EXCHANGE AND REDEMPTION AGREEMENT
EXCHANGE AND REDEMPTION AGREEMENT (the "Agreement"), dated as of
November 24, 1998, by and among AMBI Inc., a New York corporation, with
headquarters located at 0 Xxxxxxxxxxxxxx Xxxx, Xxxxxxxx, Xxx Xxxx 00000 (the
"Company"), and the investors listed on the Schedule of Investors attached
hereto (individually, an "Investor" and collectively, the "Investors").
WHEREAS:
A. Each of the Investors owns the number of shares of Series C
Preferred Stock, par value $.01 per share (the "Series C Preferred Stock") of
the Company as is set forth on the Schedule of Investors attached hereto.
B. This Agreement is being entered into by the Company and the
Investors pursuant to that certain letter agreement, dated November 6, 1998
(the "Letter Agreement"), between the Company and the Investors, which Letter
Agreement described the principal terms set forth in this Agreement. The
Company has agreed and each of the Investors, severally and not jointly, has
agreed that each Investor will tender all outstanding shares of Series C
Preferred Stock (the "Preferred Shares") to the Company and the Company will
(i) redeem a portion of the Preferred Shares for a cash payment in an
aggregate amount of $1 million (the "Redemption Amount"), (ii) exchange a
portion of the Preferred Shares for shares of a newly created series of
preferred stock designated Series E Convertible Preferred Stock (the "Series E
Preferred Stock"), which shall be convertible into shares of the Company's
Common Stock, par value $.005 per share (the "Common Stock") (as converted,
the "Conversion Shares") in accordance with the terms of the Company's Amended
Certificate of Incorporation (the "Amended Certificate") substantially in the
form attached hereto as Exhibit A, and (iii) convert the remaining Preferred
Shares into 324,689 shares of the Company's Common Stock (the "Restructuring
Shares"), subject in each case to reduction pursuant to Section 9(q) (the
preceding transactions are sometimes collectively referred to as the
"Restructuring"). The Redemption Amount, Series E Preferred Stock and
Restructuring Shares shall be allocated among the Investors pro rata based on
the number of shares of Series C Preferred Stock set forth on the Schedule of
Investors attached hereto (the "Pro Rata Allocation"). The rights and
preferences of the Series E Preferred Stock, including the terms on which the
Series E Preferred Stock may be converted into Common Stock, are set forth in
the Amended Certificate, which shall have been executed, acknowledged, filed,
recorded and become effective in accordance with the Business Corporation Law
of the State of New York (the "NYBCL").
C. The solicitation of this Agreement and, if accepted by the
Company, the issuance of Series E Preferred Stock is being made in reliance
upon the provisions of Section 3(a)(9) of the Securities Act of 1933, as
amended (the "1933 Act"). The shares of
-1-
Series E Preferred Stock and the Conversion Shares issuable upon conversion
thereof are sometimes collectively referred to in this Agreement as the
"Securities."
NOW THEREFORE, the Company and the Investors hereby agree as follows:
1. AGREEMENT; EXCHANGE, REDEMPTION AND CONVERSION.
1.1 Agreement. Each Investor, severally and not jointly, hereby
agrees that at the Closing (as defined below) it will (i) redeem Preferred
Shares for the Redemption Amount, (ii) exchange Preferred Shares for shares of
Series E Preferred Stock, and (iii) convert Preferred Shares into the
Restructuring Shares, all in the amounts determined by such Investor's Pro
Rata Allocation as set forth in the Schedule of Investors and on the terms and
conditions set forth herein, including, without limitation, the provisions of
Section 9(q).
1.2 Closing Date. The closing of the transactions contemplated hereby
(the "Closing") shall occur on November 30, 1998 at the offices of Xxxxxx
Xxxxxx & Xxxxx, 000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx
00000-0000 or such other date and place as the Company and the Investors shall
agree (the "Closing Date") and shall occur when all of the conditions to the
Company's and the Investors' obligations under Sections 6 and 7, respectively,
have been satisfied or waived by the appropriate party.
1.3 Exchange, Redemption and Conversion Consideration. On the Closing
Date, the Company shall (i) pay to each Investor its Pro Rata Allocation of
the Redemption Amount by wire transfer of immediately available funds in
accordance with each Investor's written wire instructions as set forth on the
Schedule of Investors, (ii) issue to each Investor its Pro Rata Allocation of
the Series E Preferred Stock (in the name of such Investor or its designee),
and (iii) deliver to each Investor its Pro Rata Allocation of the
Restructuring Shares (in the certificate denominations as such Investor shall
request and in the name of such Investor or its designee) as set forth in the
Schedule of Investors and on the terms and conditions set forth herein,
including, without limitation, the provisions of Section 9(q).
1.4 Success Fee. Within five (5) business days after the second
anniversary of the Closing Date, the Company shall pay to each Investor its
Pro Rata Allocation of an amount equal to the greater of (i) $250,000 and (ii)
the product of (a) .03 and (b) the positive difference, if any, between the
Future Enterprise Value (as defined herein) and $31,948,592 (the "Success
Fee"). In no event shall the Success Fee exceed $1,000,000. The Success Fee
may be paid in (i) cash or (ii) shares of Common Stock (the "Success Shares"),
subject to the conditions set forth in the following sentence. In order to pay
the Success Fee by issuing the Success Shares: the Company shall (i) provide
the Investors with 90 days prior written notice of its intent to issue the
Success Shares; (ii) issue a number of Success Shares equal to the quotient
obtained by dividing the Success Fee by 85% of the average closing bid price
as reported on the Principal Market over the 90-day notice period provided in
clause (i); and (iii) the parties hereto shall have entered into a mutually
acceptable
-2-
registration rights agreement covering the resale of the Success Shares and on
terms substantially identical, including but not limited to indemnification,
to the terms contained in the registration rights agreement which relates to
the Company's Series D Convertible Preferred Stock; and (iv) file a
registration statement under the 1933 Act on or prior to the date of delivery
of the notice referred to in clause (i) covering the resale of the Success
Shares by the Investors. Notwithstanding the foregoing, the Company shall be
obligated to pay the Success Fee in cash if the registration statement
referred to in clause (iii) of the preceding sentence is not effective on the
date such Success Fee is due and payable. For purposes of this Agreement,
"Future Enterprise Value" shall mean the sum of (i) the average market value
of the Company's publicly-traded securities during the twenty trading day
period ending on the second anniversary of the Closing Date, and (ii) the
principal amount of any outstanding debt securities and face amount of any
outstanding preferred stock of the Company (as reported in the Company's
Quarterly Report on Form 10-Q (or any successor report) for the period ended
September 30, 2000), less (iii) the amount of the Company's unrestricted cash
as reported in the Company's Quarterly Report on Form 10-Q (or any successor
report) for the period ended September 30, 2000.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
Each Investor represents and warrants with respect to only
itself that:
a. Holding Period. Such Investor (i) purchased the Preferred
Shares directly from the Company and (ii) has held the Preferred Shares for
more than two years, which period has been calculated as described in Rule
144(d) under the 0000 Xxx.
b. Not an Affiliate. Such Investor is not an "affiliate" (as
that term is defined in Rule 405 of the 0000 Xxx) of the Company.
c. Reliance on Exemptions. Such Investor understands that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying in part upon the truth
and accuracy of, and such Investor's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Investor
set forth herein in order to determine the availability of such exemptions and
the eligibility of such Investor to acquire such securities.
d. Information. Such Investor 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 such Investor. Such Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives
shall modify, amend or affect such Investor's right to rely on the Company's
representations and warranties
-3-
contained in Section 3 below. Such Investor understands that its investment in
the Securities involves a high degree of risk. Such Investor has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the
Securities.
e. No Governmental Review. Such Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of the investment in the Securities
nor have such authorities passed upon or endorsed the merits of the offering
of the Securities.
f. Validity; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Investor and is a
valid and binding agreement of such Investor enforceable against such Investor
in accordance with its terms, subject as to enforceability to general
principles of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
g. Residency. Such Investor is a resident of that country
specified in its address on the Schedule of Investors.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Investors
that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated,
and have the requisite corporate power and authorization to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results or operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries
except as set forth on Schedule 3(a), and all such Subsidiaries are 100%
wholly-owned by the Company.
-4-
b. Authorization; Enforcement; Validity. (i) The Company has
the requisite corporate power and authority to enter into and perform this
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5) and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with
the terms hereof and thereof, (ii) the execution and delivery of the
Transaction Documents and the Amended Certificate by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Series E Preferred Stock and
the reservation for issuance and the issuance of the Conversion Shares
issuable upon conversion thereof, have been duly authorized by the Company's
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders, (iii) the Transaction
Documents have been duly executed and delivered by the Company, (iv) the
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of
creditors' rights and remedies, and (v) prior to the Closing Date, the Amended
Certificate has been filed with the Secretary of State of the State of New
York and will be in full force and effect, enforceable against the Company in
accordance with its terms.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 65,000,000 shares of Common
Stock, of which as of the date hereof, 26,549,062 shares are issued and
outstanding, 3,000,000 shares are reserved for issuance pursuant to the
Company's stock option and purchase plans and 2,500,000 shares are issuable
and reserved for issuance pursuant to securities (other than the Preferred
Shares and the shares of Series E Preferred Stock) exercisable or exchangeable
for, or convertible into, shares of Common Stock, (ii) 1,000 shares of Series
C Preferred Stock, of which as of the date hereof, 222 shares are issued and
outstanding and (iii) 100,000 shares of Series D Preferred Stock, of which as
of the date hereof 5,750 shares are issued and outstanding; (iv) 1,500 shares
of Series E Preferred Stock, none of which are issued and outstanding as of
the date hereof; and (v) 575 shares of Series F Preferred Stock, none of which
are issued and outstanding as of the date hereof. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding debt securities, (iii) 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 any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character
-5-
whatsoever relating to, or securities or rights convertible into, any shares
of capital stock of the Company or any of its Subsidiaries, (iv) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933
Act, (v) there are no outstanding securities or instruments of the Company or
any of its Subsidiaries which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to redeem
a security of the Company or any of its Subsidiaries, (vi) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities as described in this
Agreement, and (vii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Investor true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as amended
and as in effect on the date hereof (the "By-laws"), and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
d. Issuance of Securities. The shares of Series E Preferred
Stock are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights and preferences set forth in the Amended Certificate.
At least 1,200,000 shares of Common Stock (subject to adjustment pursuant to
the Company's covenant set forth in Section 4(e) below) have been duly
authorized and reserved for issuance upon conversion of the Series E Preferred
Stock. Upon conversion in accordance with the Amended Certificate, the
Conversion Shares will be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
The issuance by the Company of the Securities is exempt from registration
under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the
Company, the performance by the Company of its obligations under the Amended
Certificate and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Conversion Shares) will not (i)
result in a violation of the Amended Certificate, including, but not limited
to, the rights of any outstanding series of preferred stock of the Company or
the 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 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 the rules and regulations of the Principal Market (as
defined below)) applicable to the Company or any of its Subsidiaries or by
which any property or asset of
-6-
the Company or any of its Subsidiaries is bound or affected. Except as
disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is in
violation of any term of or in default under its Amended Certificate,
including, but not limited to, the rights of any outstanding series of
preferred stock of the Company or By-laws or their organizational charter or
by-laws, respectively. Except as disclosed in Schedule 3(e), neither the
Company or any of its Subsidiaries is in violation or any term of or in
default under any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order or any statute, rule or regulation
applicable to the Company or its Subsidiaries, except for such violation or
default which, individually or in the aggregate, would not have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance, or
regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the 1933 Act, 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 or contemplated by the Transaction Documents or to
perform its obligations under the Amended Certificate, in each case in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), 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 Principal Market (as defined below), including, without
limitation, the requirements set forth in Rule 4460 of the Principal Market.
f. SEC Documents; Financial Statements. Since June 30, 1997,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange
Commission ("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 incorporated by reference
therein being hereinafter referred to as the "SEC Documents"). The Company has
delivered to the Investors or their respective representatives a true and
complete list of the SEC Documents, including the filing dates thereof. As of
their respective dates, or as subsequently amended, 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 generally
-7-
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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Investors which is
not included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstance under which they
are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Investors with any material, nonpublic information.
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g), since June 30, 1998 there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law
nor does the Company or any of its Subsidiaries have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings. Except as disclosed in Schedule 3(g), since June 30, 1998, the
Company has not declared or paid any dividends, sold any assets in excess of
$500,000 outside of the ordinary course of business or had capital
expenditures in excess of $500,000.
h. Absence of Litigation. There is no action, suit,
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, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries
or any of the Company's or the Company's Subsidiaries' officers or directors
in their capacities as such, except as set forth in Schedule 3(h).
i. Acknowledgment Regarding Investors' Purchase of
Securities. The Company acknowledges and agrees that each of the Investors is
acting solely in the capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.
The Company further acknowledges that each Investor is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby and any advice given by any of the Investors or any of
their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Investor's purchase of the Securities. The Company further
represents to each Investor that the Company's decision
-8-
to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred
or exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on
a registration statement filed with the SEC relating to an issuance and sale
by the Company of its Common Stock and which has not been publicly announced
(each a "Disclosable Event") and no Disclosable Event is contemplated to
occur, except where such Disclosable Event, individually or in the aggregate
is not likely to have a Material Adverse Effect.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor 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 0000 Xxx) in connection with the offer or sale of the
Securities.
l. 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
any of the Securities under the 1933 Act or cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the Company are
listed or designated, nor will the Company or any of its Subsidiaries take any
action or steps that would require registration of any of the Securities under
the 1933 Act or cause the offering of the Securities to be integrated with
other offerings.
m. Intentionally Omitted.
n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its Subsidiaries, is any such dispute threatened. None
of the Company's or its Subsidiaries' employees is a member of a union,
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relations with their employees are good. No executive officer (as defined in
Rule 501(f) of the 0000 Xxx) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company. No executive officer, to the best knowledge of the Company
and its Subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued
employment of each
-9-
such executive officer does not subject the Company or any of its Subsidiaries
to any liability with respect to any of the foregoing matters.
o. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. Except as set forth on Schedule
3(o), none of the Company's trademarks, trade names, service marks, service
xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademark, trade name rights, patents,
patent rights, copyrights, inventions, licenses, service names, service marks,
service xxxx registrations, trade secret or other similar rights of others, or
of any such development of similar or identical trade secrets or technical
information by others and, except as set forth on Schedule 3(o), there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its Subsidiaries regarding
trademark, trade name, patents, patent rights, copyrights, inventions,
license, service names, service marks, service xxxx registrations, trade
secret or other infringement; and the Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing.
The Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their intellectual
properties.
p. Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval except in
each of the three foregoing cases, the failure to so comply would have,
individually or in the aggregate, a Material Adverse Effect.
q. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
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(q) or such
as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
any of its Subsidiaries. Any real property and facilities held under lease by
the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases
-10-
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the Company and
its Subsidiaries.
r. 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 been
refused any insurance coverage sought or applied for and 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 materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole.
s. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.
t. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient 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.
u. 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 reasonable judgment of the Company's officers has or is currently expected
in the future 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
reasonable judgment of the Company's officers has or is currently expected to
have a Material Adverse Effect.
v. Tax Status. 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
-11-
such returns, reports and declarations, except those being contested in good
faith and has set aside on its books provision 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 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.
w. Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the
date hereof 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 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.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the
Investors as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and
the Investor's ownership of the Securities.
y. Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
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 of its Subsidiaries has, in the
course of its 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, as amended; or made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
aa. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Investors relating to the terms or
conditions of the transactions contemplated by the Transaction Documents
except as set forth in the Transaction Documents.
-12-
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Blue Sky. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary
in order to obtain an exemption for or to qualify the Securities for sale to
the Investors at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States, and shall
provide evidence of any such action so taken to the Investors on or prior to
the Closing Date. The Company shall make all filings and reports relating to
the offer and sale of the Securities required under applicable securities or
"Blue Sky" laws of the states of the United States following the Closing Date.
c. Reporting Status. Until the date on which (i) the
Investors shall have sold all the Conversion Shares and (ii) none of the
shares of Series E Preferred Stock are outstanding (the "Reporting Period"),
the Company shall 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 otherwise permit such termination.
d. Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period: (i) within two (2)
days after the filing thereof with the SEC, a copy of its Annual Reports on
Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) including amendments
to any of the foregoing filed pursuant to the 1933 Act, provided that if any
such report or registration statement is not filed with the SEC through XXXXX
then the Company shall deliver a copy of such report or registration statement
to each Investor by facsimile on the same day it is filed with the SEC; (ii)
on the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii) copies of any
notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving
thereof to the stockholders.
e. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 100% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares.
f. Additional Financing; Right of First Refusal. Subject to
the exceptions described below, the Company and its Subsidiaries shall not
negotiate or contract with any party for any equity financing (including any
debt financing with an equity component) or issue any equity securities of the
Company or any Subsidiary or securities convertible or exchangeable into or
for equity securities of the Company or any Subsidiary (including debt
-13-
securities with an equity component) in any form ("Future Offerings") during
the period beginning on the date hereof and ending on, and including, the
first anniversary of the date hereof, unless it shall have first delivered to
each Investor or a designee appointed by such Investor written notice (the
"Future Offering Notice") describing the proposed Future Offering, including
the terms and conditions thereof, and providing each Investor an option to
purchase up to its Aggregate Percentage (as defined below) of the securities
to be issued in such Future Offering, as of the date of delivery of the Future
Offering Notice, in the Future Offering (the limitations referred to in this
and the preceding sentence are collectively referred to as the "Capital
Raising Limitations"). For purposes of this Section 4(f), "Aggregate
Percentage" at any time with respect to any Investor shall mean the percentage
obtained by dividing (i) the aggregate number of the Preferred Shares owned by
such Investor as set forth on the Schedule of Investors by (ii) the aggregate
number of the Preferred Shares owned by all the Investors as set forth on the
Schedule of Investors. An Investor can exercise its option to participate in a
Future Offering by delivering written notice thereof to participate to the
Company within five (5) business days after receipt of a Future Offering
Notice, which notice shall state the quantity of securities being offered in
the Future Offering that such Investor will purchase, up to its Aggregate
Percentage, and that number of securities it is willing to purchase in excess
of its Aggregate Percentage. In the event that one or more Investors fail to
elect to purchase up to each such Investor's Aggregate Percentage, then each
Investor which has indicated that it is willing to purchase a number of
securities in such Future Offering in excess of its Aggregate Percentage shall
be entitled to purchase its pro rata portion (determined in the same manner as
described in the preceding sentence) of the securities in the Future Offering
which one or more of the Investors have not elected to purchase. In the event
the Investors fail to elect to fully participate in the Future Offering within
the periods described in this Section 4(f), the Company shall have 60 days
thereafter to sell the securities of the Future Offering that the Investors
did not elect to purchase, upon terms and conditions, no more favorable to the
purchasers thereof than specified in the Future Offering Notice. In the event
the Company has not sold such securities of the Future Offering within such
60-day period, the Company shall not thereafter issue or sell such securities
without first offering such securities to the Investors in the manner provided
in this Section 4(f). The Capital Raising Limitations shall not apply to (i) a
loan from a commercial bank which does not have any equity feature (other than
warrants to acquire that number of shares of Common Stock at an aggregate
exercise price which is less than 10% of the amount of such loan), (ii) any
transaction involving the Company's issuances of securities (A) as
consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or (C) as consideration for the acquisition of a
business, product, license or other assets by the Company, (iii) the issuance
of Common Stock in a firm commitment, underwritten public offering, (iv) 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
hereafter issued pursuant to clause (v) below, (v) the grant of additional
options or warrants, or the issuance of additional securities, (A) under any
Company stock option plan, restricted stock plan or stock purchase plan for
the benefit of the Company's employees or directors or (B) in connection with
services rendered
-14-
to the Company by accountants, attorneys or consultants. The Investors shall
not be required to participate or exercise their right of first refusal with
respect to a particular Future Offering in order to exercise their right of
first refusal with respect to later Future Offerings.
g. Listing. The Company shall promptly secure the listing of
all of the Conversion Shares upon each national securities exchange and
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable under the terms of the
Transaction Documents and the Amended Certificate. The Company shall maintain
the Common Stock's authorization for quotation on the Nasdaq National Market,
The New York Stock Exchange, Inc. or The American Stock Exchange, Inc.
(collectively, the "Principal Market"). Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall promptly, and in no event later than the following
business day, provide to each Investor copies of any notices it receives from
the Principal Market regarding the continued eligibility of the Common Stock
for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(g).
h. Expenses. Subject to Section 9(l) below, at the Closing,
the Company shall pay a nonaccountable expense allowance of $20,000 to the
Investors or their designee(s).
i. Filing of Form 8-K. On or before the first (1st) business
day following the Closing Date, the Company shall file a Form 8-K with the SEC
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act.
j. Transactions With Affiliates. So long as (i) any shares
of Series E Preferred Stock are outstanding or (ii) any Investor owns
Conversion Shares with a market value equal to or greater than $500,000, the
Company shall not, and shall cause each of its Subsidiaries not to, enter
into, amend, modify or supplement, or permit any Subsidiary to enter into,
amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any Subsidiary's officers, directors, persons
who were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or
affiliates or with any individual related by blood, marriage or adoption to
any such individual or with any entity in which any such entity or individual
owns a 5% or more beneficial interest (each a "Related Party"), except for (a)
customary employment arrangements and benefit programs on reasonable terms,
(b) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested
-15-
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or entity,
(ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. "Control" or "controls" for purposes hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
k. Capital and Surplus; Special Reserves. The Company agrees
that the stated capital of the Company (as such term is used in Section 506 of
the NYBCL) in respect of the Series E Preferred Stock shall be equal to the
aggregate par value of such shares of Series E Preferred Stock. Except in
connection with the initial issuance of securities after the date hereof, the
Company shall not increase its stated capital with respect to any shares of
the Company's capital stock at anytime on or after the date of this Agreement.
The amount to be represented in the capital account for the Series E Preferred
Stock at all times for each outstanding share of Series E Preferred Stock
shall be an amount equal to the product of (i) the Liquidation Preference (as
defined in the Amended Certificate) and (ii) 125%.
l. Stockholder Approval. The Company has provided each
stockholder entitled to vote at the next meeting of stockholders of the
Company, to be held December 17, 1999, a proxy statement, soliciting each such
stockholder's affirmative vote at such annual stockholder meeting for approval
of the Company's issuance of all of the Common Stock issuable upon conversion
of the Series C Preferred Stock, including the Restructuring Shares (the
"December Proposal"), and the Company shall use its best efforts to solicit
its stockholders' approval of the December Proposal and cause the Board of
Directors of the Company to recommend to the stockholders that they approve
the December Proposal. The Company represents that as of the closing date
which related to the issuance of the Preferred Shares, (i) 18,215,683 shares
of Common Stock were outstanding, (ii) the maximum aggregate numbers of shares
of Common Stock issuable upon conversion of the Series E Preferred Stock is
1,200,000, (iii) as of the date hereof, 1,974,961 shares have been issued in
respect of the Preferred Shares since the date of issuance of the Preferred
Shares and (iv) Nasdaq Rule 4460 permits issuers to issue securities having
voting power of up to 19.99% of its common stock prior to such issuance
without stockholder approval. The Company further represents that no further
stockholder approval is required, pursuant to Nasdaq Rule 4460 or otherwise,
for the issuance of all of the Securities as described in this Agreement;
provided, however, that in the event the parties hereto subsequently determine
that further stockholder approval is required to effect the transactions
contemplated herein, the Company's obligation to obtain such stockholder
approval would be satisfied by the approval of the December Proposal.
-16-
m. Rule 144. The Company shall not, directly or indirectly,
dispute or otherwise interfere with any claim by a holder of Series E
Preferred Stock that such holder's holding period of any Security for purposes
of Rule 144 promulgated under the 1933 Act (or a successor rule thereto)
("Rule 144") relates back (i.e., tacks) to the holding period for the
Preferred Shares. The Company acknowledges and agrees that under Rule 144 and
noaction letters issued by the SEC, such tacking is permitted.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Investor or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by each
Investor to the Company upon conversion of the Series E Preferred Stock (the
"Irrevocable Transfer Agent Instructions"). The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5 will be given by the Company to its transfer agent and that
the Securities shall be freely transferable on the books and records of the
Company and such Securities shall not bear any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Investors 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 5, that the Investors shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond
or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO CONSUMMATE
THE RESTRUCTURING.
The obligation hereunder of the Company to consummate the
Restructuring as contemplated hereby is subject to the satisfaction, at or
before the Closing, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Investor with prior
written notice thereof:
a. Such Investor shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
b. The Amended Certificate shall have been filed with the
Secretary of State of the State of New York.
c. Such Investor shall have delivered to the Company (i)
certificates representing all of the Preferred Shares owned by such Investor
as of the date of Closing
-17-
and (ii) a Notice of Conversion for the Restructuring Shares in accordance
with the terms of the Preferred Shares.
d. The representations and warranties of such Investor 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 such Investor 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 such Investor at or prior to the Closing.
e. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or its securities which prohibits or
adversely affects any of the transactions contemplated by this Agreement, nor
shall any proceeding have been commenced which may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
7. CONDITIONS TO EACH INVESTOR'S OBLIGATION TO
CONSUMMATE THE RESTRUCTURING.
The obligation of each Investor to consummate the
Restructuring as contemplated hereby is subject to the satisfaction, at or
before the Closing, of each of the following conditions, provided that these
conditions are for each Investor's sole benefit and may be waived by such
Investor at any time in its sole discretion by providing the Company with
prior written notice thereof:
a. The Company shall have executed each of the Transaction
Documents and delivered the same to such Investor.
b. The Amended Certificate, shall have been duly filed with
the Secretary of State of the State of New York, and a copy thereof certified
by such Secretary of State shall have been delivered to such Investor.
c. The Common Stock shall be authorized for quotation on the
Principal Market, trading in the Common Stock shall not have been suspended by
the SEC or the Principal Market and the Conversion Shares shall be listed upon
the Principal Market.
d. The representations and warranties of the Company shall
be true and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) 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 Company shall have
-18-
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Investor shall have received a certificate, executed by the
Chief Executive Officer 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 Investor including, without limitation, an update as of the Closing
Date regarding the representation contained in Section 3(c) above, in the form
attached hereto as Exhibit B.
e. Such Investor shall have received the opinion of the
Company's counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to such Investor and in substantially the form of
Exhibit C attached hereto.
f. The Company shall have (i) (A) paid to the Investors, by
wire transfer of immediately available funds, the Redemption Amount, (B)
executed and delivered to such Investor the certificates representing the
Series E Preferred Stock (in such certificate denominations as such Investor
shall request and in the name of such Investor or its designee) and (C) duly
authorized, validly issued and delivered to such Investor the certificates for
the Restructuring Shares, each in the amounts set forth on the Schedule of
Investors, subject in each case to reduction as provided in Section 9(q), and
(ii) paid to the Investors, or its designee(s), by wire transfer of
immediately available funds, the amount provided for in Section 4(h) hereof.
g. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Investor.
h. The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
i. The Company shall have delivered to such Investor a
certificate evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days
of the Closing Date.
j. As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the shares of Series E Preferred Stock, at least
1,200,000 shares of Common Stock.
k. The Company shall have delivered to such Investor a
certified copy of the Certificate of Incorporation, as certified by the
Secretary of State of the State of New York within ten days of the Closing
Date.
-19-
l. The Company shall have delivered to such Investor a
secretary's certificate, dated as the Closing Date, as to (i) the resolutions
described in Section 7(g), (ii) the Certificate of Incorporation, and (iii)
the Bylaws, each as in effect at the Closing.
m. The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.
n. The Company shall have delivered to such Investor such
other documents relating to the transactions contemplated by this Agreement as
such Investor or its counsel may reasonably request.
o. 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 or adversely affects any of the transactions contemplated by this
Agreement, nor shall any proceeding have been commenced which may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
8. INDEMNIFICATION. In consideration of each Investor's execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents and the Amended Certificate, the Company shall defend,
protect, indemnify and hold harmless each Investor and each other holder of
the Securities and all of their stockholders, officers, directors, employees
and direct or indirect investors and any of the foregoing person's agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnities") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any
such Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or the Amended Certificate or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or the Amended Certificate or any
other certificate, instrument or document contemplated hereby or thereby, (d)
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (e) the
status of such Investor or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company
-20-
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate
laws of the State of New York shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York.
Each party hereby irrevocably submits to the non-exclusive jurisdiction of the
state and federal courts sitting in the City of New York, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or
more identical 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; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
-21-
e. Entire Agreement; Amendments. This Agreement supersedes
all other prior oral or written agreements between the Investors, the Company,
their affiliates and persons acting on their behalf with respect to the
matters discussed herein, including, without limitation, the Letter Agreement,
and 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 any Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and
the holders of at least two-thirds (2/3) of the shares of Series E Preferred
Stock then outstanding, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
No such amendment shall be effective to the extent that it applies to less
than all of the holders of the shares of Series E Preferred Stock then
outstanding. No consideration shall be offered or paid to any person to amend
or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Amended Certificate unless the same consideration
also is offered to all of the parties to the Transaction Documents or holders
of shares of Series E Preferred Stock, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
AMBI Inc.
0 Xxxxxxxxxxxxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: President
-22-
With a copy to:
Law Offices of Xxxxx Xxxxxx
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxx Xxxxxx, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Co.
0000 00xx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxxxxx Xxxxxx, Esq.
If to an Investor, to it at the address and facsimile number set forth on the
Schedule of Investors, with copies to such Investor's representatives as set
forth on the Schedule of Investors, or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the
first page of such transmission or (C) provided by a nationally recognized
overnight delivery service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors
and assigns, including any purchasers of the shares of Series E Preferred
Stock. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at
least two-thirds (2/3) of the shares of Series E Preferred Stock then
outstanding, including by merger or consolidation, except pursuant to a Major
Transaction (as defined in Section 3(c) of the Amended Certificate) with
respect to which the Company is in compliance with Section 3 of the Amended
Certificate. An Investor may assign some or all of its rights hereunder
without the consent of the Company, provided, however, that any such
assignment shall not release such Investor from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Investors shall be
entitled to pledge the Securities in connection with a bona fide margin
account.
-23-
h. No 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. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the
Investors contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing. Each Investor shall be responsible only
for its own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Investor shall have the
right to approve before issuance any press releases 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 any
Investor, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although
each Investor shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release and shall be
provided with a copy thereof).
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. Termination. In the event that the Closing shall not have
occurred on or before five (5) business days from the date hereof due to the
Company's or the Investors' failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this
Section 9(l), the Company shall remain obligated to reimburse the nonbreaching
Investors for the expenses described in Section 4(h) above.
m. Placement Agent. The Company acknowledges that it has not
engaged a placement agent in connection with the Restructuring. The Company
shall be responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Investor harmless against, any
liability, loss or expense (including, without limitation, attorneys' fees and
out of pocket expenses) arising in connection with any such claim.
-24-
n. 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.
o. Remedies. Each Investor and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Amended Certificate and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investors hereunder or pursuant to the Amended
Certificate or the Investors enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
q. Pre-Closing Conversions. In the event that any of the
Investors converts any of the Preferred Shares into shares of Common Stock
prior to the Closing Date, such Investor's Pro Rata Allocation of each of (i)
the Redemption Amount, (ii) the shares of Series E Preferred Stock and (iii)
the Restructuring Shares shall be reduced by an amount, expressed as a
percentage, equal to a fraction, the numerator of which is (A) the number of
Preferred Shares set forth opposite such Investor's name on the Schedule of
Investors less the number of Preferred Shares held by such Investor as of the
Closing Date, and (B) the denominator of which is the number of Preferred
Shares set forth opposite such Investor's name on the Schedule of Investors.
* * * * * *
-25-
IN WITNESS WHEREOF, the Investors and the Company have caused this
Exchange and Redemption Agreement to be duly executed as of the date first
written above.
COMPANY: INVESTORS:
AMBI INC. NP PARTNERS (formerly known as
Xxxxxx Partners)
By: By:
--------------------------------- ---------------------------------
Name: Xxxxxxx X. Xxxxx Name: Xxxxxxx X. Simpler
Its: Chief Executive Officer Its: Authorized Signatory
OLYMPUS SECURITIES, LTD.
By:
---------------------------------
Name: Xxxxxxx X. Simpler
Its: Authorized Signatory
SCHEDULE OF INVESTORS
Number Investor's Legal
Investor Address of Representatives'
and Facsimile Number Preferred Address and
Investor's Name and Wire Transfer Instructions Shares Restructuring Consideration Facsimile Number
------------------------ ------------------------------ --------- ------------------------------------ -----------------------
Redemption Shares of Restructuring
Amount Series E Shares
Preferred
Stock
---------- --------- -------------
NP Partners c/o Citadel Investment Group, 166 $747,748 1,122 242,785 Xxxxxx Xxxxxx & Zavis
(formerly known Inc. 000 X. Xxxxxx Xxxxxx
as Xxxxxx Partners) 000 Xxxx Xxxxxxxxxx Xxxxxx Xxxxxxx, Xxxxxxxx
Xxxxxxx, Xxxxxxxx 00000 60661-3693
Attention: Xxxxxxx X. Simpler Attention:
Facsimile: (000) 000-0000 Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Illinois Telephone: (000) 000-0000
Bank: First Chicago NBD
SWIFT Code: FNBC US 44
ABA NO: 0710.0001.3
Account Number: 51.24514
Olympus Securities, Ltd. c/o Citadel Investment Group, 56 $252,252 378 81,904 Xxxxxx Xxxxxx & Xxxxx
L.L.C. 000 X. Xxxxxx Xxxxxx
000 Xxxx Xxxxxxxxxx Xxxxxx Xxxxxxx, Xxxxxxxx
Xxxxxxx, Xxxxxxxx 00000 60661-3693
Attention: Xxxxxxx X. Simpler Attention:
Facsimile: (000) 000-0000 Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000 Facsimile: (000) 000-0000
Residence: Illinois Telephone: (000) 000-0000
Bank: First Chicago NBD
SWIFT Code: FNBC US 44
ABA NO: 0710.0001.3
Account Number: 51.40131
