EXHIBIT 4.1
CECO ENVIRONMENTAL CORP.
SUBSCRIPTION AGREEMENT
December 31, 2001
Ceco Environmental Corp.
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxx Xxxxxx
MSG 1X3
Gentlemen:
SUBSCRIPTION
The undersigned Purchasers (collectively, the "Purchasers") hereby offer
and agree to purchase the units (the "Units") comprised of shares of common
stock (the "Shares") and warrants to purchase Shares (the "Warrants") to be
issued by Ceco Environmental Corp., a New York corporation (the "Company") (the
"Offering"). The Purchasers shall submit their checks payable to "Ceco
Environmental Corp." for the Units subscribed for in accordance with Schedule A.
OFFERING AND SALE OF UNITS
The purchase price of the Units offered by the Company has been determined
unilaterally by the Company and is not the result of arm's-length negotiations.
The Offering is being made for $2,000,000 to $3,000,000 of Units, at the
election of the Purchasers. The Company shall issue Warrants initially
exercisable for 1/2 Share for each Share issued at the time of the initial
issuance of Shares. All subscription amounts will be available immediately to
the Company.
The Company shall have no obligation to issue in excess of 1,772,576 Shares
(such number being 19.9% of the outstanding shares of the Company prior to the
issuance of the Shares) to the Purchasers in the aggregate until shareholder
approval for the issuance of the Shares and the Shares issuable on exercise of
the Warrants ("Warrant Shares") in excess of 1,772,576 Shares is received in
accordance with NASD rules and regulations. If, prior to the filing of the
Schedule 14A described below, Introtech Investments, Inc. ("Introtech"), Can-Med
Technology, Inc. (d/b/a Green Diamond Oil Corp.) ("Green Diamond"), Icarus
Investment Corp. ("Icarus"), Xxxxxxx XxXxxxxx, Crestview Capital Fund, L.P.
("Crestview") and any five of the Purchasers who are purchasing Units in the
aggregate own stock entitling them to cast a majority of the votes necessary to
approve any shareholder actions, then the Company will: (a) promptly (but not
later than 45 days) following the notification of the ownership by such persons
of such Shares, prepare in proper form and file with the SEC an information
statement on Schedule 14C ("Information Statement") and circulate such statement
to the Company's shareholders. If the above referenced 10 shareholders of the
Company do not own more than 50% of the stock of the Company, then the Company
will no later than November 1, 2002, prepare in proper form and file with the
SEC a proxy statement on Schedule 14A (a "Proxy Statement") for use in
soliciting proxies for the approval by the shareholders of the Company, (b) duly
call, give notice of and convene a meeting of its shareholders, as soon as
practicable, but not later than 20 days after the Proxy Statement is cleared by
the SEC, for purposes of obtaining shareholder approval of such Shareholder
Proposal, and (c) have the Proxy Statement cleared by the SEC and obtain such
shareholder approval. The term "Shareholder Proposal" shall mean the proposal to
approve the issuance of Shares and Warrant Shares in excess of 1,772,576 shares
in the aggregate. The Company agrees that it shall recommend that the Company's
shareholders vote in favor of the Shareholder Proposal. Each of Xxxxxxx
XxXxxxxx, Green Diamond, Introtech, Icarus, and each of the Purchasers agrees to
vote in favor of such proposal at the shareholder meeting, or prior to the
circulation of the Information Statement, in a Written Consent executed by such
persons approving the Shareholder Proposal. Company agrees that it will not
issue any shares prior to the time that shareholder approval of the Shareholder
Proposal is obtained unless such purchasing shareholder agrees to vote in favor
of the Shareholder Proposal; provided, however, that this limitation shall not
apply to shares issued upon exercise of outstanding options or warrants or any
shares to be issued or on exercise of options issued under the Company's 1997
Stock Option Plan or 1999 Employee Stock Purchase Plan or up to an additional
250,000 shares regardless of to whom issued.
1
If Company circulates an Information Statement as described above, then
Crestview shall be obligated to reimburse Company for one-half of the actual,
documented, out of pocket costs of preparing, filing and circulating the
Information Statement (including but not limited to SEC filing fees and
reasonable legal fees).
This issuance of Units shall close as soon as possible (the "Closing
Date"), but not later than December 31, 2001.
In the event that there is a limit on the number of Shares that may be
issued under Article IV or on exercise of a Warrant due to the fact that the
Company's shareholders have not yet approved the Shareholder Proposal, such
limit shall be applied to each Purchaser on a pro rata basis based on the number
of Units purchased by such Purchaser. Company shall issue any of such Shares as
soon as practicable following the approval of the Shareholder Proposal.
PURCHASE PRICE
The per Unit purchase price will be $3.00.
The exercise price for each warrant issued hereunder shall be $3.60 per
Warrant Share. The exercise price shall be subject to adjustment as specified in
the Warrants.
ADDITIONAL SHARE ISSUANCE
If the Company's EBITDA for its 2002 fiscal year is less than $7,800,000
(as determined in accordance with GAAP (except that adjustments to earnings
attributable to the issuance of the Warrants or any options/warrants issued to
The Shemano Group shall not be taken into account), without any "pro forma
adjustments" and as indicated on the Company's Form 10-K, including any
amendment thereto), then the Company shall issue a number of Shares to each
Purchaser equal to 1.5% of the initial number of Shares issued to such Purchaser
for every $100,000 under $7,800,000 that the Company's EBITDA is. For instance,
if the Company's EBITDA is $7,550,000 for fiscal 2002 and a Purchaser initially
received 100,000 Shares, then the Company would be required to issue an
additional 3750 Shares to such Purchaser at no additional cost to such
Purchaser.
2
With respect to each Purchaser, if and whenever on or after the date of
this Agreement until the earlier to occur of: a) the date 2 years after the Form
S-1 described in Schedule B is determined effective by the SEC and b) the date
90% of the Shares received by any Purchaser on the Closing Date are no longer
held by such Purchaser, the Company issues, sells or grants shares of Common
Stock, or is deemed to have issued, sold or granted shares of Common Stock for
consideration per share less than the Purchase Price (the "Dilutive Price") in
effect immediately prior to the time of such issuance or sale (a "Dilutive
Event"), then forthwith upon the occurrence of any such Dilutive Event the
Purchase Price shall be reduced so that the Purchase Price in effect immediately
following the Dilutive Event will equal the Dilutive Price and: (a) the Company
shall within five (5) business days issue additional Shares to such Purchaser so
that such Purchaser will hold the same number of Shares it would have been
issued, solely with respect to Shares held on the date of the Dilutive Event,
had the Purchase Price in Article II equalled the Dilutive Price; provided,
however, that shares of Common Stock issued for consideration per share less
than the Conversion Price in connection with the following shall not be deemed a
Dilutive Event and will not trigger an adjustment to the Conversion Price as
provided in Article IV hereof: (i) the exercise of warrants and options
outstanding on the date of this Agreement, (ii) the issuance of options or
warrants or the receipt of Shares on exercise of such options or warrants with
respect to employees and officers of the Company or its subsidiaries pursuant to
the Company's 1997 Stock Option Plan or the 1999 Employee Stock Purchase Plan
(other than shares to be issued to Affiliates of the Company), (iii) the
issuance of warrants or options and the receipt of Stock on exercise of such
warrants or options with respect to directors of the Company and up to 250,000
options to be issued to consultants of the Company, (iv) reincorporation of the
Company in Delaware, (v) Warrants issued in connection with this Agreement; or
(vi) any acquisition, merger, bank financing or lending transaction approved by
the Company's Board of Directors provided that no party to such transaction is
an Affiliate of the Company. For purposes of this Agreement and the Warrants to
be issued hereunder, an "Affiliate" of the Company shall be a person who
controls, is controlled by or under common control with the Company.
Issuance and Sale of Shares of Common Stock. For purposes of determining
the adjusted Purchase Price pursuant to Section IV(2) above, the following
events shall be deemed to be an issuance and sale of shares of Common Stock by
the Company:
(a) Issuance of Rights or Options. If (i) the Company, in any manner,
hereafter grants any rights or options to subscribe for, or to purchase,
shares of Common Stock, or any securities convertible into or exchangeable
for any shares of Common Stock (such rights or options referred to herein
as "Options" and such convertible or exchangeable securities referred to
herein as "Convertible Securities") and (ii) the price per share of Common
Stock issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Purchase Price in
effect immediately prior to the time of the granting of such Options, then
the shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of such Convertible Securities will be deemed
to have been issued and sold by the Company for such lesser price per
share. For the purposes of this Section IV(3)(a), the "price per share" is
determined by dividing (i) the total amount, if any, received by the
Company as consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company upon
exercise of all such Options, plus in the case of such Options which relate
to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of
such Convertible Securities and the conversion or exchange thereof by (ii)
the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options (without
taking into account potential anti-dilution language in the terms of such).
No further adjustment of the Conversion Price will be made when Convertible
Securities are actually issued upon the exercise of such Options or when
shares of Common Stock are actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
3
(b) Calculation of Consideration Received. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor or
the Price Per Share, as the case may be, will be deemed to be the net
amount received or to be received, respectively, by the Company therefor.
In case any Shares, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the consideration other
than cash received by the Company or the non-cash portion of the Price Per
Share, as the case may be, will be the fair market value of such
consideration received or to be received, respectively, by the Company. If
any Shares, Options or Convertible Securities are issued in connection with
any merger in which the Company is the surviving Company, the amount of
consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving Company as is
attributable to such Shares, Options or Convertible Securities, as the case
may be. The fair value of any consideration other than cash and marketable
securities will be determined by the Company.
(c) Integrated Transactions. In case any Option is issued in
connection with the issuance or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the
Option will be deemed to have been issued for a consideration of $.01.
Additional Shares. Shares issuable under Section IV(1) or IV(2) are
referred to as "Additional Shares".
4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
Each of the undersigned Purchasers, separately and not jointly, makes the
following additional agreements, representations, declarations, acknowledgments
and warranties with the intent that the same may be relied upon in determining
its suitability as a purchaser of Units:
Such Purchaser agrees that; in the event his principal residence or its
principal place of business changes, he or it will promptly notify the Company.
Such Purchaser is an "accredited investor" as defined in Regulation D.
Such Purchaser has received, read, understands and is familiar with this
Subscription Agreement.
The Units subscribed for herein by such Purchaser will be acquired solely
by and for the account of such Purchaser, for investment, and are not being
purchased for subdivision, fractionalization, resale or distribution, such
Purchaser has no contract, undertaking, agreement or arrangement with any person
to sell, transfer or pledge all or any part of the Units for which such
Purchaser hereby subscribes, and such Purchaser has no present plans or
intentions to enter into any such contract undertaking or arrangement. In order
to induce the Company to issue and sell the Units subscribed for hereby to such
Purchaser, the undersigned agrees that the Company will have no obligation to
recognize the ownership, beneficial or otherwise, of such Units by anyone but
such Purchaser.
The undersigned acknowledges that he generally must hold the Units (and any
common stock issued on conversion of the Warrants) for a minimum period of one
year and may not sell, transfer, pledge or otherwise dispose of the Units
without registration under the Securities Act or the Laws unless an exemption
from registration is available. Further, such Purchaser shall provide, if the
Company so requires, an opinion of counsel, that the intended disposition will
not violate the Securities Act or the Laws or the rules and regulations of the
Securities and Exchange Commission or of any state securities commission
promulgated under such statutes.
None of the Units, Shares nor Warrants have been registered under the
Securities Act and cannot be sold or transferred without compliance with the
registration provisions of said Securities Act or compliance with exemptions, if
any, available thereunder.
Such Purchaser expressly represents that: (a) he has such knowledge and
experience in financial and business matters in general, and in investments in
shares of common stock and warrants, in particular, and that he is capable of
evaluating the merits, risks and other facets of the subject investment (b) his
financial condition is such that he has no need for liquidity with respect to
his investment in the Units to satisfy any existing or contemplated undertaking
or indebtedness; (c) he is able to bear the economic risk of his investment in
the Units for an indefinite period of time, including the risk of losing all of
his investment; (d) he has either secured independent tax advice with respect to
his investment in the Units, upon which he is relying, or he is sufficiently
familiar with the income taxation of corporations that he deemed such
independent advice to be unnecessary; (e) he has participated in other privately
placed investments and/or he has such knowledge and experience in business and
financial matters, has the capacity to protect his own interest in investments
like the subject investment, and is capable of evaluating the risks, merits and
other facets of the subject investment.
5
Such Purchaser was not induced to invest by any form of general
solicitation or general advertising including, but not limited to, the
following: (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over the
television or radio; and (ii) any seminar or meeting whose attendees had been
invited by any general solicitation or general advertising.
Purchaser has received and reviewed the Company's 2000 Form 10-KSB, the
latest proxy statement filed by the Company on Schedule 14A and the latest
quarterly report of the Company on Form 10-QSB (the "Offering Documents") and
the "Risk Factors" attached hereto. Such Purchaser expressly acknowledges that:
(a) the Units are a speculative investment that involve a high degree of risk of
loss of the entire investment of the undersigned in the Company; (b) no federal
or state agency has reviewed or passed upon the adequacy or accuracy of the
information set forth in the Offering Documents, or made any finding or
determination as to the fairness for investment, or any recommendation or
endorsement of the Units as an investment; (c) there will be no public market
for the Units and, accordingly, it may not be possible for the undersigned to
liquidate his investment in the Units; (d) the Units shall bear a legend
describing the restrictions on transfer; and (e) any anticipated federal and/or
state income tax benefits applicable to the Units may be lost through changes
in, or adverse interpretations of, existing laws and regulations. Such Purchaser
has relied only on such information contained in the Offering Documents and no
other information in determining whether to subscribe for Units.
All information that such Purchaser has provided concerning himself and his
financial condition is correct and complete as of the date set forth on the
subscription page hereof, and if there should be any material change in such
information prior to the acceptance of his subscription for the Units that he is
purchasing, he will immediately provide such information to the Company.
Such Purchaser acknowledges that an investment in the Company is risky and
that the undersigned has reviewed all of the risk factors set forth in the
Appendix hereto.
If the Purchaser is an entity, the Purchaser is duly organized, validly
existing and in good standing under the laws of its state of organization. The
Purchaser has all necessary power and authority to own its properties and to
consummate the transactions contemplated by this Agreement; this Agreement has
been duly authorized, executed and delivered on behalf of the Purchaser, and is
the valid and binding obligation of the Purchaser, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies; and the execution and performance of this Agreement by the
Purchaser will not violate or conflict with any existing agreement by which the
Purchaser is bound.
Crestview acknowledges that The Shemano Group will be receiving a 6%
placement fee and 3% warrant coverage with respect to amounts invested by
Crestview.
6
Each Purchaser grants to Crestview an irrevocable power of attorney to make
such changes, as Crestview determines in its sole discretion, as are necessary
and advisable so that the Agreement and the Warrant are in compliance with
NASDAQ rules and regulations in order to avoid delisting of the Company's common
stock by NASDAQ, provided that such changes, in the aggregate, do not (in the
determination of Crestview) have a materially adverse impact on such Purchaser's
investment in the Company.
Each Purchaser shall promptly supply such information as is reasonably
requested by the Company to prepare any Registration Statements for the Shares
and Warrant Shares.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
Organization and Good Standing. The Company has been duly incorporated and
is validly existing and in good standing under the laws of the State of New
York.
Authorization. The execution and delivery of this Agreement and Warrant,
and performance of the Company's obligations as set forth in this Agreement and
Warrant have been duly and validly authorized by all necessary corporate action,
and this Agreement and Warrant are legal and binding obligations of the Company,
enforceable in accordance with their terms.
Reservation of Common Stock. The Shares, Warrant Shares and the Additional
Shares have been duly reserved for issuance and when issued, will be validly
issued, fully paid and-non-assessable shares of Common Stock and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by the Company.
Non-Contravention. Neither the execution and delivery by the Company of
this Agreement and the Warrant, nor the consummation of any of the transactions
contemplated hereby or thereby nor compliance by the Company with or fulfillment
by it of the terms, conditions and provisions hereof or thereof will:
Conflict with, result in a breach of the terms, conditions or provisions of, or
constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights under, or result
in the creation or imposition of any lien, claim or encumbrance upon any of the
Company's assets, under (1) the charter or bylaws of the Company, (2) any
contract to which the Company is a party, (3) any court order to which the
Company is a party or by which the Company is bound, or (4) requirements of laws
affecting the Company or the Company's assets; all of which, taken together in
the aggregate, would have a material adverse effect in the Company, its
financial condition or prospects (a "Material Adverse Effect") or
Require the approval, consent, authorization or act of, or the making by the
Company of any declaration, filing or registration with, any person, other than
the filing of a Form D with the Securities Exchange Commission ("SEC"), the
filing with the SEC of the Form S-1, the filing with and approval of the SEC of
a Schedule 14A or 14C or similar form, NASDAQ, and applicable blue sky filings
and approvals.
7
Governmental Permits.
The Company owns, holds or possesses all licenses, franchises, permits
privileges, immunities, approvals and other authorizations from a governmental
body which are necessary to entitle it to own or lease, operate and use the
Company's assets and assets by the Company and to carry on and conduct its
business as conducted (herein collectively called "Governmental Permits") except
for such Governmental Permits as to which the failure to own, hold or possess
would not have a material adverse effect on the Company's assets, the assets
leased by the Company or the Company's business.
The Company has performed its obligations under each Governmental Permit, and no
event has occurred or condition or state of facts exists which constitutes or,
after notice or lapse of time or both, would constitute a breach or default
under any such Governmental Permit or which permits or, after notice or lapse of
time or both, would permit revocation or termination of any such Governmental
Permit, or which might adversely affect in any respect the rights of the Company
under any such Governmental Permit if such event would have a Material Adverse
Effect. No notice of cancellation, of default or of any dispute concerning any
Governmental Permit, or of any event, condition or state of facts described in
the preceding sentence, has been received by, or is known to, the Company. Each
Governmental Permit is valid, subsisting and in full force and effect and will
not be rendered invalid or lose its force and effect as a result of the
consummation of the transactions contemplated hereby, in each case without (x)
the occurrence of any breach, default or forfeiture of nights thereunder, or (y)
the consent, approval, or act of, or the making of any filing with, any
governmental body.
Board of Directors. Prior to December 31, 2002, the Board of Directors of
the Company shall have nominated and elected two (2) individuals with industry
experience or financial backgrounds who are not affiliated with Xxxxxxx XxXxxxxx
and who are not currently serving as directors of the Company.
Intellectual Property.
The Company owns (or possesses adequate and enforceable licenses or other rights
to use) all trademarks, trade names, copyrights, patents, inventions, processes
and other technical know-how and other proprietary rights now used in its
business, and to the Company's knowledge, has not infringed and is not
infringing on the trademarks, trade names, copyrights, patents, inventions,
processes or other technical know-how or other proprietary rights of any other
person.
No proceedings have been instituted or are pending or, to the Company's
knowledge, threatened which challenge the validity of, or otherwise adversely
affect the ownership or use by the Company of such trademarks, trade names,
copyrights, patents and applications. The Company has no knowledge of the
infringing use of any of such trademarks and trade names or the infringement of
any of such patents or copyrights by any other person.
8
No Violation, Litigation or Regulatory Action
The Company has complied with all requirements of laws and court orders which
are applicable to the Company's assets, the assets leased by the Company or the
Company's business to the extent that the failure to so comply would have a
Material Adverse Effect;
There are no lawsuits, claims, suits, proceedings or investigations pending or,
to the knowledge of the Company, threatened against or affecting the Company in
respect of the Company's assets, the assets leased or licensed by the Company or
its business and there is no lawsuit, suit or proceeding pending in which the
Company is the plaintiff or claimant which relates to the Company's assets, the
assets leased or licensed by the Company or its business;
to the Company's knowledge, there is no basis for any lawsuit, claim, suit,
proceeding or investigation, pending or threatened against or affecting the
Company in respect of its assets, the assets based or licensed by the Company or
its business which would have a Material Adverse Effect; and
There is no action, suit or proceeding pending or, to the knowledge of the
Company, threatened which questions the legality or propriety of the
transactions contemplated by the Agreement and the Warrant.
No Material Adverse Change. Subsequent to the respective dates as of which
information is given in the Company's most recent quarterly report filed on Form
10-QSB with the Securities and Exchange Commission (the "Commission"), there has
been no material adverse change in the condition (financial or otherwise)
business, properties, prospects, net worth or results of operations of the
Company. As of the date of this Agreement and assuming that Company makes all
payments due when required under its applicable loan documents, no fines or
penalties (default or otherwise) are payable or will be paid with respect to the
Company's indebtedness other than for $50,000 owed to PNC Bank (as agent).
No Change in Capitalization. Other than the changes in capitalization that
will result from the execution and delivery of this Agreement and the Warrants
by the Company, subsequent to the respective dates as of which information is
given in the Company's most recent quarterly report filed on Form 10-QSB with
the Commission and the Form 10-KSB (in draft form or as actually filed) there
has been no change in the capitalization of the Company, other than the exercise
of warrants for 1,000,000 shares of common stock of the Company held directly or
by a nominee on behalf of Green Diamond, ICS Trustees Services Ltd. and Xxxxxx
Xxxxxxx.
Use of Units Proceeds. The Company represents and warrants that it will use
the net proceeds from the issuance of Shares solely for the satisfaction of debt
to PNC Bank, Bank One, N.A. and Fifth Third Bank.
SEC Filings. The Company has filed all forms, reports and documents
required to be filed by it with the Commission, and has made available to the
Undersigned all registration statements (on all forms applicable to the
registration of securities), periodic reports and other documents filed by the
Company with the Commission, including all exhibits filed in connection
therewith, and prior to the date of this Agreement (collectively, the
"Commission Filings"). As of their respective dates, the Commission Filings (i)
complied in all material respects with the requirements of the 1933 Act or the
1934 Act, as the case may be, and the rules and regulations thereunder other
than the late filing of the Company's Restated 1999 financials on the Company's
1999 Form 10-KSB and 10-QSBs, as well as the Company's Definitive Schedule 14A
in 2001, and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
9
No Violation of Rule 10b-5. To the Company's knowledge, neither the
Company, nor any of their respective directors, officers or controlling persons
has, with respect to the Company: (i) taken, failed to take, or will take,
directly or indirectly, any action resulting in a violation of Rule 10b-5 under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), or designed to
cause or result, under the Act or otherwise, in, or which has constituted or
which reasonably might be expected to constitute a device, scheme of artifice
designed to defraud any person, in connection with the purchase or sale of the
Company's securities (including, but not limited to, the Securities); (ii) made
any untrue statement of material fact or failed to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made not misleading; or (iii) engaged in any act,
practice, or course of business which operates or would operate as a fraud or
deceit upon any person, in connection with the purchase or sale of a security
(including, but not limited to, the Units).
Consulting Contract. The Company shall enter into the Consulting Contract
with The Xxxxxxxx Group LLC, a copy of which is attached hereto.
Registration Rights. The Company shall comply with the registration rights
provision of Schedule B attached hereto.
Exemption from Registration for Units. The issuance and sale of the Units
are exempt from registration under the Securities Act and the Regulations
pursuant to Regulation D promulgated under the Securities Act subject to the
following assumptions:
The undersigned is not subject to any statute, rule or regulation, or to any
impediment to which contracting parties are generally not subject, that requires
the Company or such party to obtain the consent of, or to make a declaration or
filing with, any governmental authority.
The undersigned's factual representations and warranties `in this Agreement are
true and accurate in all material respects and (ii) that the undersigned is an
"accredited investor," as that term is defined under the Securities Act.
The undersigned is not an "underwriter" within the meaning of Section 2(11) of
the Securities Act.
Listing on Nasdaq. The Company meets the requirements for listing its
securities on the Nasdaq Small Cap Market and the Company believes that, on the
basis of its expected revenues and reserves, it will be able to maintain
compliance with the minimum listing maintenance requirements for at least one
year after said listing. The Company has prepared and filed and application for
listing of the Shares (other than the submission of the definitive Agreement and
underlying minutes), and when the Warrant Shares or any Additional Shares
(issuable under Section IV) are issued will promptly file an application for the
listing of the Warrant Shares or any Additional Shares, with the Nasdaq Stock
Market.
10
Expenses. The Company shall reimburse Kingport Capital Partners LLC for its
reasonable legal fees and due diligence expense incurred in connection with the
Purchasers' purchase of the Units, not to exceed $25,000 ($5,000 of which has
already been paid). Crestview may remit up to $20,000 of its purchase price for
the Units to Kingport Capital Partners LLC in satisfaction of such expenses.
Exercise by Warrant Holders. Green Diamond, ICS Trustee Services Ltd. and
Xxxxxx Xxxxxxx have exercised an aggregate of Warrants for 1,000,000 Shares of
the Company's common stock on December 21, 2001, and have paid $2,250,000 into
the Company.
No Repayment of DeZwirek Debt. The Company and its affiliates will not
repay the principal of any debt, loans or notes to Green Diamond, Xxxxxxx
XxXxxxxx or their Affiliates until the maturity date actually set forth in such
debts, loans or notes; provided that if a change of control of the Company
occurs after the date hereof (determined as if each debt, loan or note were
issued immediately after the date hereof), then the Company may prepay the
principal amount of such debts, loans or notes that are payable as a result of
such change of control.
Opinion. The Company shall deliver the legal opinion substantially in the
form set forth in Exhibit B from Sugar, Friedberg and Xxxxxxxxxx
contemporaneously with the closing of Purchaser's purchase of Units.
(1) Option Grants. No more than an aggregate of 100,000 options or warrants
per year may be granted to Xxxxxxx XxXxxxxx, Xxxxx XxXxxxxx or their affiliates
(taken as a group).
Exchange Act Registration. The company will cause its Common Stock to
continue to be registered under Section 12(b) or (g) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act until the Investors have disposed of all of their
Shares, Warrant Shares and Additional Shares and Registrable Securities.
Liabilities. Attached hereto is a complete schedule of all of the Company's
debts and liabilities as of December 27, 2001, whether contingent or fixed.
REPRESENTATIONS BY XXXXX AND XXXXXXX XXXXXXXX
Xxxxxxx XxXxxxxx (and Xxxxx XxXxxxxx solely with respect to (2) and (3)
below) represents, warrants and covenants as follows:
Green Diamond has exercised 800,000 options issued by the Company on
December 21, 2001, and has fully paid $1,800,000 in connection with the exercise
price for such options.
11
None of Green Diamond, Xxxxx XxXxxxxx, Xxxxxxx XxXxxxxx nor any entity they
directly or indirectly own, control or are affiliated with (each, a "DeZwirek
Party") will seek repayment, exchange, conversion or modification of any notes
or loans issued by the Company (or its affiliates) to him prior to the maturity
date set forth in such notes and agrees to waive any right to prepayment arising
as a result of a change of control of the Company; provided, that if a change of
control of the Company occurs after the date hereof (determined as if each debt,
loan or note were issued immediately after the date hereof), then the Company
may prepay such debt.
No DeZwirek Party will sell, pledge, transfer or otherwise dispose of any
shares of stock of the Company from the date hereof until the date which is
three months after the registration statement described in Schedule B is
declared effective by the SEC. The DeZwirek Parties own their shares in the
Company free of any claims, liens or encumbrances.
LEGEND REQUIREMENTS
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
12
SURVIVAL; INDEMNIFICATION
Survival. The representations, warranties and covenants made in Article V,
Sections VI(1), VI(2), VI(4) through VI(14), VI(16), VI(18), VI(19), VI(21),
VI(22), VI(24), and Sections VII(1) and VII(2) by each of the Company, each
Purchaser and the DeZwirek Parties in this Agreement, the exhibits hereto and in
each instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive until 2 years after the Form S-1
described in Schedule B is declared effective by the SEC. The representations,
warranties and covenants made by each of the Company, the Purchasers and the
DeZwirek Parties in Sections VI(3), VI(15), VI(17), and VI(23) of the Agreement
shall survive until the fifth anniversary of the date hereof. The covenants made
by the DeZwirek Parties in Sections VI(20) and VII(3) of this Agreement will
survive until the dates set forth in Sections VI(20) and VII(3), respectively.
In the event of a breach or violation of any of such representations, warranties
or covenants, the party to whom such representations, warranties or covenants
have been made shall have all rights and remedies for such breach or violation
available to its under the provisions of this Agreement, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
Indemnity. (a) The Company hereby agrees to indemnify and hold harmless the
Purchasers, their respective Affiliates and their respective officers,
directors, partners and members (collectively, the "Purchaser Indemnitees"),
from and against any and all Damages, and agrees to reimburse the Purchaser
Indemnitees for all reasonable out-of-pocket expenses (including the reasonable
fees and expenses of legal counsel), in each case promptly as incurred by the
Purchaser Indemnitees and to the extent arising out of or in connection with:
any misrepresentation, omission of fact or breach of any of the representations
or warranties contained in this Agreement or the annexes or by the Company,
Xxxxx XxXxxxxx or Xxxxxxx XxXxxxxx, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the Company
pursuant to this Agreement; or
any failure by the Company Xxxxxxx XxXxxxxx, Xxxxx XxXxxxxx, Introtech, Icarus,
or Green Diamond to perform in any material respect any of their covenants,
agreements, undertakings or obligations set forth in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
or
any action instituted against the Purchasers, or any of them, by any stockholder
of the Company who is not an Affiliate of a Purchaser, with respect to any of
the transactions contemplated by this Agreement.
13
(b) Each Purchaser, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with any
misrepresentation, omission of fact, or breach of any of the Investor's
representations, warranties or covenants contained, in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this
Agreement. Notwithstanding anything to the contrary herein, each Purchaser shall
be liable under this Section IX(2) for only that amount as does not exceed the
net proceeds to such Purchaser as a result of the sale of Shares.
Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section IX(2) (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
IX(2) is being sought (the "Indemnifying Party") of the commencement thereof;
but the omission so to notify the Indemnifying Party shall not relieve it from
any liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
14
All fees and expenses of the Indemnified Party (including reasonable costs
of defense and investigation in a manner not inconsistent with this section and,
except as otherwise provided above, all reasonable attorneys' fees and expenses)
shall be paid to the Indemnified Party, as incurred, within ten (10) trading
days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses,
with interest at market rates, to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
Direct Claims. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnifying Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principles of conflicts of law thereof. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the courts of the State of Illinois,
and of the United States of America sitting in the City of Chicago 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
the venue thereof may not be appropriate, that such suit, action or proceeding
is improper or that this Agreement or any of the documents referred to in this
Agreement may not be enforced in or by said courts, and each party hereto
irrevocably agrees that all claims with respect to such suit, action or
proceeding may be heard and determined in such an Illinois state or federal
court. 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 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 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.
ACCEPTANCE AND REVOCATION
The undersigned understands and agrees that this subscription may be
accepted or rejected by the Company in its sole and absolute discretion, and if
accepted, the Units purchased pursuant hereto will be issued only in the name of
the undersigned. The undersigned hereby acknowledges and agrees that this
Subscription Agreement may not be canceled, revoked or withdrawn, and that this
Subscription Agreement and the documents submitted herewith shall survive
changes in the transactions, documents and instruments described in the
Memorandum that are not material.
15
MISCELLANEOUS
The undersigned hereby intends that the undersigned's signature hereon
shall constitute a subscription to the Company for the Units specified on the
signature page of this Subscription Agreement.
This Agreement may be executed in counterparts, each of which shall be an
original, but all of which together shall constitute one and the same agreement.
This Subscription Agreement, and the representations and warranties
contained herein shall be binding upon the administrators and other successors
of the undersigned. This Subscription Agreement shall be governed by the laws of
the State of Illinois, and any dispute regarding this Subscription Agreement or
the Units shall be litigated in the state or federal courts situated in Xxxx
County, Illinois, to which jurisdiction and venue the undersigned consents. THE
UNDERSIGNED HEREBY WAIVES THE RIGHT TO A JURY TRIAL WITH RESPECT TO ANY DISPUTE
REGARDING THE UNITS OR THIS SUBSCRIPTION AGREEMENT.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
16
CECO ENVIRONMENTAL CORP.
COUNTERPART SIGNATURE PAGE FOR
SUBSCRIPTION AGREEMENT
FOR INDIVIDUALS
The undersigned hereby subscribes for the Units set forth below,
acknowledges that the information contained in the Purchaser Questionnaire is
true and correct and agrees to be bound by the terms of the Subscription
Agreement and to which this signature page is a part.
EXECUTED this 31st day of December, 2001, at Northbrook, Illinois.
/s/ $420,000 of Units comprised of One Share of Common Stock and One Warrant
to Purchase 1/2 Share of Common Stock.
/s/ Xxxxxx X. Xxxxx
---------------------------- ---------------------------------
(Signature of Subscriber) (Signature of Co-Subscriber)
/s/ Xxxxxx X. Xxxxx
---------------------------- ---------------------------------
(Printed Name of Subscriber) (Printed Name of Co-Subscriber)
17
CECO ENVIRONMENTAL CORP.
COUNTERPART SIGNATURE PAGE FOR
SUBSCRIPTION AGREEMENT
FOR CORPORATE/COMPANY/LIMITED LIABILITY COMPANY/PENSION PLAN
OR TRUST INVESTORS
The undersigned hereby subscribes for the Units set forth below,
acknowledges that the information contained in the Purchaser Questionnaire is
true and correct and agrees to be bound by the terms of the Subscription
Agreement and to which this signature page is a part.
EXECUTED this 31st day of December, 2001, at Boca Raton, Florida.
/s/ $100,000 of Units comprised of One Share of Common Stock and One Warrant
to Purchase 1/2 Share of Common Stock.
Entity Name:
/s/ Xxxxxxxx Investment Group, LLC
----------------------------------
(Signature of Subscriber)
/s/ Xxxxx Xxxxxxxx
----------------------------------
Its: Manager
18
CECO ENVIRONMENTAL CORP.
COUNTERPART SIGNATURE PAGE FOR
SUBSCRIPTION AGREEMENT
FOR INDIVIDUALS
The undersigned hereby subscribes for the Units set forth below,
acknowledges that the information contained in the Purchaser Questionnaire is
true and correct and agrees to be bound by the terms of the Subscription
Agreement and to which this signature page is a part.
EXECUTED this 31st day of December, 2001, at ___________________________.
/s/ $150,000 of Units comprised of One Share of Common Stock and One Warrant
to Purchase 1/2 Share of Common Stock.
/s/ Xxxxxx Erlbaum
---------------------------------- ---------------------------------
(Signature of Subscriber) (Signature of Co-Subscriber)
/s/ Xxxxxx Erlbaum
---------------------------------- ---------------------------------
(Printed Name of Subscriber) (Printed Name of Co-Subscriber)
19
CECO ENVIRONMENTAL CORP.
COUNTERPART SIGNATURE PAGE FOR
SUBSCRIPTION AGREEMENT
FOR CORPORATE/COMPANY/LIMITED LIABILITY COMPANY/PENSION PLAN
OR TRUST INVESTORS
The undersigned hereby subscribes for the Units set forth below,
acknowledges that the information contained in the Purchaser Questionnaire is
true and correct and agrees to be bound by the terms of the Subscription
Agreement and to which this signature page is a part.
EXECUTED this 31st day of December, 2001, at ____________________________.
/s/ $150,000 of Units comprised of One Share of Common Stock and One Warrant
to Purchase 1/2 Share of Common Stock.
Entity Name:
/s/ Erlbaum Family L.P.
----------------------------------
/s/ Xxxxxx Erlbaum,
----------------------------------
Its: President of G.P.
20
CECO ENVIRONMENTAL CORP.
COUNTERPART SIGNATURE PAGE FOR
SUBSCRIPTION AGREEMENT
FOR CORPORATE/COMPANY/LIMITED LIABILITY COMPANY/PENSION PLAN
OR TRUST INVESTORS
The undersigned hereby subscribes for the Units set forth below,
acknowledges that the information contained in the Purchaser Questionnaire is
true and correct and agrees to be bound by the terms of the Subscription
Agreement and to which this signature page is a part.
EXECUTED this 31st day of December, 2001, at Northbrook, Illinois.
/s/ $1,300,000 of Units comprised of One Share of Common Stock and One Warrant
to Purchase 1/2 Share of Common Stock.
Entity Name:
/s/ Crestview Capital Fund L.P,
----------------------------------
/s/ Xxxx X. Xxxxxx
----------------------------------
Its: General Partner
21
ACCEPTANCE
Accepted this 31st day of December, 2001 at __________, ________________,.
CECO ENVIRONMENTAL CORP.
By: /s/ Xxxxxxx XxXxxxxx
----------------------------------
Title: Chairman
----------------------------------
Solely with respect to Solely with respect to
Section II(2) Sections VII(2) and VII(3) and Article VII:
/s/ Xxxxxxx XxXxxxxx /s/ Xxxxx XxXxxxxx
-------------------- ------------------
Xxxxxxx XxXxxxxx Xxxxx XxXxxxxx
Solely with respect to Section II(2):
Green Diamond Oil Corp.
/s/ Xxxxxxx XxXxxxxx
------------------------------------------
President
Icarus Investment Corp.
/s/ Xxxxxxx XxXxxxxx
------------------------------------------
President
Introtech Investments, Inc.
/s/ Xxxxx XxXxxxxx
------------------------------------------
President
------------------------------------------
------------------------------------------
------------------------------------------
22
Schedule A
List of Purchasers
Crestview Capital Fund, L.P. $1,300,000
Xxxxxx Erlbaum $ 150,000
Erlbaum Family L.P. $ 150,000
Xxxxxx Xxxxx $ 420,000
Xxxxx Xxxxxxxx $ 100,000
23
Schedule B
Registration of the Shares; Compliance with the Securities Act
Registration Procedures and Expenses. The Company shall:
(a) prepare and file with the SEC no later than 90 days after the
date first written above, a registration statement (a "Registration Statement")
on Form S-1 (or any successor form) to enable the resale of the Shares or
Warrant Shares by each Purchaser from time to time through public markets or in
privately-negotiated transactions;
(b) use its best efforts, subject to receipt of necessary
information from the Purchaser, to cause the Registration Statement to become
effective within 150 days after the date hereof;
(c) prepare and file with the SEC such amendments and supplements
to each Registration Statement and the Prospectus used in connection therewith
as may be necessary to keep such Registration Statement current and effective
for a period not exceeding the earlier of (i) the date on which each Purchaser
may sell all Shares then held by such Purchaser without restriction by the
volume limitations of Rule 144(k) of the Securities Act, (ii) 18 months after
the date such Registration Statement is declared effective by the SEC, or (iii)
such time as all Shares held by Purchasers have been sold pursuant to a
registration statement.
(d) furnish to each Purchaser with respect to the Shares
registered under the Registration Statement such number of copies of the
Registration Statement, Prospectuses and Preliminary Prospectuses in conformity
with the requirements of the Securities Act and such other documents as each
Purchaser may reasonably request, in order to facilitate the public sale or
other disposition of all or any of the Shares by each Purchaser, provided,
however, that the obligation of the Company to deliver copies of Prospectuses or
Preliminary Prospectuses to each Purchaser shall be subject to the receipt by
the Company of reasonable assurances from the Purchaser that the Purchaser will
comply with the applicable provisions of the Securities Act and of such other
securities or blue sky laws as may be applicable in connection with any use of
such Prospectuses or Preliminary Prospectuses;
(e) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Purchasers;
(f) bear all Company expenses in connection with the procedures in
paragraph (a) through (e) of this Section 1 and all of Purchasers' reasonable
legal fees (up to $25,000 for all Purchasers in the aggregate under this
Agreement and each of the Warrants) and the registration of the Shares pursuant
to the Registration Statement; and
(g) advise each Purchaser, promptly after it shall receive notice
or obtain knowledge of the issuance of any stop order by the SEC delaying or
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
24
The Company understands that each Purchaser disclaims being an underwriter,
but any Purchaser being deemed an underwriter by the SEC shall not relieve the
Company of any obligations it has hereunder.
Transfer of Shares After Registration; Suspension.
(a) Each Purchaser agrees that it will, except as contemplated in
the Registration Statement referred to in Section 1, promptly notify the Company
of any changes in the information set forth in the Registration Statement
regarding the Purchaser or its plan of distribution.
(b) Except in the event that paragraph (c) below applies, the
Company shall (i) if deemed necessary by the Company, prepare and file from time
to time with the SEC a post-effective amendment to each Registration Statement
or a supplement to the related Prospectus or a supplement or amendment to any
document incorporated therein by reference or file any other required document
so that such Registration Statement will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and so that, as
thereafter delivered to purchasers of the Shares being sold thereunder, such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) provide the Purchaser copies of any documents filed
pursuant to Section 2(b)(i); and (iii) inform each Purchaser that the Company
has complied with its obligations in Section 2(b)(i) (or that, if the Company
has filed a post-effective amendment to the Registration Statement which has not
yet been declared effective, the Company will notify the Purchaser to that
effect, will use its reasonable efforts to secure the effectiveness of such
post-effective amendment as promptly as possible and will promptly notify the
Purchaser pursuant to Section 2(b)(i) hereof when the amendment has become
effective).
(c) Subject to paragraph (d) below, in the event (i) of any
request by the SEC or any other federal or state governmental authority during
the period of effectiveness of each Registration Statement for amendments or
supplements to a Registration Statement or related Prospectus or for additional
information; (ii) of the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iii) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; or (iv) of any event or circumstance which, upon
the advice of its counsel, necessitates the making of any changes in such
Registration Statement or Prospectus, or any document incorporated or deemed to
be incorporated therein by reference, so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; then the Company shall deliver a certificate in
writing to the Purchasers (the "Suspension Notice") to the effect of the
foregoing and, upon receipt of such Suspension Notice, the Purchasers will
refrain from selling any Shares pursuant to such Registration Statement (a
"Suspension") until the Purchaser's receipt of copies of a supplemented or
amended Prospectus prepared and filed by the Company, or until it is advised in
writing by the Company that the current Prospectus may be used, and has received
copies of any additional or supplemental filings that are incorporated or deemed
incorporated by reference in any such Prospectus. In the event of any
Suspension, the Company will use its best efforts to cause the use of the
Prospectus so suspended to be resumed as soon as reasonably practicable within
20 days after the delivery of a Suspension Notice to the Purchaser. In addition
to and without limiting any other remedies (including, without limitation, at
law or at equity) available to the Purchaser, the Purchaser shall be entitled to
specific performance in the event that the Company fails to comply with the
provisions of this Section 2(c).
25
(d) Provided that a Suspension is not then in effect the Purchaser
may sell Shares under the Registration Statement, provided that it arranges for
delivery of a current Prospectus to the transferee of such Shares. Upon receipt
of a request therefor, the Company has agreed to provide an adequate number of
current Prospectuses to the Purchaser and to supply copies to any other parties
requiring such Prospectuses.
Indemnification. For the purpose of this Section 3:
(i) the term "Selling Stockholder" shall include each Purchaser and
any affiliate of such Purchaser;
(ii) the term "Registration Statement" shall include any final
Prospectus, exhibit, supplement or amendment included in or relating to the
Registration Statement referred to in Section 1; and
(iii) the term "untrue statement" shall include any untrue statement or
alleged untrue statement, or any omission or alleged omission to state in the
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(a) The Company agrees to indemnify and hold harmless each Selling
Stockholder from and against any losses, claims, damages or liabilities to which
such Selling Stockholder may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon (i) any untrue
statement of a material fact contained in each Registration Statement, or (ii)
any failure by the Company to fulfill any undertaking included in each
Registration Statement, and the Company will reimburse such Selling Stockholder
for any reasonable legal or other expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim, or
preparing to defend any such action, proceeding or claim, provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of, or is based upon, an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Selling Stockholder specifically for use in preparation of the Registration
Statement or the failure of such Selling Stockholder to comply with its
covenants and agreements contained in Section 2 hereof respecting sale of the
Shares or any statement or omission in any Prospectus that is corrected in any
subsequent Prospectus that was delivered to the Purchaser prior to the pertinent
sale or sales by the Purchaser.
26
(b) Each Purchaser, separately and not jointly, agrees to
indemnify and hold harmless the Company (and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, each officer
of the Company who signs each Registration Statement and each director of the
Company) from and against any losses, claims, damages or liabilities to which
the Company (or any such officer, director or controlling person) may become
subject (under the Securities Act or otherwise), insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon, (i) any failure to comply with the covenants and
agreements contained in Section 2 hereof respecting sale of the Shares, or (ii)
any untrue statement of a material fact contained in such Registration Statement
if such untrue statement was made in reliance upon and in conformity with
written information furnished by or on behalf of the Purchaser specifically for
use in preparation of such Registration Statement, and the Purchaser will
reimburse the Company (or such officer, director or controlling person), as the
case may be, for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided that the Purchaser's obligation to indemnify the Company shall
be limited to the net amount received by the Purchaser from the sale of the
Shares.
(c) Promptly after receipt by any indemnified person of a notice
of a claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 3, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party under this Section 3 (except to the extent that such
omission materially and adversely affects the indemnifying party's ability to
defend such action) or from any liability otherwise than under this Section 3.
Subject to the provisions hereinafter stated, in case any such action shall be
brought against an indemnified person, the indemnifying person shall be entitled
to participate therein, and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, shall be entitled to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified person. After notice
from the indemnifying person to such indemnified person of its election to
assume the defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof, provided, however,
that if there exists or shall exist a conflict of interest that would make it
inappropriate, in the opinion of counsel to the indemnified person, for the same
counsel to represent both the indemnified person and such indemnifying person or
any affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties. In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any action unless the
indemnifying person shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld. No indemnifying person
shall, without the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could have been a party and indemnification could have
been sought hereunder by such indemnified person, unless such settlement
includes an unconditional release of such indemnified person from all liability
on claims that are the subject matter of such proceeding.
27
(d) If the indemnification provided for in this Section 3 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the Purchaser
on the other in connection with the statements or omissions or other matters
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, in the
case of an untrue statement, whether the untrue statement relates to information
supplied by the Company on the one hand or a Purchaser on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement. The Company and the Purchaser agree
that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to above in this subsection (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d) Purchaser shall
not be required to contribute any amount in excess of the amount by which the
net amount received by Purchaser from the sale of the Shares to which such loss
relates exceeds the amount of any damages which such Purchaser has otherwise
been required to pay by reason of such untrue statement. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 3, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 3 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement as required by the Act and the Exchange Act. The parties
are advised that federal or state public policy as interpreted by the courts in
certain jurisdictions may be contrary to certain of the provisions of this
Section 3, and the parties hereto hereby expressly waive and relinquish any
right or ability to assert such public policy as a defense to a claim under this
Section 3 and further agree not to attempt to assert any such defense.
28
Termination of Conditions and Obligations. The conditions precedent imposed
by this Schedule B upon the transferability of the Shares shall cease and
terminate as to any particular number of the Shares when such Shares shall have
been effectively registered under the Securities Act and sold or otherwise
disposed of in accordance with the intended method of disposition set forth in
the Registration Statement covering such Shares or Warrant Shares or at such
time as an opinion of counsel satisfactory to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.
Information Available. So long as the Registration Statement is effective
covering the resale of Shares owned by the Purchaser, the Company will furnish
to the Purchaser:
(a) as soon as practicable after it is available, one copy of (i)
its Annual Report to Stockholders (which Annual Report shall contain financial
statements audited in accordance with generally accepted accounting principles
by a national firm of certified public accountants), (ii) its Annual Report on
Form 10-K and (iii) its Quarterly Reports on Form 10-Q (the foregoing, in each
case, excluding exhibits);
(b) upon the request of the Purchaser, all exhibits excluded by
the parenthetical to subparagraph (a) of this Section 22.5 as filed with the SEC
and all other information that is made available to shareholders; and
(c) upon the reasonable request of the Purchaser, an adequate
number of copies of the Prospectuses to supply to any other party requiring such
Prospectuses; and the Company, upon the reasonable request of the Purchaser,
will meet with the Purchaser or a representative thereof at the Company's
headquarters to discuss all information relevant for disclosure in the
Registration Statement covering the Shares and will otherwise cooperate with any
Purchaser conducting an investigation for the purpose of reducing or eliminating
such Purchaser's exposure to liability under the Securities Act, including the
reasonable production of information at the Company's headquarters; provided,
that the Company shall not be required to disclose any confidential information
to or meet at its headquarters with any Purchaser until and unless the Purchaser
shall have entered into a confidentiality agreement in form and substance
reasonably satisfactory to the Company with the Company with respect thereto.
Failure to Timely Register Shares. If the Company fails to comply with
Section 1(a) of this Schedule A, then Company shall pay each Purchaser an amount
equal to 2% of Purchaser's investment in the Company for each full or partial
month that Company has not fulfilled its obligation and if the Company fails to
comply with Section 1(b) of this Schedule A, then Company shall pay each
Purchaser an amount equal to .066667% of Purchaser's investment for each day
that Company has not fulfilled its obligation, provided that the default amount
shall not be paid more than once with respect to any particular day (i.e., in
the event that Company defaults under both Sections 1(a) and 1(b)).
29
RISK FACTORS
An investment in the Units being offered hereby involves a high degree of
risk. In deciding whether to purchase Units, Purchaser should carefully consider
the following risk factors, in addition to other information contained in the
Subscription Agreement, in the Company's most recent Form 10-KSB and Schedule
14A and in any other documents incorporated by reference therein. INVESTING IN
THE UNITS IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. THE UNITS SHOULD
NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT.
In addition to the other information in the Subscription Agreement and
Offering Materials, the factors listed below should be considered in evaluating
the Company's business and prospects. Any forward-looking statements set forth
herein or in the Offering Materials are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical results or those anticipated. The words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. The Purchaser is cautioned to
consider the specific factors described below and not to place undue reliance on
the forward-looking statements contained herein or in the Offering Materials,
which speak only as of the date of this Subscription Agreement or as of the date
of the Offering Materials, respectively. The Company undertakes no obligation to
publicly revise these forward-looking statements, to reflect events or
circumstances that may arise after the date hereof.
COMPETITION. The industries in which the Company competes through its
subsidiaries are all highly competitive. The Company competes against a number
of local, regional and national manufacturers in each of its business segments,
many of which have been in existence longer than the Company and some of which
have substantially greater financial resources than the Company. The Company
believes that any competition from new entrants that are large corporations may
be able to compete with the Company on the basis of price and as a result may
have a material adverse affect on the results of operations of the Company. In
addition, there can be no assurance that other companies will not develop new or
enhanced products that are either more effective than the Company's or would
render the Company's products non-competitive or obsolete.
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on the experience
of its management in the continuing development of its operations. The loss of
the services of certain of these individuals, particularly Xxxxxxx X. Xxxx,
President of the Company, would have a material adverse effect on the Company's
business. The Company's future success will depend in part on its ability to
attract and retain qualified personnel to manage the development and future
growth of the Company. There can be no assurance that it will be successful in
attracting and retaining such personnel. The failure to recruit additional key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTINUED CONTROL BY MANAGEMENT. Assuming the sale of $2,500,000 of Units at
$3.00 a Unit, management of the Company will beneficially own approximately 68%
of the Company's outstanding Common Stock following the sale of the Units
(assuming the exercise of warrants and options held by management that are
exercisable as of the date hereof). The Company's stockholders do not have the
right to cumulative voting in the election of directors. Accordingly, present
stockholders will be in a position to exert control over the business and
operations of the Company, including the election of directors of the Company.
30
DEPENDENCE UPON THIRD-PARTY SUPPLIERS. Although the Company is not dependent on
any one supplier, the Company is dependent on the ability of its third-party
suppliers to supply the Company's raw materials, as well as certain specific
component parts. Ceco Filters, Inc. ("Filters"), in particular, purchases all of
its chemical grade fiberglass from one supplier, which Filters believes is the
only domestic supplier of such fiberglass, and certain specialty items from only
two suppliers. Failure by the Company's third-party suppliers to meet the
Company's requirements could have a material adverse effect on the Company.
There can be no assurance that the Company's third-party suppliers will dedicate
sufficient resources to meet the Company's scheduled delivery requirements or
that the Company's suppliers will have sufficient resources to satisfy the
Company's requirements during any period of sustained demand. Failure of
manufacturers or suppliers to supply, or delays in supplying, the Company with
raw materials or certain components, or allocations in the supply of certain
high demand raw components could materially adversely affect the Company's
operations and ability to meet its own delivery schedules on a timely and
competitive basis.
PATENTS. The Company's subsidiaries hold various patents and licenses relating
to certain of its products. There can be no assurance as to the breadth or
degree of protection that existing or future patents, if any, may afford the
Company, that the Company's patents will be upheld, if challenged, or that
competitors will not develop similar or superior methods or products outside the
protection of any patent issued to the Company or its subsidiaries. Although the
Company believes that its subsidiaries' patents and the Company's subsidiaries'
products do not and will not infringe patents or violate the proprietary rights
of others, it is possible that the Company's existing patent rights may not be
valid or that infringement of existing or future patents or proprietary rights
may occur. In the event the Company's products infringe patents or proprietary
rights of others, the Company may be required to modify the design of its
products or obtain a license for certain technology. There can be no assurance
that the Company will be able to do so in a timely manner, upon acceptable terms
and conditions, or at all. Failure to do any of the foregoing could have a
material adverse effect upon the Company. In addition, there can be no assurance
that the Company will have the financial or other resources necessary to enforce
or defend a patent infringement or proprietary rights violation action which may
be brought against it. Moreover, if the Company's products infringe patents or
proprietary rights of others, the Company could, under certain circumstances,
become liable for damages, which also could have a material adverse effect on
the Company.
NEW PRODUCT DEVELOPMENT AND ACQUISITIONS The air pollution control and
filtration industry is characterized by ongoing technological developments and
changing customer requirements. As a result, the Company's success and continued
growth depend, in part, on its ability in a timely manner to develop or acquire
rights to, and successfully introduce into the marketplace, enhancements of
existing products or new products that incorporate technological advances, meet
customer requirements and respond to products developed by the Company's
competition. There can be no assurance that the Company will be successful in
developing or acquiring such rights to products on a timely basis or that such
products will adequately address the changing needs of the marketplace.
31
TECHNOLOGICAL AND REGULATORY CHANGE The air pollutions control and filtration
industry is characterized by changing technology, competitively imposed process
standards and regulatory requirements, each of which influences the demand for
the Company's products and services. Changes in legislative, regulatory or
industrial requirements may render certain of the Company's filtration products
and processes obsolete. Acceptance of new products may also be affected by the
adoption of new government regulations requiring stricter standards. The
Company's ability to anticipate changes in technology and regulatory standards
and to develop and introduce new and enhanced products successfully on a timely
basis will be a significant factor in the Company's ability to grow and to
remain competitive. There can be no assurance that the Company will be able to
achieve the technological advances that may be necessary for it to remain
competitive or that certain of its products will not become obsolete.
LEVERAGE. The Company is highly leveraged. It currently has loan facilities with
PNC Bank, National Association, Bank One, N.A. and Fifth Third Bank. The terms
of such loan facilities have been revised through four separate amendments in
order to alter some of the financial covenants made by the Company to prevent
the Company from being in default of such covenants.
WE MAY NEED TO OBTAIN ADDITIONAL FINANCING. The Company believes that with cash
on hand and proceeds from expected sales that it has sufficient proceeds to meet
cash requirements for the next twelve months.
However, the Company may need to raise additional funds to:
- Finance unanticipated working capital requirements;
- Pay for increased operating expenses or shortfalls in anticipated
revenues;
- Fund increases in research and related expenditures;
- Develop new technology, products or services;
- Respond to competitive pressures; and
- Support strategic and industry relationships.
There is no assurance that additional financing will be available on
terms favorable to the Company, or at all. If adequate funds are not available
to the Company then it may not be able to continue operations or take advantage
of opportunities.
32
THE UNITS, SHARES, AND WARRANTS HEREBY SUBSCRIBED FOR WILL BE UNREGISTERED,
RESTRICTED SECURITIES THAT WILL NOT BE FREELY TRADABLE All of the Units, Shares
and Warrants will be restricted securities under the Securities Act and
applicable state securities laws. These Units, Shares and Warrants cannot be
transferred without registration under the Securities Act and any applicable
state securities laws unless an exemption is available and an opinion of
counsel, if requested by the Company, to that effect is obtained. Currently,
there is no public market for the Units or Warrants and the Company has no plans
to ever effect a registered public offering of the Units or Warrants. The
transferability of Shares will be substantially restricted under federal and
state securities laws. For these and other reasons, there may be no trading in
the Shares and Warrants. While the Company anticipates filing a Form S-1 to
allow the public trading of the Shares, there is no guarantee that the Company
will be successful.
33
SCHEDULE UNDER SECTION VI(24)
DEBT AMOUNT*
Credit Agreement dated December 7, 1999, as amended, PNC Bank, as Agent comprised of:
Revolving Line of Credit $ 5,073,385
Term A 11,000,000
Term B 7,325,200
--------------
Total Credit Facility 23,398,585
Subordinated Notes dated December 7, 1999, as amended, comprised of:
Promissory Note Green Diamond Oil Corp. 4,000,000
500,000
Promissory Note - held by Taurus Capital as nominee 500,000
--------------
Total Subordinated Notes 5,000,000
Pennsylvania Industrial Development Authority dated April 1992 167,182
--------------
Total $ 28,565,767
==============
* Amounts shown are principal balances outstanding as of December 27,
2001
34
