EXHIBIT 10.5
This Modification Agreement (the "Modification Agreement"), dated as of
May 28, 1997, is entered into by and between ________________ ("Purchaser") and
Consolidated Eco-Systems, Inc. (formerly known as Exsorbet Industries, Inc.), an
Idaho corporation (the "Company").
WHEREAS, the parties hereto have heretofore entered into a Securities
Purchase Agreement, dated as of _____________ (the "Purchase Agreement")
pursuant to which the Purchaser acquired ______________, principal amount, of
convertible debentures (the "Original Debentures") from the Company; and
WHEREAS, simultaneously with the execution of the Purchase Agreement, the
parties hereto entered into a Registration Rights Agreement (the "Registration
Rights Agreement") which, inter alia, contains a liquidated damages provision
applicable in the event that a Registration Statement covering the shares of
Common Stock of the Company into which the Original Debentures are convertible
(the "Underlying Shares") shall not have been declared effective by the
Securities and Exchange Commission within sixty (60) days after the closing date
of the Original Debentures (the "Liquidated Damages Event"); and
WHEREAS, notwithstanding the occurrence of the Liquidated Damages Event,
the Purchaser has agreed, in lieu of seeking such Liquidated Damages and in full
satisfaction of any such claim, to enter into this Modification Agreement.
NOW, THEREFORE, in consideration of the agreements and mutual covenants
hereinafter set forth and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Exchange of Original Debentures. Simultaneously with the execution and
delivery of this Modification Agreement, and subject to the terms and
conditions, set forth herein, the Purchaser is herewith delivering the Original
Debentures acquired by it pursuant to the Original Purchase Agreement (the
"Purchaser's Original Debentures") and the Company is herewith delivering to the
Purchaser in exchange therefor: (a) a Debenture in the form of Exhibit A hereto
in the principal amount of $__________ (the "New Debenture A"); and (b) a
Debenture in the form of Exhibit B hereto in the principal amount of
$___________ (the "New Debenture B").
2. Closing. The closing of the transaction described in Section 1 hereof
is taking place simultaneously with the execution of this Modification Agreement
at the
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offices of Morse, Zelnick, Rose & Lander LLP, 000 Xxxx Xxxxxx, Xxxxx 000, Xxx
Xxxx, Xxx Xxxx 00000 or at such other date, time and place as the Purchaser and
the Company may agree upon in writing (such the actual time and date on which
the closing takes place, the "Closing Date"). The duly executed New Debenture A
and New Debenture B, in the amounts described in Section 1 hereof, to be
delivered to the Purchaser shall be delivered by, or on behalf of, the Company
at the closing, against delivery of the Purchaser's Original Debentures.
3. Covenants of the Company.
(a) Price Guarantee. The Purchaser shall have the right, upon
written demand made on or before January 15, 1998, to receive from the Company
with respect to the Underlying Shares sold by it on or before December 31, 1997,
the amount, if any, derived by subtracting: (a) the aggregate gross amounts
actually realized, or which would, if Purchaser had used commercially reasonable
efforts in the making of such dispositions have been realized, by the Purchaser
from the disposition in ordinary market transactions, on or before December 31,
1997, of the Underlying Shares from (b) 125% of the amounts actually advanced by
the Purchaser to the Company in payment for the Original Debentures. Such amount
shall be paid to the Purchaser in immediately available funds, provided,
however, that the making of such payment shall be conditioned upon the
Purchaser's furnishing to the Company, on or before January 15, 1998,
documentation evidencing, with respect to each transaction effecting a
disposition of any of the Underlying Shares, the amounts received by the
Purchaser, the manner of disposition and any reasonable collateral information
which Purchaser believes relevant to demonstrating the use by him of
commercially reasonable efforts in the making of such disposition. Payment shall
be conditioned upon receipt by the Company of any: (x) debentures not previously
converted by the Purchaser and (y) Underlying Shares not previously sold by the
Purchaser. Purchaser's rights pursuant to this Section 3(a) shall be deemed
waived if the Company does not receive, on a timely basis, the written demand,
documentation or securities provided for in this Section 3(a). Any issues
regarding whether or not commercially reasonable efforts had been used by the
Purchaser in making any such dispositions shall be determined by X.X. Xxxxxx &
Co., Inc. ("HJM") whose determination in such regard shall be final and
non-appealable to any tribunal. The failure by HJM to make such determination,
for any reason whatsoever other than the failure by the Purchaser to submit its
documentation on a timely basis, on or before January 15, 1998 shall be deemed
to be a determination that commercially reasonable efforts had been used by the
Purchaser in the making of all dispositions of its Underlying Shares.
(b) Registration Restrictions. In consideration of the release given
by the Purchaser in Section 4 hereof, the Company agrees that it will not: (i)
file a registration statement covering shares of its Common Stock, other than
the Shares of
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Common Stock of the Company owned or issuable to all purchasers of the Original
Debentures and the other shares of Common Stock of the Company currently covered
by the Registration Statement on Form S-3 heretofore filed with the Securities
and Exchange Commission (File No. 333-23087) (the "Other Shares"), prior to the
one hundred and first (101st) day from the date hereof, or (ii) permit a
registration statement covering such Other Shares to become effective prior to
the one hundred and thirty-first (131st) day from the date hereof; provided,
however, that the foregoing shall not be construed to limit the Company from
fulfilling any obligation which is outstanding on the date hereof to register
its securities.
(c) Right of First Refusal. The Purchaser, together with all other
purchasers of the Original Debentures (the "Optionees"), shall have a
three-business day right of first refusal, on a pro rata basis with all other
electing Optionees, to participate in all, but not less than all, of any private
placement consummated by the Company on or before the first anniversary of this
Modification Agreement. In order to implement the provisions of this paragraph,
the Company agrees to give written notice to the Optionees of its desire to
raise capital through the issuance of its debt or equity securities in a private
placement (the "Offer Notice"). Such Notice shall set forth the amount which the
Company desires to obtain through such financing, the type of security (debt or
equity) and if debt, the date of maturity, the interest rate and other material
terms then under consideration by the Company (such as redemption, conversion
and registration rights, if applicable). Each of the Optionees may elect, by
giving written notice (the "Election Notice") to the Company, no more than three
(3) business days following its receipt of the Offer Notice, to participate in
such financing, it being understood that the giving of an Election Notice shall
constitute an irrevocable agreement by each such electing Optionee to finance
the entire private placement in the event that there are no other electing
Optionees. If more than one Optionee elects to so participate, then all electing
Optionees shall have the right to participate on a pro rata basis, determined by
applying a fraction to the amount of the proposed private placement, the
numerator of which is the principal amount of Original Debentures owned by each
such Optionee and the denominator of which is the aggregate amount of Original
Debentures originally purchased by all such electing Optionees. The Company
shall promptly advise each electing Optionee of the identity of any other
electing Optionees. The closing of any such financing shall take place within
five (5) days following timely receipt by the Company of the Election Notice(s).
The Purchaser agrees that this paragraph shall be interpreted so as not to
create any obstructions to the Company's ability to obtain financing. Without
limiting the generality of the foregoing, the Purchaser agrees that, prior to
the closing of any private placement to which this paragraph relates, the giving
of Notice is the Company's only obligation under this paragraph and,
accordingly, the Company shall have no obligation to advise the Optionees of any
change in terms of the financing or the security to be issued thereunder.
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4. Release of Claims by Purchaser. In consideration of the exchange of
debentures provided for in Section 1 hereof, the price guaranty provided for in
Section 3(a) hereof and other good and valuable consideration the receipt and
sufficiency whereof is hereby acknowledged by the Purchaser, and provided that
the Company complies with its obligations set forth in Section 3(a) and (b)
hereof, the Purchaser, on behalf of himself and any partners, known or unknown,
and his heirs, executors, administrators, successors and assigns (collectively,
the "Releasor"), hereby unconditionally, irrevocably and forever releases and
discharges the Company and its officers, directors, employees, agents and
representatives and their respective, as applicable, heirs, executors,
administrators, successors and assigns (collectively, the "Releasees") from any
and all actions, causes of action, claims, suits, liability, indebtedness,
covenant, contracts, controversies, agreements, promises, damages and demands
whatsoever, in law or equity, which the Releasor ever had, now has or hereafter
can, shall or may, have against the Releasees for, upon or by reason of any
matter, cause or thing whatsoever through the date hereof (the "Release
Period"). Without in any way limiting the generality of the foregoing release,
the Releasor unconditionally, irrevocably and forever releases all claims which
it might otherwise have had or which, through the Release Period, it might
otherwise have had for liquidated damages pursuant to the Registration Rights
Agreement.
5. Fees and Expenses. Each of the Purchaser and the Company agrees to pay
its own expenses incident to the performance of its obligations hereunder,
including, but not limited to, the fees, expenses and disbursements of such
party's counsel.
6. Current Company Information. The Purchaser acknowledges receipt of a
copy of the Company's Form 10-K and Form 10-K/A for its fiscal year ended
December 31, 1996 and a copy of the Company's Form 10-Q for the quarter ended
March 31, 1997. The Purchaser covenants that it has reviewed the same.
7. Survival of Purchase Agreement. The respective agreements,
representations, warranties, indemnities and other statements made by or on
behalf of the Company and the Purchaser, respectively, pursuant to the Purchase
Agreement which are not inconsistent or in conflict with any of the terms and
provisions of this Modification Agreement shall remain in full force and effect.
Without limiting the generality of the foregoing, the parties agree (a) with
respect to the representations and warranties of the Purchaser set forth in
Section 3, and the representations and warranties of the Company set forth in
Section 4: (i) all such representations and warranties shall be deemed to have
been made on and as of the date hereof rather than on and as of the date of said
Purchase Agreement; (ii) the year "1995" set forth in paragraph (n) of Section 4
is hereby amended to read "1996"; and (iii) the year "1995"
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set forth in paragraph (o) of Section 4 is hereby amended to read "1997"; and
(b) Sections 6 and 7 (providing for conditions precedent) are deleted.
8. Survival of Registration Rights Agreement. The respective agreements,
representations, warranties, indemnities and other statements made by or on
behalf of the Company and the Purchaser, respectively, pursuant to the
Registration Rights Agreement which are not inconsistent or in conflict with any
of the terms and provisions of this Modification Agreement shall remain in full
force and effect except that: (a) the sixty (60) day period provided for in
Section 2(b) of said agreement is hereby amended to provide, in its place and
stead, for a ten (10) business day period; (b) the portion of Section 3(a) which
precedes "(i)" is hereby amended to read as follows: "The Company shall use its
best efforts to cause the Registration Statement heretofore filed by the Company
on Form S-3 (File No. 333-23087) to be declared effective by the Securities and
Exchange Commission within ten (10) business days from the date of the
Modification Agreement and to keep such Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of..."and
(c) references in the Registration Rights Agreement to the Securities Purchase
Agreement, to the extent warranted by the context thereof and the intent hereof,
shall be deemed changed to Modification Agreement.
9. Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given if delivered personally
or by facsimile transmission, and confirmed, or mailed postage prepaid to the
parties at the address or facsimile number set forth in Section 8 of the
Purchase Agreement with an additional copy thereof to Morse, Zelnick, Rose &
Lander LLP, 000 Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxx, X.X. 00000, Attn: Xxxxxxx X.
Xxxx, Esq. All such notices, requests and other communications shall be deemed
given at the time set forth in such section.
10. Third Party Beneficiary. The provisions of Section 3(a) of this
Modification Agreement shall not be deemed to confer any rights upon anyone
other than the parties hereto.
11. Miscellaneous.
(a) This Modification Agreement may be executed in one or more
counterparts and it is not necessary that signatures of all parties appear on
the same counterpart, but such counterparts together shall constitute but one
and the same agreement.
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(b) This Modification Agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective successors and permitted
assigns other than as provided in Section 8 hereof.
(c) This Modification Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York (without giving effect to
conflicts of laws principles). With respect to any suit, action or proceedings
relating to this Agreement, each of the Company and the Purchaser irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan in the City
of New York and hereby waives to the fullest extent permitted by applicable law
any claim that any such suit, action or proceeding has been brought in an
inconvenient forum. Subject to applicable law, the Company agrees that final
judgment against it in any legal action or proceeding arising out of or relating
to this Agreement or the Original or Exchanged Debentures shall be conclusive
and may be enforced in any other jurisdiction within or outside the United
States by suit on the judgment, a certified copy of which judgment shall be
conclusive evidence thereof and the amount of its indebtedness, or by such other
means provided by law.
(d) The headings of the sections of this document have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Modification Agreement.
(e) The provisions of this Modification Agreement are severable, and
if any clause or provision shall be held invalid, illegal or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect in that jurisdiction only such clause or provision, or part
thereof, and shall not in any manner affect such clause or provision in any
other jurisdiction or any other clause or provision of this Agreement in any
jurisdiction.
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(f) This Modification Agreement, including the exhibits hereto,
constitutes the sole and entire agreement of the parties with respect to the
subject matter hereof except for provisions of the Purchase Agreement and
Registration Rights Agreement which are not inconsistent or in conflict with the
provisions hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer(s) of each party hereto as of the date first above
written.
PURCHASER
By:
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Title:
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CONSOLIDATED ECO-SYSTEMS, INC.
By:
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Title: President, Chief Executive Officer
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EXHIBIT A
NEW DEBENTURE A
[Exhibit intentionally omitted]
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XXXXXXX X
XXX XXXXXXXXX X
[Exhibit intentionally omitted]
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