principal market or national
securities exchange, on which the Common Stock of the Company is
principally traded.
(e) Distributions. If the Corporation shall at any time or from time to
time make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the Corporation or any of its
subsidiaries other than additional shares of Common Stock, then in
each such event provision shall be made so that the holders of 8%
Preferred shall receive, upon the conversion thereof, the securities
of the Corporation which they would have received had they been the
owners on the date of such event of the number of shares of Common
Stock issuable to them upon conversion.
(f) Certificates as to Adjustments. Upon the occurrence of any adjustment
or readjustment of the Conversion Price and the Maximum Conversion
Price pursuant to this Section 4, the Corporation shall at its expense
promptly compute such adjustment or readjustment in accordance with
the terms hereof and cause the independent public accountants
regularly employed to audit the financial statements of the
Corporation to verify such computation and prepare and furnish to each
holder of 8% Preferred 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 8% Preferred, furnish or
cause to be furnished to such holder a like certificate prepared by
the Corporation setting forth (i) such adjustments and readjustments,
and (ii) the number of other securities and the amount, if any, of
other property which at the time would be received upon the conversion
of 8% Preferred with respect to each share of Common Stock received
upon such conversion.
(g) Notice of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any
security or right convertible into or entitling the holder thereof to
receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of 8% Preferred at least ten
(10) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such
dividend, distribution, security or right and the amount and character
of such dividend, distribution, security or right.
(h) Issue Taxes. The Corporation shall pay any and all issue and other
taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock
on conversion of shares of 8% Preferred pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting
the conversion of the shares of the 8% Preferred, such number of its
shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the 8% Preferred,
and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the 8% Preferred, the Corporation will take
such corporate action as may be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain any requisite shareholder approval.
(j) Fractional Shares. No fractional shares shall be issued upon the
conversion of any share or shares of 8% Preferred. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one share of 8% Preferred by a holder thereof shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the
issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined
in good faith by the Board of Directors of the Corporation).
(k) Notices. Any notice required by the provisions of this Section to be
given to the holders of shares of 8% Preferred shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed
to each holder of record at its address appearing on the books of the
Corporation.
(l) Reorganization or Merger. In case of any reorganization or any
reclassification of the capital stock of the Corporation or any
consolidation or merger of the Corporation with or into any other
corporation or corporations or a sale of all or substantially all of
the assets of the Corporation to any other person, and the holders of
8% Preferred do not elect to treat such transaction as a liquidation,
dissolution or winding up as provided in Section 2 hereof, then, as
part of such reorganization, consolidation, merger or sale, provision
shall be made so that each share of 8% Preferred shall thereafter be
convertible into the number of shares of stock or other securities or
property (including cash) to which a holder of the number of shares of
Common Stock deliverable upon conversion of such share of 8% Preferred
would have been entitled upon the record date of (or date of, if no
record date is fixed) such event and, in any case, appropriate
adjustment (as determined by the Board of Directors) shall be made in
the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of the 8% Preferred, to
the end that the provisions set forth herein shall thereafter be
applicable, as nearly as equivalent as is practicable, in relation to
any shares of stock or the securities or property (including cash)
thereafter deliverable upon the conversion of the shares of 8%
Preferred.
5. Re-issuance of Certificates. In the event of a conversion (or, if
applicable, redemption) of 8% Preferred in which less than all of the
shares of 8% Preferred of a particular certificate are converted or
redeemed, as the case may be, the Corporation shall promptly (but no later
than five (5) business days after a conversion date) cause to be issued and
delivered to the holder of such certificate, a certificate representing the
remaining shares of 8% Preferred which have not been so converted or
redeemed.
6. Other Provisions. For all purposes of this Resolution, the term "date of
issuance" and the terms "Closing" or "Closing Date" shall mean the day on
which shares of the 8% Preferred are first issued by the Corporation. Any
provision herein which conflicts with or violates any applicable usury law
shall be deemed modified to the extent necessary to avoid such conflict or
violation.
7. Restrictions and Limitations. The Corporation shall not undertake the
following actions without the consent of the holders of a majority of the
8% Preferred: (i) modify its Certificate of Incorporation or Bylaws so as
to amend or change any of the rights, preferences, or privileges of the 8%
Preferred, (ii) authorize or issue any other preferred equity security
senior to or on a parity with the 8% Preferred, as to dividends,
liquidation preferences, conversion rights, redemption rights or other
rights, preferences or privileges for a period of thirty (30) days after
Closing, as applicable or (iii) purchase or otherwise acquire for value any
Common Stock or other equity security of the Corporation either junior or
senior to or on a parity with the 8% Preferred while there exists any
arrearage in the payment of cumulative dividends hereunder other than
redemptions of stock from terminating employees pursuant to contractual
rights in favor of the Corporation.
8. Voting Rights. Except as provided herein or as provided for by law, the 8%
Preferred shall have no voting rights.
9. Attorneys' Fees. Any holder of 8% Preferred shall be entitled to recover
from the Corporation the reasonable attorneys' fees and expenses incurred
by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder.
10. No Adverse Actions. The Corporation shall not in any manner, whether by
amendment of the Articles of Incorporation (including, without limitation,
any vote establishing a class or series of stock), merger, reorganization,
re-capitalization, consolidation, sales of assets, sale of stock, tender
offer, dissolution or otherwise, take any action, or permit any action to
be taken, solely or primarily for the purpose of increasing the value of
any class of stock of the Corporation if the effect of such action is to
reduce the value or security of the 8% Preferred.
