Exhibit 10.153
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EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated April 12, 2005 (this "Agreement"), by
and between Commodore Applied Technologies, Inc., a Delaware corporation with
its principal executive offices located at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the "Company") and The Shaar Fund, Ltd. ("Shaar").
WHEREAS, Shaar is the record and beneficial owner of 77,500 shares of
the Company's Series E Convertible Preferred Stock, par value $0.001 per share
(the "Series E Preferred Shares");
WHEREAS, Shaar is the record and beneficial owner of 118,200 shares of
the Company's Series F Convertible Preferred Stock, par value $0.001 per share
(the "Series F Preferred Shares" and, together with the Series E Preferred
Shares, the "Preferred Shares");
WHEREAS, Shaar is the record and beneficial owner of an Amended and
Restated Secured Promissory Note of the Company, which such Note has an
outstanding principal balance as of the date hereof of Three Million Two Hundred
Seventy-Nine Thousand Five Hundred Eighty Five Dollars ($3,279,585) (the "Old
Note ");
WHEREAS, concurrently with the issuance of the Old Note, Shaar and the
Company entered into that certain Security Agreement (the "Security Agreement"),
Patent Collateral Assignment ("Patent Collateral Assignment") and Guaranty and
Suretyship Agreement ("Guaranty");
WHEREAS, pursuant to that certain Purchase Agreement, dated ▇▇▇▇▇ ▇▇,
▇▇▇▇, ▇▇▇▇▇ purchased a Secured Promissory Note of the Company, initially issued
to Milford Capital & Management ("Milford") on June 13, 2001, in the original
principal amount of Five Hundred Thousand Dollars ($500,000), which such Secured
Promissory Note has an outstanding principal balance as of the date hereof of
One Hundred Eight-Eight Thousand One Hundred Forty-Nine Dollars ($188,149) (the
"Milford Note"), together with (x) all interest, additional obligations,
forbearance fees, exit fees, penalties and other amounts due and payable from
time to time under or in connection with the Secured Promissory Note, (y) all
other claims, actions, rights and demands of Milford now existing or hereinafter
arising under the Secured Promissory Note and certain documents entered into in
connection therewith and (z) the Forbearance Amount (defined below);
WHEREAS, in connection with that certain Forbearance Agreement, dated
January 30, 2004, between Milford and the Company, Shaar (x) agreed to forgive
payment to it of Three Hundred Thousand ($300,000) Dollars of accrued and unpaid
dividends on shares of the Company's Series E Convertible Preferred Stock held
by Shaar (the "Dividends") and (y) consented to the transfer of the dollar value
of the Dividends to Milford as part of the forbearance fee payable to Milford
under the Forbearance Agreement (the "Forbearance Amount");
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WHEREAS, upon the closing of the Purchase Agreement and the acquisition
of the right to the Forbearance Amount by Shaar, such Forbearance Amount shall
be included in the principal amount of the Convertible Note (hereinafter
defined);
WHEREAS, pursuant to a Certificate of Designation, substantially in the
form of Exhibit A hereto (the "Series I Certificate of Designation"), the
Company has created its Series I Convertible Preferred Stock, par value $0.001
per share (collectively, the "Series I Preferred Stock");
WHEREAS, Shaar and the Company have agreed that Shaar will exchange all
of its right, title and interest in and to the Preferred Shares (including all
accrued and unpaid dividends thereon) for 395,302 shares of the Company's Series
I Preferred Stock; and
WHEREAS, Shaar and the Company have agreed (i) that Shaar will exchange
the outstanding principal amount of the Old Note and the Milford Note (including
the Forbearance Amount, all accrued and unpaid interest and unpaid fees thereon)
for the Company's 10% Convertible Secured Note (the "Convertible Note"),
substantially in the form of Exhibit B hereto and (ii) amend and restate the
Security Agreement, Patent Collateral Assignment and Guaranty.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. EXCHANGE
Subject to the terms and conditions of this Agreement and the Series I
Certificate of Designation, Shaar and the Company hereby agree to exchange, in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act") (i) the Preferred
Shares (including all accrued and unpaid dividends thereon) currently held by
Shaar for 395,302 shares of Series I Preferred Stock and (ii) the Old Note and
the Milford Note (including the Forbearance Amount, all accrued and unpaid
interest and unpaid fees thereon) for the Convertible Note. Simultaneously with
the execution of this Agreement, Shaar shall deliver to the Company (x)
certificates representing 77,500 Series E Preferred Shares and 118,200 Series F
Preferred Shares, respectively, duly endorsed for transfer or an affidavit of
loss with respect to any certificates not accounted for, (y) the Old Note and
the Milford Note for cancellation and (z) a general release, substantially in
the form of Exhibit C hereto to the Company (the "Shaar Release").
Simultaneously with the execution of this Agreement, the Company shall deliver
(a) the Convertible Note and one or more duly authorized, issued and executed
certificates as designated by Shaar (I/N/O Shaar or, if the Company otherwise
has been notified, I/N/O Shaar's nominee) evidencing the Series I Preferred
Stock to Shaar, (b) irrevocable instructions to the Company's transfer agent to
reserve 75,000,000 shares of Common Stock for issuance of the Conversion Shares
(hereinafter defined) and (c) a general release, substantially in the form of
Exhibit D hereto to Shaar (the "Commodore Release").
II. SHAAR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
Shaar represents and warrants to and covenants with the Company as
follows:
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▇. ▇▇▇▇▇ is acquiring the Series I Preferred Stock, the Convertible
Note (together, the "Securities") and the shares of Common Stock issuable upon
conversion of the Securities (the "Conversion Shares") for its own account, for
investment purposes only and not with a view towards or in connection with the
public sale or distribution thereof in violation of the Securities Act.
▇. ▇▇▇▇▇ is (i) an "accredited investor" within the meaning of Rule 501
of Regulation D under the Securities Act, (ii) experienced in making investments
of the kind contemplated by this Agreement, (iii) capable, by reason of its
business and financial experience, of evaluation the relative merits and risks
of an investment in the Securities, and (iv) able to afford the loss of its
investment in the Securities.
▇. ▇▇▇▇▇ understands that the Securities are being offered by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy of, and Shaar's compliance with, Shaar's
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Shaar to
acquire the Securities.
▇. ▇▇▇▇▇ understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission.
E. This Agreement has been duly and validly authorized, executed and
delivered by Shaar and is a valid and binding agreement of Shaar enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
III. THE COMPANY'S REPRESENTATIONS
The Company represents and warrants to Shaar that:
A. Capitalization.
(i) Except as set forth in the Company's filings with the
Commission (the "SEC Filings"), there has been no material change in the
capitalization, assets, or liabilities of the Company since the issuance of the
financial statements for the period ending September 30, 2004, nor is the
Company in default under, or to the Company's knowledge, has an event of default
occurred in respect of any prior agreement between the Company and Shaar.
(ii) The Conversion Shares have been duly and validly authorized
and reserved for issuance by the Company, and when issued by the Company upon
conversion of the Securities will be duly and validly issued, fully paid and
nonassessable and will not subject the holder thereof to personal liability by
reason of being such holder.
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(iii) Other than any such rights or obligations disclosed in the
Company's SEC Filings, there are no preemptive, subscription, "call," right of
first refusal or other similar rights to acquire any capital stock of the
Company or other voting securities of the Company that have been issued or
granted to any person or any other obligations of the Company to issue, grant,
extend or enter into any security, option, warrant, "call," right, commitment,
agreement, arrangement or undertaking with respect to any of its capital stock.
B. Reporting Company Status. The Company has registered the Common
Stock pursuant to section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Common Stock is eligible for trading on the OTC
Bulletin Board (the "OTCBB"). The Company has not received notices regarding the
eligibility of the Common Stock for such trading on the OTCBB.
C. Authorization. The Company (i) has duly and validly authorized and
reserved for issuance 75,000,000 shares of Common Stock, the maximum allowable
under the current issued and authorized limitations of the Company, which may be
modified in the future subsequent to a contemplated reverse split or other
corporate action which would make more shares of Common Stock available,
sufficient in number for the conversion of the Securities and all warrants
exercisable for shares of Common Stock that are held by Shaar (the "Warrants").
The Company acknowledges that its obligation to issue Conversion Shares in
accordance with this Agreement, the Convertible Note and the Series I
Certificate of Designation is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss.ss.101 et seq. (the "Bankruptcy Code"). In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. ss.362
in respect of the conversion of the Securities. The Company agrees, without cost
or expense to Shaar, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss.362.
D. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to perform its obligations under the
Series I Certificate of Designation and to enter into the Documents (as
hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance and delivery to Shaar of the Securities). The
execution, delivery and performance by the Company of the Documents, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation the issuance of the Convertible Note and the
Series I Preferred Stock and the issuance and reservation for issuance of the
Conversion Shares), have been duly authorized by all necessary corporate action
on the part of the Company. Each of the Documents has been duly and validly
executed and delivered by the Company and the Series I Certificate of
Designation has been duly filed with the Delaware Secretary of State's office by
the Company and each Document constitutes a valid and binding obligation of the
Company enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and except as rights to indemnity and contribution may be limited by federal or
state securities laws or the public policy underlying such laws. The Securities
have been duly and validly authorized for issuance by the Company and, when
executed and delivered by the Company, will be valid and binding obligations of
the Company enforceable against it in accordance with their terms, subject to
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applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally.
For purposes of this Agreement, the term "Documents" means (i) this Agreement;
(ii) the Series I Certificate of Designation; (iii) the Convertible Note; (iv)
the Amended and Restated Security Agreement; (v) the Amended and Restated Patent
Collateral Assignment; (vi) the Amended and Restated Guaranty and Suretyship
Agreement and the (vii) the Commodore Release.
E. Validity of Issuance of Securities. As of the Closing Date, the
Series I Preferred Stock and, upon their issuance, the Conversion Shares, will
be validly issued and outstanding, fully paid and nonassessable, and not subject
to any preemptive rights, rights of first refusal, tag-along rights, drag-along
rights or other similar rights.
F. Non-contravention. Except for such notice filings as may be required
under applicable federal and state securities laws, the execution and delivery
by the Company of the Documents, the issuance of the Securities, and the
consummation by the Company of the other transactions contemplated hereby and
thereby, do not, and compliance with the provisions of this Agreement and other
Documents will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
a material benefit under, or result in the creation of any lien upon any of the
properties or assets of the Company under, or result in the termination of, or
require that any consent be obtained or any notice be given with respect to, (i)
the Certificate of Incorporation or By-Laws of the Company, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or permit applicable to the Company or its properties or
assets, or (iii) any law applicable to the Company or its respective properties
or assets.
G. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
execution and delivery of the Documents and the issuance of the Securities and
the Conversion Shares to Shaar as contemplated by this Agreement, except such
authorizations, approvals and consents that have been obtained by the Company
prior to the date hereof.
H. Litigation. There is no pending, or to the knowledge of the Company,
threatened, judicial, administrative or arbitral action, claim, suit, proceeding
or investigation against or involving the Company, which might affect the
validity or enforceability of this Agreement or the Documents or which involves
the Company and which if adversely determined, could reasonably be expected to
have a material adverse effect on the Company.
I. Commission Filings. The Company has properly and timely filed with
the Commission all reports, proxy statements, forms and other documents required
to be filed with the Commission under the Securities Act and the Exchange Act
since January 1, 2002 (the "Commission Filings"). As of their respective dates,
(i) the Commission Filings complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be, and
the rules and regulations of the Commission promulgated thereunder applicable to
such Commission Filings, and (ii) none of the Commission Filings contained at
the time of their filing any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
Commission Filings, as of the dates of such documents, were true and complete in
all material respects and complied with applicable accounting requirements and
the published rules and regulations of the Commission with respect thereto, have
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been prepared in accordance with generally accepted accounting principles in the
United States ("GAAP") (except in the case of the unaudited statements, as
permitted by Form 10-Q under the Exchange Act) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly presented the consolidated financial position of the Company and its
material subsidiaries as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments that in the
aggregate are not material and to any other adjustment described therein).
J. Securities Law Matters. Assuming the accuracy of the representations
and warranties of Shaar set forth in Section II hereof, the Exchange is exempt
from (i) the registration and prospectus delivery requirements of the Securities
Act and the rules and regulations of the Commission thereunder and (ii) the
registration and/or qualification provisions of all applicable state securities
and "blue sky" laws. The Company acknowledges and agrees that, based upon advice
received from its legal counsel after such counsel reviewed certain SEC
"No-Action" letters which it deemed relevant, the Securities acquired by Shaar,
for the purposes of and pursuant to Rule 144(d)(3)(i) of the Act, shall be
deemed to have been acquired at the same time as the securities exchanged by
Shaar in connection with the transactions contemplated hereby were acquired, and
that the Conversion Shares shall be deemed, by reason of Rule 144(d)(3)(ii) of
the Act, to have been acquired at the same time as the securities surrendered by
Shaar in connection with the transactions contemplated hereby were acquired and
that upon issuance of such Conversion Shares, Shaar shall be entitled to
immediately sell such Conversion Shares under Rule 144. In the event Shaar is
prohibited from publicly selling any Conversion Shares, the Company shall
promptly use its commercially reasonable efforts to register such Conversion
Shares pursuant to an effective registration statement permitting their resale
under the Act. The Company shall not directly or indirectly take, and shall not
permit any of its directors, officers or Affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
person or entity of the Securities) so as to make unavailable the exemption from
Securities Act registration being relied upon by the Company for the offer and
sale to Shaar of the Securities (and the Conversion Shares) as contemplated by
this Agreement. No form of general solicitation or advertising has been used or
authorized by the Company or any of its officers, directors or affiliates in
connection with the offer or sale of the Securities (and the Conversion Shares)
as contemplated by this Agreement or any other agreement to which the Company is
a party.
K. Dividends. The timely payment of (i) dividends on the Series I
Preferred Stock as specified in the Series I Certificate of Designation and (ii)
interest on the outstanding principal amount of the Convertible Note, is not
prohibited by the Certificate of Incorporation or By-Laws of the Company or any
agreement, contract, documents or other undertaking to which the Company is a
party.
L. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Shaar pursuant
to this Agreement, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, not misleading.
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M. Finder's Fee. There is no finder's fee, brokerage commission or like
payment incurred by the Company in connection with the transactions contemplated
by this Agreement for which Shaar is liable or responsible.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
A. Restrictive Legend. Shaar acknowledges and agrees that, upon
issuance pursuant to this Agreement, the certificates representing the Series I
Preferred Stock shall have endorsed thereon a legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Series I Preferred Stock until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR SUCH OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to Shaar as required by all applicable laws, and shall
provide a copy thereof to Shaar promptly after such filing.
C. Reporting Status. So long as Shaar beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended.
D. Listing. Except to the extent the Company lists its Common Stock on
The New York Stock Exchange, the Nasdaq National Market System or the American
Stock Exchange (in which case it will use its commercially reasonable efforts to
maintain such listing), the Company shall use its commercially reasonable
efforts to maintain the eligibility of the Common Stock on the OTCBB. If the
Common Stock is no longer eligible to be traded on the OTCBB, the Company will
use its commercially reasonable efforts to list the Common Stock on the most
liquid national securities exchange or quotation system that the Common Stock is
qualified to be listed or traded on.
E. Information. Each of the parties hereto acknowledges and agrees that
Shaar shall not be provided with, nor be given access to, any material
non-public information relating to the Company.
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F. Accounting and Reserves. The Company shall maintain a standard and
uniform system of accounting and shall keep proper books and records and
accounts in which full, true and correct entries shall be made of its
transactions, all in accordance with GAAP applied on a consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
proper reserves for depreciation, obsolescence, amortization, bad debts and
other purposes in connection with its operations as are required by such
principles so applied.
G. Press Release. Following the consummation of the transactions
contemplated hereby, if the Company determines that disclosure thereof is
required by law, the Company shall, with the prior review and consent of Shaar,
which consent shall not be unreasonably withheld, issue a press release
concerning said transactions.
H. Fees. The Company shall pay all legal fees and expenses incurred by
Shaar in connection with preparation and negotiation of all documents and
instruments for the transactions contemplated hereby.
I. Reserved Shares. The Company shall at all times from and after the
date hereof shall maintain a sufficient number of shares of Common Stock, duly
and validly authorized and reserved for issuance to satisfy the conversion of
the Securities and the Warrants; provided, that, in no event shall the number of
shares reserved for such issuance be less than the greater of (a) 75,000,000 and
(b) 115% of the number of shares necessary for the full conversion of the
Securities and the Warrants. In addition to such other remedies as shall be
available to Shaar hereunder, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase the number of
authorized but unissued shares of Common Stock to the number of shares required
hereby, including without limitation, using its best efforts to obtain the
requisite stockholder approval necessary to increase the number of authorized
shares of the Company's Common Stock.
V. SURVIVAL; INDEMNIFICATION; OTHER AGREEMENTS
A. The representations and warranties made by each of the Company and
Shaar in this Agreement, the annexes, schedules and exhibits hereto and in each
instrument, agreement and certificate entered into and delivered by them
pursuant to this Agreement, shall survive the consummation of the transactions
contemplated hereby for a period of three (3) years after the full execution of
this Agreement and all documents or instruments entered into in connection
therewith. The covenants of the Company and Shaar shall survive the consummation
of the transactions contemplated hereby. 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 it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the consummation
of the transactions contemplated hereby.
B. If (i) Shaar becomes involved in any capacity in any action,
proceeding or investigation brought by any stockholder of the Company, in
connection with or as a result of the consummation of the transactions
contemplated by this Agreement or the Documents or if Shaar is impleaded in any
such action, proceeding or investigation by any Person, or (ii) Shaar becomes
involved in any capacity in any action, proceeding or investigation brought by
the Commission, any self-regulatory organization or other body having
jurisdiction, against or involving the Company or in connection with or as a
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result of the consummation of the transactions contemplated by this Agreement or
the Documents or if Shaar is impleaded in any such action, proceeding or
investigation by any Person, then in any such case, the Company hereby agrees to
indemnify, defend and hold harmless Shaar from and against and in respect of all
losses, claims, liabilities, damages or expenses resulting from, imposed upon or
incurred by Shaar, directly or indirectly, and reimburse Shaar for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition, the Company will reimburse Shaar for reasonable internal and overhead
costs for the time of any officers or employees of Shaar devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearing,
trials, and other proceedings relating to the subject matter of this Agreement
or the Documents. The indemnification and reimbursement obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise incur, shall extend upon the same terms and conditions to
any Affiliates of Shaar who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Shaar and any such Affiliate, and shall
be binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, Shaar, any such affiliate and any such
person. The Company also agrees that neither Shaar nor any such Affiliate,
partner, director, agent, employee or controlling person shall have any
liability to the Company or any person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of this
Agreement or the Documents. Notwithstanding the foregoing, the provisions
contained within this Section V shall not apply (i) to any action, proceeding,
or investigation which is based on or relating to (A) Shaar's trading
activities; (B) Shaar's violation of the Securities Act, the Exchange Act, any
state securities laws or any rule or regulation there under, including, but not
limited to, Shaar's use of material non-public information; (C) actions which
are not in compliance with any obligation of Shaar under this Agreement or the
Documents, (D) any misrepresentation or fraud by Shaar in connection with the
consummation of the transactions contemplated by this Agreement or the
Documents, or (ii) to any indemnity or undertaking by Shaar in favor of the
Company in connection with any lost, stolen, or missing notes or certificates
evidencing other securities.
C. Notwithstanding anything contained herein to the contrary, except as
specifically amended pursuant to this Agreement, the Series I Certificate of
Designation, and the Convertible Note, the rights of Shaar and the obligations
of the Company set forth in the Loan Documents (as such term is defined in the
Convertible Note) shall continue in full force and effect.
D. Commodore Advanced Sciences, Inc. ("CASI") hereby acknowledges and
agrees that that certain Guaranty and Suretyship Agreement, dated June 13, 2001,
between CASI and Shaar (the "Guaranty"), whereby CASI unconditionally guaranteed
the prompt and timely payment by the Company of all of the Company's obligations
under the Old Note as such Guaranty is amended and restated as of the date
hereof to include the Convertible Note, remains in full force and effect and all
obligations of the Company under the Convertible Note shall constitute
"Obligations" under the Guaranty.
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VI. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, without regard to the conflicts of law
principles of such state.
VII. SUBMISSION TO JURISDICTION
Each of the parties hereto consents to the exclusive jurisdiction of
the federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and the other
Documents. Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may effectively do so, any defense of an inconvenient
forum or improper venue to the maintenance of such action or proceeding in any
such court and any right of jurisdiction on account of its place of residence or
domicile. Each party hereto irrevocably and unconditionally consents to the
service of any and all process in any such action or proceeding in such courts
by the mailing of copies of such process by certified or registered airmail at
its address specified in Section XIII. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
VIII. WAIVER OF JURY TRIAL
TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (i)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
IX. COUNTERPARTS; EXECUTION
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.
X. HEADINGS
The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
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XI. SEVERABILITY
In the event any one or more of the provisions contained in this
Agreement or in the other Documents should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
XII. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS
This Agreement and the Documents constitute the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing, by all parties. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
XIII. NOTICES
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service or by facsimile
transmission, and shall be deemed given when so delivered personally or one (1)
day after deposit with an overnight courier service, or, if mailed, three (3)
days after the date of deposit in the United States mails or upon receipt if
sent by facsimile, as follows:
A. if to the Company, to:
Commodore Applied Technologies, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (Fax)
with a copy to:
McGuireWoods LLP
Bank of America Tower
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇, Esq.
(▇▇▇) ▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (Fax)
11
B. if to Shaar, to:
The Shaar Fund, Ltd.
c/o SS&C Fund Services N.V.
▇▇▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Attention: Maarten ▇▇▇▇▇▇▇▇
(▇▇▇-▇) ▇▇▇-▇▇▇▇
(▇▇▇-▇) ▇▇▇-▇▇▇▇ (fax)
with copies to:
Meltzer, Lippe, ▇▇▇▇▇▇▇▇▇ & Breitstone, LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
(▇▇▇) ▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (Fax)
and:
▇▇▇▇▇▇▇▇ Capital Management
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
Any party may change the foregoing address by notice given pursuant to
this Section XIII.
XIV. ASSIGNMENT
This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Shaar may assign its rights and obligations
hereunder, in whole or in part, to any Affiliate of Shaar.
[SIGNATURE PAGE FOLLOWS.]
12
In Witness Whereof, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
THE SHAAR FUND, LTD.
By: SS&C Fund Services BVI
By: /s/ Maarten ▇▇▇▇▇▇▇▇
--------------------
Name: Maarten ▇▇▇▇▇▇▇▇
Title: Director
By: /s/ ▇▇▇▇▇ Ijsseling
-------------------
Name: ▇▇▇▇▇ Ijsseling
Title: Director
ACKNOWLEDGED AND AGREED TO
FOR PURPOSES OF ARTICLE V., SECTION D ONLY
Commodore Advanced Sciences, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Treasurer
13
EXHIBIT A
CERTIFICATE OF DESIGNATION
14
CERTIFICATE OF DESIGNATION
OF
SERIES I CONVERTIBLE PREFERRED STOCK
OF
COMMODORE APPLIED TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the
State of Delaware
--------------------------------------------------------------------------------
Commodore Applied Technologies, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation on February 4, 2005 pursuant to
authority of the Board of Directors as required by Section 151 of the General
Corporation Law of the State of Delaware:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation, the Board
of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $0.001 per share (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
Series I Convertible Preferred Stock:
ARTICLE 1
DEFINITIONS
The terms defined in this Article whenever used in this Certificate of
Designation have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) [reserved]
(d) "Business Day" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
(e) "Capital Shares" means the Common Shares and any other shares of
any other class or series of capital stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
15
(f) [reserved]
(g) "Common Shares" or "Common Stock" means shares of common stock, par
value $ 0.001 per share, of the Corporation.
(h) "Common Stock Issued at Conversion", when used with reference to
the securities issuable upon conversion of the Series I Preferred Stock, means
all Common Shares now or hereafter Outstanding and securities of any other class
or series into which the Series I Preferred Stock hereafter shall have been
changed or substituted, whether now or hereafter created and however designated.
(i) "Conversion Date" means any day on which all or any portion of
shares of the Series I Preferred Stock is converted in accordance with the
provisions hereof.
(j) "Conversion Notice" means a written notice of conversion
substantially in the form annexed hereto as Annex I.
(k) "Conversion Price" has the meaning set forth in Section 6.1.
(l) "Corporation" means Commodore Applied Technologies, Inc., a
Delaware corporation, and any successor or resulting corporation by way of
merger, consolidation, sale or exchange of all or substantially all of the
Corporation's assets, or otherwise.
(m) "Current Market Price" means on any date of determination the
closing bid price of a Common Share on such day as reported on the OTC Bulletin
Board ("OTCBB"); provided, if such security is not listed or admitted to trading
on the OTCBB, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such security
on the over-the-counter market on the day in question as reported by Bloomberg
LP, or a similar generally accepted reporting service, as the case may be.
(n) "Default Dividend Rate" is equal to the Dividend Rate, plus an
additional 4% per annum.
(o) "Dividend Period" means the quarterly period commencing on and
including the Issue Date or, if a dividend has previously been paid, the day
after the immediately preceding Dividend Payment Due Date and ending on and
including the immediately subsequent Dividend Payment Due Date.
(p) "Dividend Payment Due Date" means February 15, May 15, August 15
and November 15 of each year.
(q) "Dividend Rate" means 10% per annum, computed on the basis of a
360-day year.
(r) [reserved]
16
(s) "Holder" means The Shaar Fund Ltd., any successor thereto, or any
Person or Persons to whom the Series I Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
(t) "Issue Date" means, as to any share of Series I Preferred Stock,
the date of issuance of such share.
(u) "Junior Securities" means all capital stock of the Corporation
except for the Series I Preferred Stock.
(v) "Liquidation Preference" means, with respect to a share of the
Series I Preferred Stock, an amount equal to the sum of (i) the Stated Value
thereof, plus (ii) an amount equal to 30% of such Stated Value, plus (iii) the
aggregate of all accrued and unpaid dividends (whether or not declared, whether
or not there were funds legally available for the payment of dividends and
whether or not a Dividend Payment Due Date has occurred since the last dividend
payment) on such share of Series I Preferred Stock through the date of the
payment of the Liquidation Preference; provided that, in the event of an actual
liquidation, dissolution or winding up of the Corporation, the amount referred
to in clause (iii) above shall be calculated by including accrued and unpaid
dividends to the actual date of such liquidation, dissolution or winding up,
rather than the Dividend Payment Due Date referred to above.
(w) [reserved]
(x) "Market Price" means the average of the closing bid prices of one
Common Share, as reported on the OTCBB or the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, for the ten Trading Days prior to a Conversion Date;
provided, if such security is not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the Market Price shall be the
average closing bid prices of such security on the over-the-counter market, as
reported by Bloomberg LP, or a similar generally accepted reporting service, for
the ten Trading Days prior to a Conversion Date.
(y) [reserved]
(z) "Outstanding", when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(aa) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(bb) [reserved]
17
(cc) "Registration Rights Agreement" means that certain Registration
Rights Agreement, dated as of March 15, 2000, between the Corporation and The
Shaar Fund Ltd. as amended.
(dd) "SEC" means the United States Securities and Exchange Commission.
(ee) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the time.
(ff) "Series I Preferred Shares" or "Series I Preferred Stock" means
the shares of Series I Convertible Preferred Stock of the Corporation or such
other convertible preferred stock of the Corporation as may be exchanged
therefor.
(gg) "Stated Value" has the meaning set forth in Article 2.
(hh) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(ii) "Trading Day" means any day on which (a) purchases and sales of
securities authorized for quotation on the OTCBB or the over the counter market
are reported thereon, (b) no event which results in a material suspension or
limitation of trading of the Common Shares on the OTCBB or the over the counter
market has occurred and (c) at least one bid for the trading of Common Shares is
reported on the OTCBB or the over the counter market.
(jj) "Valuation Event" has the meaning set forth in Section 6.1.
(kk) "Valuation Period" means the period of ten Trading Days
immediately preceding the (a) Conversion Date or (b) in the case of a Valuation
Period utilized for the purpose of Section 4(a)(iii) hereof, the date of payment
of a dividend in Common Stock; provided, however, that if a Valuation Event
occurs during a Valuation Period on a date less than five Trading Days before
the Conversion Date, the Valuation Period shall be extended until the date five
Trading Days after the occurrence of the Valuation Event.
All references to "cash" or "$" herein mean currency of the United
States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
The designation of this series, which consists of 550,000 shares of
Preferred Stock, shall be Series I Convertible Preferred Stock (the "Series I
Preferred Stock") and the stated value shall be $10 per share (the "Stated
Value").
ARTICLE 3
RANK
The Series I Preferred Stock shall rank prior to any other capital
stock of the Corporation.
18
ARTICLE 4
DIVIDENDS
(a) (i) The Holder shall be entitled to receive, out of funds legally
available for the payment of dividends, dividends at the Dividend Rate on the
Stated Value of each share of Series I Preferred Stock on and as of each
Dividend Payment Due Date with respect to each Dividend Period; provided,
however, that if any dividend is not paid in full on any Dividend Payment Due
Date, dividends shall thereafter accrue and be payable at the Default Dividend
Rate on the Stated Value of each share of Series I Preferred Stock until all
accrued dividends are paid in full. Dividends on the Series I Preferred Stock
shall be cumulative from the date of issue, whether or not declared for any
reason, including if such declaration is prohibited under any outstanding
indebtedness or borrowings of the Corporation or any of its Subsidiaries, or any
other contractual provision binding on the Corporation or any of its
Subsidiaries, and whether or not there shall be funds legally available for the
payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts on each
Dividend Payment Due Date, commencing May 15, 2005, to the Holders of record of
shares of the Series I Preferred Stock, as they appear on the stock records of
the Corporation at the close of business on such record date, not more than 60
days or less than 10 days preceding the payment dates thereof, as shall be fixed
by the Board of Directors; provided, however, until February 14, 2006, dividends
shall accrue but shall not be payable until February 15, 2006. Accrued and
unpaid dividends for any past Dividend Period may be declared and paid at any
time, without reference to any Dividend Payment Due Date, to Holders of record,
not more than 15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(iii) Dividends due hereunder shall be payable in cash; provided,
however, that at the option of the Corporation, such dividends shall be paid
either (x) in cash or (y) through the issuance of duly and validly authorized
and issued, fully paid and nonassessable, freely tradable shares of the Common
Stock valued at the Market Price and registered for resale in the open market
transactions on the Registration Statement (as defined in the Registration
Rights Agreement), which Registration Statement shall then be effective under
the Securities Act; provided, further, that if no funds are legally available
for the payment of cash dividends on the Series I Preferred Stock, dividends
shall be paid as provided in clause (y) above.
(b) Except as provided in Section 4(d) hereof, the Holder shall not be
entitled to any dividends in excess of the cumulative dividends, as herein
provided, on the Series I Preferred Stock.
(c) So long as any shares of the Series I Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon any Junior Securities, nor shall any
Junior Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any Subsidiary) for any consideration by the
Corporation, directly or indirectly, nor shall any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any Junior
Securities, unless in each case (i) the full cumulative dividends required to be
paid in cash on all outstanding shares of the Series I Preferred Stock shall
have been paid or set apart for payment for all past Dividend Periods with
respect to the Series I Preferred Stock and (ii) sufficient funds shall have
been paid or set apart for the payment of the dividend for the current Dividend
Period with respect to the Series I Preferred Stock.
19
(d) If the Corporation shall at any time or from time to time after the
Issue Date declare, order, pay or make a dividend or other distribution
(including, without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the Corporation or
any of its Subsidiaries by way of dividend or spin-off) on shares of its Common
Stock, then, and in each such case, in addition to the dividend obligation of
the Corporation specified in Section 4(a) hereof, the Corporation shall declare,
order, pay and make the same dividend or distribution to each Holder of Series I
Preferred Stock as would have been made with respect to the number of Common
Shares the Holder would have received had it converted all of its Series I
Preferred Shares.
ARTICLE 5
LIQUIDATION PREFERENCE; MERGERS, CONSOLIDATIONS, ETC.
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation upon liquidation, dissolution or
winding-up unless prior thereto, the Holders of shares of Series I Preferred
Stock, subject to this Article 5, shall have received the Liquidation Preference
with respect to each share.
(b) In case the Corporation shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another Person (where the
Corporation is not the survivor or where there is a change in or distribution
with respect to the Common Stock of the Corporation), sell, convey, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another Person, or effectuate a transaction or series of related transactions
in which more than 50% of the voting power of the Corporation is disposed of
(each, a "Fundamental Corporate Change") and, pursuant to the terms of such
Fundamental Corporate Change, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
20
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Corporation, then each Holder of Series I
Preferred Stock shall have the right thereafter, at its sole option, either (x)
to require the Corporation to deem such Fundamental Corporate Change to be a
liquidation, dissolution or winding up of the Corporation pursuant to which the
Corporation shall be required to distribute, upon consummation of and as a
condition to, such Fundamental Corporate Change an amount equal to 105% of the
Liquidation Preference with respect to each outstanding share of Series I
Preferred Stock, (y) to receive the number of shares of common stock of the
successor or acquiring corporation or of the Corporation, if it is the surviving
corporation, and Other Property as is receivable upon or as a result of such
Fundamental Corporate Change by a holder of the number of shares of Common Stock
into which such Series I Preferred Stock may be converted at the Conversion
Price applicable immediately prior to such Fundamental Corporate Change or (z)
require the Corporation, or such successor, resulting or purchasing corporation,
as the case may be, to, without benefit of any additional consideration
therefore, to execute and deliver to the Holder shares of its Preferred Stock
with substantial identical rights, preferences, privileges, powers, restrictions
and other terms as the Series I Preferred Stock equal to the number of shares of
Series I Preferred Stock held by such Holder immediately prior to such
Fundamental Corporate Change; provided, that all Holders of Series I Preferred
Stock shall be deemed to elect the option set forth in clause (x) above if at
least a majority in interest of such Holders elect such option. For purposes of
this Section 5(b), "common stock of the successor or acquiring corporation"
shall include stock of such corporation of any class which is not preferred as
to dividends or assets over any other class of stock of such corporation and
which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 5(b) shall similarly apply to successive Fundamental Corporate
Changes.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
Section 6.1 Conversion; Conversion Price
At the option of the Holder, the shares of Series I Preferred Stock may
be converted, either in whole or in part, into Common Shares (calculated as to
each such conversion to the nearest 1/100th of a share) at any time and from
time to time at a conversion price per share of Common Stock (the "Conversion
Price") equal to the lesser of (i) $.0285 (subject to adjustment for any
stock-split or stock combination to occur after the date hereof) or (ii) the
Market Price; provided, if such security is not quoted or listed or admitted to
trading on the OTCBB or any national securities exchange for any reason, then
any remaining unconverted Series I Preferred Stock may be converted, at the sole
option of the Holder, at a Conversion Price per share of Common Stock equal to
50% of the Market Price. At the Corporation's option, the amount of accrued and
unpaid dividends as of the Conversion Date shall not be subject to conversion
but instead may be paid in cash as of the Conversion Date; if the Corporation
elects to convert the amount of accrued and unpaid dividends at the Conversion
Date into Common Stock, the Common Stock issued to the Holder shall be valued at
the applicable Conversion Price.
The number of shares of Common Stock due upon conversion of Series I
Preferred Stock shall be (i) the number of shares of Series I Preferred Stock to
be converted, multiplied by (ii) the Stated Value plus accrued and unpaid
dividends (whether or not declared, whether or not there were funds legally
available for the payment of dividends and whether or not a Dividend Payment Due
Date has occurred since the last dividend payment), to the extent the
Corporation does not elect to pay, and pay, accrued and unpaid dividends in
cash, and divided by (iii) the applicable Conversion Price.
21
Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice thereof to each Holder. Notwithstanding anything
to the contrary contained herein, if a Valuation Event occurs during any
Valuation Period, the Holder may convert some or all of its Series I Preferred
Stock, at its sole option, at a Conversion Price equal to the Current Market
Price on any Trading Day during the Valuation Period.
For purposes of this Section 6.1, a "Valuation Event" shall mean an
event in which the Corporation takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under (A) employee benefit plans consistent
with those presently in effect, (B) presently outstanding warrants, options or
convertible securities and (C) in connection with an acquisition or merger where
the Board of Directors of the Corporation determines in good faith that such
Additional Capital Shares are not being issued for consideration lower than the
Current Market Price on the date of such issuance;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares if the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price on the date of such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Additional Capital Shares if the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable pursuant
to the terms of such convertible, exchangeable or exercisable securities shall
be less than the Current Market Price on the date of such issuance;
(f) announces or effects a Fundamental Corporate Change;
(g) makes any distribution of its assets or evidences of indebtedness
to the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(h) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 6.1(a)
through 6.1(g) hereof, inclusive, which in the opinion of the Holder, determined
in good faith, would have a material adverse effect upon the rights of the
Holder at the time of a conversion of the Preferred Stock or is reasonably
likely to result in a decrease in the Market Price.
22
Section 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series I Preferred Stock may be exercised, in
whole or in part, by the Holder by transmitting via facsimile an executed and
completed Conversion Notice to the Corporation. Each date on which a Conversion
Notice is transmitted via facsimile to the Corporation in accordance with the
provisions of this Section 6.2 shall constitute a Conversion Date. The
Corporation shall convert the Preferred Stock and issue the Common Stock Issued
at Conversion, and all voting and other rights associated with the beneficial
ownership of the Common Stock Issued at Conversion shall vest with the Holder,
effective as of the Conversion Date at the time specified in the Conversion
Notice. The Conversion Notice also shall state the name or names (with
addresses) of the Persons who are to become the holders of the Common Stock
Issued at Conversion in connection with such conversion. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in any
event not more than five Business Days after the Corporation's receipt of such
Conversion Notice, the Corporation shall (i) issue the Common Stock issued at
Conversion in accordance with the provisions of this Article 6, and (ii) utilize
the DWAC system or cause to be mailed for delivery by overnight courier to the
Holder (x) a certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such conversion, (y) cash,
as provided in Section 6.3, in respect of any fraction of a Common Share
issuable upon such conversion and (z) if the Corporation chooses to pay accrued
and unpaid dividends in cash, cash in the amount of accrued and unpaid dividends
as of the Conversion Date. Such conversion shall be deemed to have been effected
at the time at which the Conversion Notice indicates and at such time the rights
of the Holder of the Preferred Stock with regard to the Series I Preferred Stock
so converted, as such, shall cease and the Person or Persons in whose name or
names the Common Stock Issued at Conversion shall be issuable shall be deemed to
have become the holder or holders of record of the Common Shares represented
thereby and all voting and other rights associated with the beneficial ownership
of such Common Shares shall at such time vest with such Person or Persons. The
Conversion Notice shall constitute a contract between the Holder and the
Corporation, whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription (and for any cash adjustment to
which it is entitled pursuant to Section 6.3), to surrender the Series I
Preferred Stock and to release the Corporation from all liability thereon. No
cash payment aggregating less than $1.00 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies
the right of the Holder hereof to effect the conversion of the Series I
Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party commences any lawsuit or proceeding or otherwise asserts any claim
before any court or public or governmental authority which seeks to challenge,
deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to
effect the conversion of the Series I Preferred Stock into Common Shares (a
"Blockage Claim"), and such Blockage Claim shall remain in effect and not be
resolved for a period of more than 90 days, then the Holder shall have the
23
right, by written notice to the Corporation, to require the Corporation promptly
to redeem the Series I Preferred Stock for cash at a redemption price equal to
100% of the Stated Value thereof together with all accrued and unpaid dividends
(whether or not declared, whether or not there were funds legally available for
the payment of dividends and whether or not a Dividend Payment Due Date has
occurred since the last dividend payment) thereon (the "Mandatory Purchase
Amount"). Under any of the circumstances set forth above, the Corporation shall
be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in disputing
any such action or pursuing its rights hereunder (in addition to any other
rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
Holder's conversion privilege. The Corporation agrees, without cost or expense
to the Holder, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. ss. 362.
Section 6.3 Fractional Shares
No fractional Common Shares or scrip representing fractional Common
Shares shall be issued upon conversion of the Series I Preferred Stock. Instead
of any fractional Common Shares which otherwise would be issuable upon
conversion of the Series I Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction.
Section 6.4 Adjustments to Conversion Price
Except with respect to issuances of Capital Shares in connection with
an acquisition or merger where the Board of Directors of the Corporation
determines in good faith that such Capital Shares are not being issued for
consideration lower than the Current Market Price on the date of such issuance,
for so long as any shares of the Series I Preferred Stock are outstanding, if
the Corporation issues and sells (A) Common Shares at a purchase price on the
date of issuance thereof that is lower than the Conversion Price, (B) warrants
or options with an exercise price on the date of issuance thereof that is lower
than the Conversion Price for the Holder on such date, except for warrants or
options issued pursuant to employee benefit plans consistent with those
presently in effect, employee stock option agreements or stock incentive
agreements of the Corporation, or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than the Current Market Price on
the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements, then on any date on which the Conversion Price shall
be determined, the Conversion Price shall be reduced by an amount equal to the
amount by which the purchase price, exercise price or exchange price, as
applicable, is lower than the Conversion Price or Current Market Price, as
applicable, multiplied by a fraction the denominator of which is $3,953,020 or
such lesser amount equal to (A) the number of shares of Series I Preferred Stock
outstanding at the time of the adjustment, multiplied by (B) the Stated Value
and the numerator of which is the sum of (A) the aggregate number of (i) Common
Shares, in the case of (A) above, (ii) Common Shares into which the warrants or
options are exchangeable into, in the case of (B) above, or (iii) equity
securities into which the convertible or exchangeable securities are exercisable
into, in the case of (C) above, multiplied by (B) the Conversion Price, in each
case, with a maximum adjustment equal to the applicable discount triggering such
adjustment pursuant to this Section 6.4.
Section 6.5 [reserved]
24
Section 6.6 [reserved]
Section 6.7 [reserved]
Section 6.8 [reserved]
Section 6.9 Certain Conversion Limitations
(a) Notwithstanding anything herein to the contrary, the Holder shall
not have the right, and the Corporation shall not have the obligation, to
convert all or any portion of the Series I Preferred Stock (and the Corporation
shall not have the right to pay dividends on the Series I Preferred Stock in
shares of Common Stock, but such dividends shall continue to accrue until
payment thereof in shares of Common Stock will not violate the terms hereof) if
and to the extent that the issuance to the Holder of shares of Common Stock upon
such conversion (or payment of dividends) would result in the Holder being
deemed the "beneficial owner" of more than 5% of the then Outstanding shares of
Common Stock within the meaning of Section 13(d) of the Securities Exchange Act
of 1934, as amended, and the rules promulgated thereunder. If any court of
competent jurisdiction shall determine that the foregoing limitation is
ineffective to prevent a Holder from being deemed the beneficial owner of more
than 5% of the then Outstanding shares of Common Stock, then the Corporation
shall redeem so many of such Holder's shares (the "Redemption Shares") of Series
I Preferred Stock as are necessary to cause such Holder to be deemed the
beneficial owner of not more than 5% of the then Outstanding shares of Common
Stock. Upon such determination by a court of competent jurisdiction, the
Redemption Shares shall immediately and without further action be deemed
returned to the status of authorized but unissued shares of Series I Preferred
Stock, and the Holder shall have no interest in or rights under such Redemption
Shares. Any and all dividends paid on or prior to the date of such determination
shall be deemed dividends paid on the remaining shares of Series I Preferred
Stock held by the Holder. Such redemption shall be for cash at a redemption
price equal to the sum of (i) 100% of the Stated Value of the Redemption Shares
and (ii) any accrued and unpaid dividends (whether or not declared, whether or
not there were funds legally available for the payment of dividends and whether
or not a Dividend Payment Due Date has occurred since the last dividend payment)
to the date of such redemption.
(b) Notwithstanding anything herein to the contrary, if and to the
extent that, on any date (the "Section 16 Determination Date"), the holding by
the Holder of shares of the Series I Preferred Stock would result in the
Holder's becoming subject to the provisions of Section 16(b) of the Exchange Act
in virtue of being deemed the "beneficial owner" of more than 10% of the then
Outstanding shares of Common Stock, then the Holder shall not have the right,
and the Corporation shall not have the obligation, to convert so many of such
Holder's shares of Series I Preferred Stock (the "Section 16 Redemption Shares")
as shall cause such Holder to be deemed the beneficial owner of more than 10% of
the then Outstanding shares of Common Stock during the period ending 60 days
after the Section 16 Determination Date. If any court of competent jurisdiction
shall determine that the foregoing limitation is ineffective to prevent a Holder
from being deemed the beneficial owner of more than 10% of the then Outstanding
shares of Common Stock for the purposes of such Section 16(b), then the
Corporation shall redeem the Section 16 Redemption Shares. Upon such
determination by a court of competent jurisdiction, the Section 16 Redemption
25
Shares shall immediately and without further action be deemed returned to the
status of authorized but unissued shares of Series I Preferred Stock, and the
Holder shall have no interest in or rights under such Section 16 Redemption
Shares. Any and all dividends paid on or prior to the date of such determination
shall be deemed dividends paid on the remaining shares of Series I Preferred
Stock held by the Holder. Such redemption shall be for cash at a redemption
price equal to the sum of (i) 100% of the Stated Value of the Section 16
Redemption Shares and (ii) any declared and unpaid dividends to the date of such
redemption.
ARTICLE 7
VOTING RIGHTS
The Holders of the Series I Preferred Stock have no voting power,
except as otherwise provided by the General Corporation Law of the State of
Delaware (the "DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each Holder of
Series I Preferred Stock with prior notification of any meeting of the
shareholders (and copies of all proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice thereof to
each Holder at least 30 days prior to the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event,
together with a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the Holders of the Series
I Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the Holders of at least a majority of the outstanding shares of
Series I Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the outstanding shares of Series
I Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL Holders of the Series I Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series I Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series I Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of all proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
26
So long as shares of Series I Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided in the DGCL) of the Holders of at least a majority of the
then outstanding shares of Series I Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series
I Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series I Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series I Preferred Stock;
(c) increase the authorized number of shares of Series I Preferred
Stock; or
(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the Holders of
shares of the Series I Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code of 1986, as hereafter from time to time amended).
In the event Holders of least a majority of the then outstanding shares
of Series I Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series I Preferred Stock,
then the Corporation will deliver notice of such approved change to the Holders
of the Series Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of 30 days to convert pursuant to the terms of this Certificate of
Designation as in effect prior to such alteration or change or to continue to
hold their shares of Series I Preferred Stock.
Notwithstanding anything to the contrary herein, if at any time the
Corporation shall "spin-off" certain of its assets or businesses by
transferring, directly or indirectly, such assets or businesses to a Subsidiary
of the Corporation ("Spinco") and making a dividend (the "Spin-off Dividend") to
the Corporation's stockholders of the shares of capital stock of Spinco, then
prior to making the Spin-off Dividend, the Corporation shall cause Spinco to
issue to each Holder that number of shares of preferred stock of Spinco with
substantially identical rights, preferences, privileges, powers, restrictions
and other terms as the Series I Preferred Stock equal to the number of shares of
Series I Preferred Shares held by such Holder immediately prior to the Spin-off
Dividend.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Loss, Theft, Destruction of Preferred Stock
Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of shares of Series I Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series I Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series I Preferred Stock, new shares of Series
I Preferred Stock of like tenor. The Series I Preferred Stock shall be held and
27
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series I Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
Section 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series I
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series I Preferred Stock
for the purpose of receiving payment of dividends on the Series I Preferred
Stock, for the conversion of the Series I Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversion shall be valid and effectual to
satisfy and discharge the liability upon the Series I Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
Section 9.3 Fundamental Corporate Change
In the case of the occurrence of any Fundamental Corporate Change
described in Section 5(b), the Corporation shall cause to be mailed to the
Holder of the Series I Preferred Stock at its last address as it appears in the
Corporation's security registry, at least 20 days prior to the applicable
record, effective or expiration date specified in connection therewith (or, if
such 20 days notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such corporate action, or if a
record is not to be taken, the date as of which the Holders of record of Series
I Preferred Stock to be entitled to any dividend, distribution, issuance or
granting of rights, options or warrants are to be determined or the date on
which such Fundamental Corporate Change is expected to become effective, and (y)
the date as of which it is expected that Holders of record of Series I Preferred
Stock will be entitled to exchange their shares for securities, cash or other
property deliverable upon such Fundamental Corporate Change.
Section 9.4 Register
The Corporation shall keep at its principal office a register in which
the Corporation shall provide for the registration of the Series I Preferred
Stock. Upon any transfer of the Series I Preferred Stock in accordance with the
provisions hereof, the Corporation shall register such transfer on the register
of Series I Preferred Stock.
Section 9.5 Withholding
To the extent required by applicable law, the Corporation may withhold
amounts for or on account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over the Corporation
from any payments made pursuant to the Series I Preferred Stock.
Section 9.6 Headings
28
The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.
Section 9.7 Severability
If any provision of this Certificate of Designation, or the application
thereof to any person or entity or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision, and (ii) the
remainder of this Certificate of Designation and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officers on April 12, 2005.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Senior V.P.,
Chief Financial Officer
29
ANNEX I
FORM OF CONVERSION NOTICE
TO: Commodore Applied Technologies, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
The undersigned owner of this Series I Convertible Preferred Stock (the
"Series I Preferred Stock") issued by Commodore Applied Technologies, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert __________
shares of the Series I Preferred Stock into shares of the common stock, par
value $0.001 per share ("Common Stock"), of the Corporation in accordance with
the terms of the Certificate of Designation. The undersigned hereby instructs
the Corporation to convert the number of shares of the Series I Preferred Stock
specified above into Shares of Common Stock Issued at Conversion in accordance
with the provisions of Article 6 of the Certificate of Designation. The
undersigned directs that the Common Stock issuable and certificates therefore
deliverable upon conversion and the recertificated Series I Preferred Stock, if
any, not being surrendered for conversion hereby, together with any check in
payment for fractional Common Stock, be issued in the name of and delivered to
the undersigned unless a different name has been indicated below. All
capitalized terms used and not defined herein have the respective meanings
assigned to them in the Certificate of Designation. So long as the Series I
Preferred Stock shall have been surrendered for conversion hereby, the
conversion pursuant hereto shall be deemed to have been effected at the date and
time specified below, and at such time the rights of the undersigned as a Holder
of the Series I Preferred Stock shall cease and the Person or Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons.
Date and time:_________________________
-------------------------------
Signature
Fill in for registration of Series I Preferred Stock:
----------------------------------------
----------------------------------------
----------------------------------------
Please print name and address (including zip code number)
30
EXHIBIT B
SECURED CONVERTIBLE NOTE
31
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE BORROWER THAT SUCH
REGISTRATION IS NOT REQUIRED.
Issue Date: April 12, 2005 Principal Amount: US $5,100,733
COMMODORE APPLIED TECHNOLOGIES, INC.
CONVERTIBLE SECURED NOTE
THIS CONVERTIBLE SECURED NOTE (this "Note") is issued in favor of The
Shaar Fund, Ltd. (the "Holder") pursuant to the terms of that certain Exchange
Agreement, dated as of April 12, 2005 (together with all amendments,
supplements, extensions, renewals, substitutions or other modifications thereof,
and also together with all schedules, exhibits and attachments thereto, the
"Exchange Agreement") by and between Commodore Applied Technologies, Inc. (the
"Borrower") and the Holder. This Note is issued in exchange for that certain (i)
note issued by the Borrower on June 13, 2001, in the original principal amount
of $500,000 (as amended and restated), which such note has an outstanding
principal balance as of the date hereof of $3,279,585 ("Original Shaar Note"),
in conjunction with a Security Agreement, as amended and restated ("Shaar
Security Agreement"), by and among the Borrower, Commodore Advanced Sciences,
Inc. ("CASI") and Holder, a Warrant ("Shaar Warrant"), issued to Holder, a
Registration Rights Agreement ("Shaar Registration Rights agreement"), by and
between the Borrower and Holder, and a Guaranty, as amended and restated ("Shaar
Guaranty") by CASI in favor of Holder and (ii) Secured Promissory Note,
initially issued by the Borrower on June 13, 2001 to Milford Capital &
Management (or an affiliate thereof)("Milford"), in the original principal
amount of Five Hundred Thousand Dollars ($500,000), which such Secured
Promissory Note has an outstanding principal balance as of the date hereof of
One Hundred Eight-Eight Thousand One Hundred Forty-Nine Dollars ($188,149)(the
"Milford Note"), together with all accrued and unpaid interest and unpaid fees
and forbearance amounts on the Original Shaar Note and the Milford Note. The
Milford Note was acquired by Holder from Milford pursuant to that certain
Purchase Agreement, dated March 23, 2005. The Shaar Security Agreement, the
Shaar Warrant, the Shaar Registration Rights Agreement, and the Shaar Guaranty
are sometimes hereinafter collectively referred to as the "Loan Documents."
FOR VALUE RECEIVED, the Borrower hereby promises to pay to the order of
the Holder, its successors and assigns, at the office of the Holder c/o SS&C
Fund Services N.V., ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles (or at such
other address as the holder hereof may specify from time to time by written
notice to the Borrower) on April 12, 2009 (the "Maturity Date"), the principal
sum of Five Million One Hundred Thousand Seven Hundred Thirty-Three ($5,100,733)
Dollars, or so much thereof as shall constitute the entire outstanding principal
balance of the loans hereunder (the "Principal Balance"), together with interest
on the unpaid Principal Balance outstanding from time to time at the rate of 10%
32
per annum, compounded monthly. Interest shall be calculated on the basis of a
360 day year and paid for the actual number of days elapsed for any whole or
partial month in which interest is being calculated. So long as any uncured
Event of Default (hereinafter defined) exists hereunder, regardless of whether
or not there has been an acceleration of the indebtedness evidenced hereby, and
at all times after maturity of the indebtedness evidenced hereby (whether by
acceleration or otherwise), interest shall accrue on the outstanding principal
balance of this Note at a rate per annum equal to fourteen (14.0%) percent per
annum, or if such increased rate of interest may not be collected under
applicable law, then at the maximum rate of interest, if any, which may be
collected from Borrower under applicable law
On the Issue Date of this Note, the Principal Balance of this Note
shall be Four Million Six Hundred Thousand Seven Hundred Thirty-Three
($4,600,733) Dollars. During the six (6) month period following the Issue Date
of this Note, if both parties consent, which consent can be withheld by a party
for any reason whatsoever, Holder will, from time to time, make advances to the
Borrower under this Note in an aggregate principal amount of up to $500,000;
provided, that at no time shall this Note have an outstanding Principal Balance
more than $5,100,733. Disbursements of advances hereunder shall be made by wire
transfer to an account designated in writing by Borrower to Holder, or otherwise
in a manner agreed upon by Holder and the Borrower.
Beginning on the Issue Date and for the twelve (12) month period
thereafter (the "Deferral Period"), interest shall accrue on the principal
amount of the Note outstanding from time to time. On April 12, 2006, the
Borrower shall make a single lump sum payment to the Holder in an amount equal
to all interest that accrued during the Deferral Period. Beginning May 15, 2006,
and monthly thereafter on the 15th day of each month until the Maturity Date,
the Borrower shall pay to the Holder all accrued and unpaid interest on the
Principal Balance of the Note outstanding during the prior month. On the
Maturity Date, the Borrower shall make a single lump sum payment to the Holder
equal to the outstanding Principal Balance of the Note, together with all
accrued and unpaid interest thereon. Each date that a payment hereunder is due
shall be referred to as "Payment Date". All payments of principal and/or
interest shall be paid no later than 3:00 p.m., New York City time on the dates
set forth Above; provided, however, that the Borrower shall be entitled to a
fifteen (15) day period ("Grace Period") in which to make each such payment (and
interest shall accrue during such Grace Period at the rates per annum specified
herein).
Interest on the outstanding Principal Balance shall be payable in cash
or shares of Common Stock, par value $0.001 per share, of the Borrower (the
"Common Stock" or "Common Shares") at the Borrower's option at the then
applicable Conversion Price (as such term is defined in Section 5 below) and
shall accrue commencing on the date hereof and shall continue until payment in
full of the outstanding Principal Balance has been made. The Borrower shall only
be permitted to issue shares of its Common Stock in payment of accrued interest
if the shares to be issued are, as of the date of such issuance, are duly and
validly authorized and issued, fully paid and nonassessable, freely tradable
shares of the Common Stock, registered for resale in the open market
transactions on a registration statement, which registration statement shall
then be effective under the Securities Act of 1933, as amended (the "Act").
33
Notwithstanding the foregoing, at least ten (10) days prior to each Payment
Date, the Borrower will send written notice to the Holder of the estimated
interest amount to be paid on the Payment Date and the manner (cash or shares of
Common Stock) in which such interest shall be paid. The interest so payable will
be paid to the person in whose name this Note (or one or more predecessor Notes)
is registered on the records of the Borrower regarding registration of the Note
(the "Note Register"). Each such payment shall be made in lawful money of the
United States of America by wire transfer of immediately available funds of the
Borrower payable to Holder as follows:
Bank: Bank of New York
Address: ▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇
ABA no.: ▇▇▇-▇▇▇-▇▇▇
Account name: ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ LLP
Account no.: 637-▇▇▇▇▇▇▇
Reference: Shaar Fund - escrow
or at such other address as the Holder shall from time to time indicate
by written notice to the Borrower.
This Note may not be prepaid, in whole or in part, prior to the
Maturity Date.
By acceptance of this Note, the Holder agrees that it will promptly
deliver and surrender this Note to the Borrower upon full payment thereof
(including interest and fees), and that it will promptly notify the Borrower of
any disposition of the Note and of the name and address of the transferee of
this Note. All of the agreements of the Borrower and the other terms of the Loan
Documents and the Exchange Agreement are incorporated herein by reference as if
the same were fully set forth in this Note. Terms used in this Note, but not
otherwise defined shall have the meanings given to such terms in the Certificate
of Designation of Series I Convertible Preferred Stock of the Borrower ("Series
I Preferred Stock").
This Note is subject to the following additional provisions:
1. Events of Default. Any of the following events which occur and are
continuing shall constitute an "Event of Default": (a) if the Borrower fails to
make any payment of any principal or interest under this Note on a Payment Date,
including the allowance for the Grace Period; (b) if a receiver, trustee or
other such official is appointed for the Borrower, or if any proceedings are
commenced by or against the Borrower under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law or
statute of the federal government or any state government and, if such
proceedings are instituted against the Borrower, and (i) the Borrower by any
action or failure to act indicates his approval of, consent to or acquiescence
therein; (ii) an order shall be entered approving the petition or granting
relief in such proceeding or (iii) such proceeding remains undismissed,
undischarged or unbonded for a period of forty-five (45) days; (c) except as
hereinafter provided, if the Borrower breaches any covenant set forth in this
Note or any of the Loan Documents and such breach is not cured within thirty
34
(30) days; (d) if Borrower voluntarily files for protection under any applicable
bankruptcy or insolvency statutes; (e) if Borrower shall default under any
obligations relating to (i) the Exchange Agreement, (ii) the shares of Series I
Preferred Stock, (iii) the Securities Purchase Agreement entered into on March
15, 2000 with Holder, (iv) any warrants exercisable for Common Stock of the
Borrower issued to or held by Holder, or (v) any existing Registration Rights
Agreement to which Holder is a party; (f) any representation or warranty made or
deemed made by a Borrower or any subsidiary of Borrower (a "Subsidiary") in any
agreement between or among the Borrower and/or such Subsidiary and Holder, or
which is contained in any certificate, document, opinion, financial or other
statement furnished at any time under or in connection therewith, shall prove to
have been incorrect in any material respect on or as of the date made or deemed
made; (g) either Borrower or any Subsidiary shall: (i) fail to pay any material
indebtedness, as the case may be, or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise); or (ii) fail to perform or observe any material term, covenant or
condition on its part to be performed or observed under any agreement or
instrument relating to any such indebtedness, when required to be performed or
observed, if the effect of such failure to perform or observe is to accelerate,
or to permit the acceleration of, after the giving of notice or passage of time,
or both, the maturity of such indebtedness; or any such indebtedness shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
or (iii) fail to make any payment due under or otherwise fail to perform or
observe any covenant or obligation contained in the Shaar Guaranty; (h) Borrower
or any Subsidiary shall generally not, or be unable to, or shall admit in
writing its inability to, pay its debts as such debts become due; (i) there
shall occur a loss, theft, damage or destruction of any material portion of the
tangible assets of a Borrower or a Subsidiary for which there is either no
insurance coverage or for which, in the reasonable opinion of Holder, there is
insufficient insurance coverage; (j) other than as a result of or inaction on
the part of the Holder, Holder shall fail to have a perfected first priority
security interest in, except for the Patents in foreign jurisdictions, the
Collateral (as defined in the Shaar Security Agreement); or (k) (i) the Borrower
challenges, disputes or denies the right of the Holder hereof to effect the
conversion of the Principal Balance or shares of Series I Preferred Stock or
dividends thereon into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with Section 6 or (ii) any third party
commences any lawsuit or proceeding or otherwise asserts any claim before any
court or public or governmental authority which seeks to challenge, deny,
enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect
the conversion of the Principal Balance or any accrued interest thereon, or
shares of Series I Preferred Stock or dividends thereon, into Common Shares (a
"Blockage Claim"), and such Blockage Claim shall remain in effect and not be
resolved for a period of more than 90 days. Upon the occurrence of an Event of
Default, the entire Principal Balance and all unpaid accrued interest of this
Note shall, at the Holder's option, become immediately due and payable upon
written notice thereof (other than in the case of an Event of Default described
in clauses (b) and (d) above in which case the entire Principal Balance and
accrued interest shall become immediately due and payable without any required
written notice to the Borrower. Notwithstanding the foregoing, in the event of a
violation of Section 1(g)(i) or (ii) above, such violation shall not result in
an Event of Default hereunder and the Holder shall have no right to exercise the
remedies set forth herein if (1) the Borrower has entered into a written
agreement with the party to whom it is indebted, pursuant to which, such party
agrees to forbear from exercising any remedy available to it under such
indebtedness and (ii) such agreement remains in effect. The Borrower shall
promptly provide the Holder with a copy of any such Forbearance Agreement and
all amendments or modifications thereto.
35
2. [Reserved]
3. Covenants of Borrower. Borrower hereby covenants and agrees that it
will promptly, upon becoming aware of the existence of any condition or event
which constitutes an Event of Default hereunder, deliver a written notice
specifying the nature and period of existence thereof and what action Borrower
is taking (and proposes to take) with respect thereto.
4. Representations and Warranties of Borrower. The Borrower
acknowledges and agrees that, based upon advice received from its legal counsel
after such counsel reviewed certain "No-Action" letters which it deemed
relevant, this Note, for the purposes of and pursuant to Rule 144(d)(3)(i),
promulgated under the Act, shall be deemed to have been acquired at the same
time as the Original Shaar Note, and that the shares of Common Stock issuable
upon conversion hereof shall be deemed, by reason of Rule 144(d)(3)(ii) of the
Act to have been acquired at the same time as the Original Shaar Note and that
upon issuance of such shares, the Holder shall be entitled to immediately sell
such shares under Rule 144. In the event the Holder is prohibited from publicly
selling any shares of Common Stock issued upon conversion of the Principal
Balance, the Borrower shall promptly use its commercially reasonable efforts to
register such shares pursuant to an effective registration statement permitting
their resale under the Act.
5. Conversion; Conversion Price. At the option of the Holder,
outstanding Principal Balance may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share) at any time and from time to time at a conversion price per share of
Common Stock (the "Conversion Price") equal to the lesser of (i) $.0285 (subject
to adjustment for any stock-split or stock combination to occur after the date
hereof) or (ii) the average of the closing bid prices of one Common Share, as
reported on the OTC Bulletin Board ("OTCBB") or the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, for the ten Trading Days prior to a Conversion Date (the
"Market Price"); provided, if such security is not quoted or listed or admitted
to trading on the OTCBB or any national securities exchange, the Market Price
shall be the 50% of the average closing bid prices of such security on the
over-the-counter market, as reported by Bloomberg LP, or a similar generally
accepted reporting service, for the ten Trading Days prior to a Conversion Date.
For purposes hereof, "Trading Day" means any day on which (a) purchases and
sales of securities authorized for quotation on the OTCBB or the over the
counter market are reported thereon, (b) no event which results in a material
suspension or limitation of trading of the Common Shares on the OTCBB or the
over the counter market has occurred and (c) at least one bid for the trading of
Common Shares is reported on the OTCBB or the over the counter market .
The number of shares of Common Stock due upon conversion of all or a
portion of the Principal Balance shall be (i) the portion of the Principal
Balance divided by (ii) the applicable Conversion Price.
Within two Business Days of the occurrence of a Valuation Event
(hereinafter defined), the Borrower shall send notice thereof to the Holder.
Notwithstanding anything to the contrary contained herein, if a Valuation Event
36
occurs during any Valuation Period, the Holder may convert some or all of the
Principal Balance, at its sole option, at a Conversion Price equal to the
Current Market Price on any Trading Day during the Valuation Period.
For purposes of this Section 5, a "Valuation Event" shall mean an event
in which the Borrower takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 5(a) and 5(b)
above, at a price per share less, or for other consideration lower than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under (A) employee benefit plans consistent
with those presently in effect, (B) presently outstanding warrants, options or
convertible securities and (C) in connection with an acquisition or merger where
the Board of Directors of the Borrower determines in good faith that such
Additional Capital Shares are not being issued for consideration lower than the
Current Market Price on the date of such issuance;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares if the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price on the date of such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Additional Capital Shares if the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable pursuant
to the terms of such convertible, exchangeable or exercisable securities shall
be less than the Current Market Price on the date of such issuance;
(f) announces or effects a Fundamental Corporate Change;
(g) makes any distribution of its assets or evidences of indebtedness
to the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Borrower's assets (other than under the circumstances provided for in
the foregoing Sections 5(a) through 5(e)); or
(h) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 5(a)
through 5(g) hereof, inclusive, which in the opinion of the Holder, determined
in good faith, would have a material adverse effect upon the rights of the
Holder at the time of a conversion of the Principal Balance or is reasonably
likely to result in a decrease in the Market Price.
6. Exercise of Conversion Privilege.
37
(a) Conversion of the Principal Balance may be exercised, in whole or
in part, by the Holder by transmitting via facsimile an executed and completed
Conversion Notice, in the form attached hereto as Exhibit A, to the Borrower.
Each date on which a Conversion Notice is transmitted via facsimile to the
Borrower in accordance with the provisions of this Section 6 shall constitute a
"Conversion Date". The Borrower shall convert such amount of the Principal
Balance and issue the Common Stock, and all voting and other rights associated
with the beneficial ownership of the Common Stock shall vest with the Holder,
effective as of the Conversion Date at the time specified in the Conversion
Notice. The Conversion Notice also shall state the name or names (with
addresses) of the Persons who are to become the holders of the Common Stock in
connection with such conversion. If such conversion would convert the entire
remaining Principal Balance of this Note, the Holder shall deliver to the
Borrower the original Note being converted no later than five (5) business days
after the delivery of the Conversion Notice. As promptly as practicable after
the receipt of the Conversion Notice as aforesaid, but in any event not more
than five Business Days after the Borrower's receipt of such Conversion Notice,
the Borrower shall (i) issue the Common Stock in accordance with the provisions
of this Agreement, and (ii) utilize the DWAC system or cause to be mailed for
delivery by overnight courier to the Holder (x) a certificate or certificate(s)
representing the number of Common Shares to which the Holder is entitled by
virtue of such conversion and (y) cash, as provided in Section 7, in respect of
any fraction of a Common Share issuable upon such conversion. Such conversion
shall be deemed to have been effected at the time at which the Conversion Notice
indicates and at such time the rights of the Holder of the Note, as such, shall
cease and the Person or Persons in whose name or names the Common Stock shall be
issuable shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest with
such Person or Persons. The Conversion Notice shall constitute a contract
between the Holder and the Borrower, whereby the Holder shall be deemed to
subscribe for the number of Common Shares which it will be entitled to receive
upon such conversion and, in payment and satisfaction of such subscription (and
for any cash adjustment to which it is entitled pursuant to Section 7), to
surrender that portion of the Note and to release the Borrower from all
liability thereon. No cash payment aggregating less than $1.00 shall be required
to be given unless specifically requested by the Holder.
(b) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). The Borrower hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of
the conversion of the Note. The Borrower agrees, without cost or expense to the
Holder, to take or consent to any and all action necessary to effectuate relief
under 11 U.S.C. ss. 362.
7. Fractional Shares. No fractional Common Shares or scrip representing
fractional Common Shares shall be issued upon conversion of the Note. Instead of
any fractional Common Shares which otherwise would be issuable upon conversion
of the Note, the Borrower shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction.
8. Adjustments to Conversion Price. Except with respect to issuances of
Capital Shares in connection with an acquisition or merger where the Board of
Directors of the Borrower determines in good faith that such Capital Shares are
not being issued for consideration lower than the Current Market Price on the
date of such issuance, for so long as the obligations under the Note are
outstanding, if the Borrower issues and sells pursuant to an exemption from
38
registration under the Securities Act (A) Common Shares at a purchase price on
the date of issuance thereof that is lower than the Conversion Price, (B)
warrants or options with an exercise price on the date of issuance thereof that
is lower than the Conversion Price for the Holder on such date, except for
warrants or options issued pursuant to employee benefit plans consistent with
those presently in effect, employee stock option agreements or stock incentive
agreements of the Borrower, or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than the Current Market Price on
the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements, then on any date on which the Conversion Price shall
be determined, the Conversion Price shall be reduced by an amount equal to the
amount by which the purchase price, exercise price or exchange price, as
applicable, is lower than the Conversion Price or Current Market Price, as
applicable, multiplied by a fraction the denominator of which is the outstanding
principal amount of this Note at the time of the adjustment and the numerator of
which is the sum of (A) the aggregate number of (i) Common Shares, in the case
of (A) above, (ii) Common Shares into which the warrants or options are
exchangeable into, in the case of (B) above, or (iii) equity securities into
which the convertible or exchangeable securities are exercisable into, in the
case of (C) above, multiplied by (B) the Conversion Price, in each case, with a
maximum adjustment equal to the applicable discount triggering such adjustment
pursuant to this Section 8.
9. Certain Conversion Limitations.
(a) Notwithstanding anything herein to the contrary, the Holder shall
not have the right, and the Borrower shall not have the obligation, to convert
all or any portion of the Principal Balance (and the Borrower shall not have the
right to pay interest on the Principal Balance in shares of Common Stock, but
such interest shall continue to accrue until payment thereof in shares of Common
Stock will not violate the terms hereof) if and to the extent that the issuance
to the Holder of shares of Common Stock upon such conversion (or payment of
interest) would result in the Holder being deemed the "beneficial owner" of more
than 5% of the then Outstanding shares of Common Stock within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules
promulgated thereunder.
(b) Notwithstanding anything herein to the contrary, if and to the
extent that, on any date (the "Section 16 Determination Date"), the holding by
the Holder of the Note would result in the Holder's becoming subject to the
provisions of Section 16(b) of the Exchange Act in virtue of being deemed the
"beneficial owner" of more than 10% of the then Outstanding shares of Common
Stock, then the Holder shall not have the right, and the Borrower shall not have
the obligation, to convert all or any portion of the Principal Balance (and the
Borrower shall not have the right to pay interest on the Principal Balance in
shares of Common Stock, but such interest shall continue to accrue until payment
thereof in shares of Common Stock will not violate the terms hereof) as shall
cause such Holder to be deemed the beneficial owner of more than 10% of the then
Outstanding shares of Common Stock during the period ending 60 days after the
Section 16 Determination Date.
39
10. Merger; Consolidation. If, for as long as this Note remains
outstanding, the Borrower enters into a merger (other than where the Borrower is
the surviving entity) or consolidation with another corporation or other entity
or a sale or transfer of all or substantially all of the assets of the Borrower
to another person (collectively, a "Sale"), the Borrower will require, in the
agreements reflecting such transaction, that the surviving entity expressly
assume the obligations of the Borrower hereunder.
11. Adjustments.
(a) In case of any stock split or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization, merger or consolidation,
or like capital adjustment affecting the Common Stock of the Borrower (each, an
"Adjustment"), the Conversion Rate in effect at the time of the effective date
for such Adjustment shall be proportionally adjusted so that the Holder of the
Note which is converted after such date shall be entitled to receive the
aggregate number and kind of shares which, if this Note had been converted by
the Holder immediately prior to such date, the Holder would have owned upon such
conversion and been entitled to receive upon such Adjustment (and for such
purposes the Holder shall, to the extent relevant, be deemed to have converted
this Note immediately prior to the record date or the effective date, as the
case may, for the Adjustment). For example, if the Borrower declares a 2:1 stock
dividend or stock split and the Conversion Price immediately prior to the record
date for such Adjustment was $1.00 per share, the adjusted Conversion Price
immediately after the Adjustment would be $.50 per share. Such adjustment may be
made successively if there is more than one Adjustment. In all other respects
the provisions of this Section shall be applied in a fair, equitable and
reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights. The provisions of this
Section 11 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, mandatory share exchanges and sales and transfers.
(b) In the event the Borrower shall propose to take any action of the
type described in Section 5, 8, 10, 11 and 12, the Borrower shall give notice to
Holder, which notice shall specify the record date, if any, with respect to any
such action and the approximate date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Price and the
number, kind or class of shares or other securities or property which shall be
deliverable upon conversion of the Note. In the case of any action which would
require the fixing of a record date, such notice shall be given at least twenty
(20) days prior to the date so fixed, and in case of all other action, such
notice shall be given at least fifteen (15) days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
12. Spin-Offs. If, for any reason, prior to payment in full hereunder
or the conversion of this Note in full, the Borrower spins off or otherwise
divests itself of a part of its business or operations or disposes all or of a
part of its assets in a transaction (the "Spin Off") in which the Borrower does
not receive compensation for such business, operations or assets, but causes
securities of another entity (the "Spin Off Securities") to be issued to
security holders of the Borrower, then the Borrower shall cause (i) to be
reserved Spin Off Securities equal to the number thereof which would have been
issued to the Holder had all of the Holder's unconverted Note outstanding on the
40
record date (the "Record Date") for determining the amount and number of Spin
Off Securities to be issued to security holders of the Borrower (the
"Outstanding Note") been converted as of the close of business on the trading
day immediately before the Record Date (the "Reserved Spin Off Shares"), and
(ii) to be issued to the Holder on the conversion of all or any of the Note,
such amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off
Shares multiplied by (y) a fraction, of which (I) the numerator is the amount of
the Note then being converted, and (II) the denominator is the amount of the
Note.
13. Costs. The Borrower shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of the Note; provided that the Borrower shall not
be required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the Holder in respect of which such shares are being
issued.
14. Reservation of Shares. The Borrower shall at all times from and
after the date hereof shall maintain a sufficient number of shares of Common
Stock, duly and validly authorized and reserved for issuance to satisfy the
conversion of this Note, the Series I Preferred Stock, the Shaar Warrant and all
other warrants held by the Holder (collectively, the "Warrants"); provided,
that, in no event shall the number of shares reserved for such issuance be less
than the greater of (a) 75,000,000 and (b) 115% of the number of shares
necessary for the full conversion of this Note, the Series I Preferred Stock and
the Warrants. In addition to such other remedies as shall be available to Holder
hereunder, the Borrower will take such corporate action as may, in the opinion
of its counsel, be necessary to increase the number of authorized but unissued
shares of Common Stock to the number of shares required hereby, including
without limitation, using its best efforts to obtain the requisite stockholder
approval necessary to increase the number of authorized shares of the Borrower's
Common Stock.
15. Representations of Holder.Upon conversion of all or a portion of
this Note, the Holder shall confirm in writing, in a form reasonably
satisfactory to the Borrower, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, and that such Holder is an Accredited Investor (as defined in Rule
501(a) of Regulation D promulgated under the 1933 Act). The Borrower
acknowledges that Holder's duly executed certification on the Notice of
Conversion is satisfactory confirmation of the facts set forth in the
immediately preceding sentence. If such Holder cannot make such representations
because they would be factually incorrect, it shall be a condition to such
Holder's conversion of all or a portion of the Note that the Borrower receive
such other representations as the Borrower considers reasonably necessary to
assure the Borrower that the issuance of its securities upon conversion of the
Note shall not violate any United States or state securities laws.
16. Communications and Notices. Except as otherwise specifically
provided herein, all communications and notices provided for in this Note shall
be sent by facsimile to:
If to the Holder, to:
The Shaar Fund Ltd.
c/o Maarten ▇▇▇▇▇▇▇▇
SS&C Fund Services N.V.
▇▇▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Phone: (▇▇▇-▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇-▇) ▇▇▇-▇▇▇▇
41
with copies to:
Meltzer, Lippe, ▇▇▇▇▇▇▇▇▇ & Breitstone, LLP
Attn: ▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and:
▇▇▇▇▇▇▇▇ Capital Management
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
If to the Borrower, to:
Commodore Applied Technologies, Inc.
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Chief Financial Officer
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Notices sent by facsimile shall be deemed received upon delivery. The
Borrower and the Holder may from time to time change their respective addresses,
for purposes of this Section 16, by written notice to the other parties;
provided, however, that notice of such change shall be effective only upon
receipt.
17. Governing Law; Jurisdiction. This Note shall be construed in
accordance with and governed by the laws of the State of New York. Each of the
parties hereto consents to the exclusive jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Note. Each party hereto hereby irrevocably and
unconditionally waives, to the fullest extent it may effectively do so, any
defense of an inconvenient forum or improper venue to the maintenance of such
action or proceeding in any such court and any right of jurisdiction on account
of its place of residence or domicile. Each party hereto irrevocably and
42
unconditionally consents to the service of any and all process in any such
action or proceeding in such courts by the mailing of copies of such process by
certified or registered airmail at its address specified herein. Each party
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
18. Assignment. This Note shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto; provided that Borrower
shall not be permitted to assign its obligations hereunder.
19. Security. This Note is secured inter alia, (i) by a security
interest in certain assets of the Borrower and CASI as set forth in the Shaar
Security Agreement and (ii) by a certain Patent Collateral Assignment dated as
of June 13, 2001 from Borrower to Holder, as amended and restated as of the date
hereof. Borrower agrees and acknowledges that all of its payment and performance
obligations under this Note constitute "Obligations", as such term is defined in
the Shaar Security Agreement. Subject to the consent of the Holder, which
consent shall not be unreasonably withheld, the Borrower shall, upon at not less
than fifteen (15) days prior written notice to the Holder, be permitted to (x)
amend the "Collateral" described on Security Agreement and Patent Collateral
Assignment to reflect patents abandoned by the Borrower in the ordinary course
of its business and (y) grant a first priority security interest on new
equipment obtained by the Borrower or CASI in connection with an equipment
leasing arrangement entered into after the date hereof in a transaction approved
by the Board of Directors of the Borrower or CASI, as the case may be.
20. Enforcement and Waiver. No failure or delay on the part of Holder
in exercising any of its rights, powers or privileges hereunder shall operate as
a waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise of any right, power or privilege. Borrower hereby
waives diligence, presentment, demand for payment, notice of non-payment,
presentment, notice of dishonor, protest, notice of protest or any other notice
in connection with the delivery, acceptance, performance or enforcement of this
Note.
21. Modification. This Note may not be changed or terminated orally,
nor may any of its provisions be waived, except by an agreement in writing
signed by the party against whom enforcement of such change or termination is
sought.
22. Remedies. In case any one or more Events of Default shall occur and
be continuing, Holder may proceed to protect and enforce its rights by an action
at law, suit in equity or other appropriate proceeding. Borrower shall pay all
reasonable costs of collection when incurred, including reasonable attorneys'
fees.
23. Collection Costs. In the event that the Holder shall place this
Note in the hands of an attorney for collection during the continuance of any
Event of Default, the Borrower shall further be liable to the Holder for all
costs and expenses (including reasonable attorneys' fees) which may be incurred
by the Holder in enforcing this Note, which amounts may, at the Holder's option,
be added to the principal hereof.
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24. Waiver of Jury Trial. THE BORROWER EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER
THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE; AND THE BORROWER HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THIS WAIVER OF THE RIGHT TO TRIAL
BY JURY.
25. Prior Notes. The Borrower agrees and acknowledges that the
indebtedness of the Borrower evidenced by the Original Shaar Note and the
Milford Note (together, the "Prior Notes") remains outstanding as of the date
hereof, and this Convertible Secured Note: (a) is exchanged for and re-evidences
the indebtedness evidenced by the Prior Notes; (b) is given in substitution for,
and not in payment of the Prior Notes; and (c) is not intended to discharge or
constitute a novation of the Prior Notes.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Borrower has executed this Note on the date
first above written.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Chief Financial Officer
45
EXHIBIT A
[FORM OF NOTICE OF CONVERSION]
_________ __, 200_
Commodore Applied Technologies, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
The undersigned, owner of Commodore Applied Technologies, Inc.'s (the
"Borrower") Convertible Secured Note, due April 12, 2009 (the "Note"), hereby
exercises its option to convert $___________ principal amount of the Note into
shares of the common stock, $.001 par value per share, of the Borrower ("Common
Stock"), in accordance with the terms of the Note.
The undersigned hereby instructs the Borrower to convert the portion of
the Note specified above into shares of Common Stock at Conversion Price in
accordance with the provisions of Section 5 of the Note. The undersigned directs
that (i) the Common Stock issuable and certificates therefor deliverable upon
conversion, and (ii) if so delivered by the Holder, the Note, recertificated in
the principal amount, if any, not being surrendered for conversion hereby,
together with any check in payment for fractional Common Stock, be issued in the
name of and delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Note.
By delivering this conversion notice, the undersigned owner represents
and warrants to the Borrower that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, and that such Holder is an Accredited Investor (as defined in Rule
501(a) of Regulation D promulgated under the 1933 Act).
HOLDER:
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EXHIBIT C
RELEASE
For and in consideration of the obligations of COMMODORE APPLIED
TECHNOLOGIES, INC. ("COMMODORE") in connection with exchange of certain
securities of COMMODORE pursuant to that certain Exchange Agreement, of even
date herewith (the "Exchange Agreement"), and the issuance by COMMODORE of
shares of its Series I Convertible Preferred Stock and its Secured Convertible
Note, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, THE SHAAR FUND, LTD. ("SHAAR"), individually
and derivatively and on behalf of its predecessors, successors, affiliates,
subsidiaries, heirs, trustees, officers, directors, agents, representatives,
consultants, administrators and assigns (hereinafter individually and
collectively referred to as the "Shaar Releasing Parties"), hereby release,
acquit, and discharge individually and collectively Commodore, its subsidiaries,
affiliates and advisors, and all of Commodore's officers, directors,
shareholders, employees, consultants, attorneys, representatives, agents,
predecessors, successors, assigns, heirs, executors, administrators and other
personal representatives (hereinafter individually and collectively referred to
as the "Commodore Released Parties") of and from any and all actions, causes of
action, suits, debts, dues, accounts, reckonings, specialties, bonds, bills,
covenants, contracts, agreements, promises, damages, judgments, debts, dues,
sums of money, obligations, liabilities, controversies, costs, expenses,
47
attorneys' fees, executions, claims, rights and demands whatsoever, whether
known or unknown, asserted or unasserted, actual or potential, individual or
joint, direct or indirect, fixed or contingent, in law, admiralty or equity, of
every kind and nature whatsoever, which the Shaar Releasing Parties ever had,
now have, or hereafter can, shall, or may have, or claim to have, against the
Commodore Released Parties, for, upon, or by reason of any matter, cause of
action, or thing, whatsoever from the beginning of the world to the date hereof
(collectively, the "Commodore Released Claims") provided, however, that this
RELEASE shall not apply to, or limit the Shaar Releasing Parties' rights with
respect to, claims, cross-claims, or other claims, rights, actions, causes of
action, suits, actions, debts, dues, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies, agreements, promises,
damages, judgments, executions, claims, and demands against the Commodore
Released Parties relating to the terms, conditions and obligations set forth in
the (i) Exchange Agreement and all other documents and instruments entered into
or delivered in connection therewith including, but not limited to, the Series I
Certificate of Designation creating COMMODORE'S Series I Convertible Preferred
Stock and COMMODORE'S 10% Convertible Secured Note issued in favor of SHAAR,
(ii) all documents and instruments entered into or delivered in connection with
that certain Amended and Restated Secured Promissory Note of COMMODORE, issued
June 13, 2001, in favor of SHAAR, including, but not limited to the Security
Agreement by and among COMMODORE, Commodore Advanced Sciences, Inc. ("CASI") and
SHAAR and a Guaranty by CASI in favor of SHAAR, (iii) all warrants issued to
SHAAR and exercisable for shares of common stock of COMMODORE. The Commodore
Released Claims include, without limitation, any claims for breach of express or
implied contract, breach of implied misrepresentation, negligence, negligent
misrepresentation, breach of fiduciary duty, actual or constructive fraud,
including, without limitation, common law fraud or fraud or manipulation
asserted under any statutory theory under any federal or state law and
including, without limitation, under any theory of primary, secondary or control
person liability, estoppel, defamation, conspiracy, business or economic
interference, violation of any federal or state securities law, rule or
administrative regulation, violation of public policy and including for
attorneys' or other professional fees.
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This RELEASE may not be changed orally.
IN WITNESS WHEREOF, SHAAR, as RELEASOR has duly executed this Release
as of the 12th day of April, 2005.
THE SHAAR FUND, LTD.
By: SS&C Fund Services N.V.
By: /s/ Maarten ▇▇▇▇▇▇▇▇
--------------------
Name: Maarten ▇▇▇▇▇▇▇▇
Title: Director
By: /s/ ▇▇▇▇▇ Ijsseling
-------------------
Name: ▇▇▇▇▇ Ijsseling
Title: Director
49
EXHIBIT D
RELEASE
For and in consideration of the obligations of THE SHAAR FUND, LTD.
("SHAAR") in connection with exchange of certain securities of COMMODORE APPLIED
TECHNOLOGIES, INC. ("COMMODORE") pursuant to that certain Exchange Agreement, of
even date herewith, and the issuance by COMMODORE of shares of its Series I
Convertible Preferred Stock and its Secured Convertible Note, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, COMMODORE, individually and derivatively and on behalf of its
predecessors, successors, affiliates, subsidiaries, heirs, trustees, officers,
directors, agents, representatives, consultants, administrators and assigns
(hereinafter individually and collectively referred to as the "Commodore
Releasing Parties"), hereby release, acquit, and discharge individually and
collectively SHAAR, its subsidiaries, affiliates, advisors, including, without
limitation, Shaar Advisory Services, N.V., ▇▇▇▇▇▇▇▇ Capital Management LLC, Cita
Investments Israel Ltd., and all of Shaar's officers, directors, partners,
members, shareholders, employees, consultants, attorneys, representatives,
agents, predecessors, successors, assigns, heirs, executors, administrators and
personal representatives, including, without limitation, ▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇
▇▇▇▇▇▇▇ (hereinafter individually and collectively referred to as the "Shaar
Released Parties") of and from any and all actions, causes of action, suits,
debts, dues, sums of money, accounts, reckonings, specialties, bonds, bills,
covenants, contracts, agreements, promises, damages, judgments, debts, dues,
obligations, liabilities, controversies, costs, expenses, attorneys' fees,
executions, claims, rights and demands whatsoever, whether known or unknown,
asserted or unasserted, actual or potential, individual or joint, direct or
indirect, fixed or contingent, in law, admiralty or equity, of every kind and
nature whatsoever, which the Commodore Releasing Parties ever had, now have, or
hereafter can, shall, or may have, or claim to have, against the Shaar Released
Parties, for, upon, or by reason of any matter, cause of action, or thing,
50
whatsoever from the beginning of the world to the date hereof (collectively, the
"Shaar Released Claims"). The Shaar Released Claims include, without limitation,
any claims for breach of express or implied contract, breach of implied
misrepresentation, negligence, negligent misrepresentation, breach of fiduciary
duty, actual or constructive fraud, including, without limitation, common law
fraud or fraud or manipulation asserted under any statutory theory under any
federal or state law and including, without limitation, under any theory of
primary, secondary or control person liability, estoppel, defamation,
conspiracy, business or economic interference, violation of any federal or state
securities law, rule or administrative regulation, violation of public policy
and including for attorneys' or other professional fees.
This RELEASE may not be changed orally.
IN WITNESS WHEREOF, COMMODORE, as RELEASOR has duly executed this
Release as of the 12th day of April, 2005.
COMMODORE APPLIED TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
51