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Exhibit 4(e)(2)
CLASS B EXCHANGE AGREEMENT
This CLASS B EXCHANGE AGREEMENT, dated as of May 8, 1997 (this
"Agreement"), is made between Substance Abuse Technologies, Inc., a Delaware
corporation (the "Company"), and Southbrook International Investments, Ltd., a
corporation organized and existing under the laws of the British Virgin Islands
(the "Purchaser").
WHEREAS, concurrently with the execution of this Agreement,
the Company and the Purchasers are entering into a Convertible Debenture and
Preferred Stock Purchase Agreement (the "Purchase Agreement"), pursuant to
which, among other things, the Company will issue and sell to the Purchaser, and
the Purchaser will buy, an aggregate principal amount of the Company's 14%
Senior Subordinated Convertible Debentures due May 8, 2000 (the "Convertible
Debentures") and shares of the Company's Class B Preferred Stock, par value $.01
per share (the "Preferred Stock"); and
WHEREAS, the Company and the Purchaser desire to provide the
Purchaser with the option to exchange shares of the Preferred Stock into shares
of the Company's Common Stock, par value $.01 per share (the "Common Stock"),
and to clarify and amplify certain terms of the Preferred Stock;
NOW, THEREFORE, for good and value consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
Section 1. Dividends.
(a) Holders of the Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) equal to 14% per
annum, payable, in cash or shares of Common Stock at the option of the Company,
semi-annually in arrears, but in no event later than the applicable Exchange
Date (as hereinafter defined). Dividends on the Preferred Stock shall be
calculated on the basis of a 360-day year, shall accrue daily commencing the
Original Issue Date (as defined in Section 6), and shall be deemed to accrue on
such date whether or not earned or declared and whether or not there are
profits, surplus or other funds of the Company legally available for the payment
of dividends. The party that holds the Preferred Stock of record on an
applicable record date for any dividend payment will be entitled to receive such
dividend payment and any other accrued and unpaid dividends which accrued prior
to such dividend payment date, without regard to any sale or disposition of such
Preferred Stock subsequent to the applicable record date but prior to the
applicable dividend payment date. Except as otherwise provided herein, if at any
time the Company pays less than the total amount of dividends then accrued on
account of the Preferred Stock, such payment shall be distributed ratably among
the holders of the Preferred Stock based upon the number of shares held by
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each holder. Payment of dividends on the Preferred Stock is further subject to
the provisions of Section 4(a)(ii).
(b) Notwithstanding anything to the contrary contained herein,
the Company may not issue shares of Common Stock in payment of dividends (and
must deliver cash in respect thereof) on the Preferred Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to issue such dividends in shares of Common Stock;
(ii) such shares of Common Stock are not registered for
resale pursuant to an effective registration statement that names the recipient
of such dividend as a selling stockholder thereunder and such shares may not be
sold without volume restrictions pursuant to Rule 144 as determined by counsel
to the Company and set forth in a written opinion letter, addressed to the
recipient of such dividend, in form and substance acceptable to such recipient;
(iii) such shares of Common Stock are not listed on the
American Stock Exchange (or the Nasdaq National Market, Nasdaq SmallCap Market
or The New York Stock Exchange) and any other exchange or quotation system on
which the Common Stock is then listed for trading; or
(iv) the issuance of such shares would result in the
recipient thereof beneficially owning, as determined in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended, more
than 4.9% of the issued and outstanding shares of Common Stock.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire, directly or indirectly any Junior Securities (as defined in
Section 6), nor shall the Company, directly or indirectly, pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 4) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities unless all accrued and unpaid dividends on the Preferred Stock for
all past dividend periods shall have been paid.
Section 2. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of at least 80%
of the shares of the Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Preferred Stock, (b)
issue any shares of the Company's Class A Preferred Stock, par value
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$.01 per share, or (c) authorize or create any class of stock ranking as to
dividends or distribution of assets upon a Liquidation (as defined in Section 3)
senior to, prior to or pari passu with the Preferred Stock.
Section 3. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Preferred Stock shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to $4.00 per share (the "Stated Value"), plus
all accrued but unpaid dividends per share, whether declared or not, before any
distribution or payment shall be made to the holders of any Junior Securities,
and if the assets of the Company shall be insufficient to pay in full such
amounts, then the entire assets to be distributed to the holders of Preferred
Stock shall be distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of, or a consolidation
or merger of the Company with or into any other company or companies shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Section 4(b)(vii). The Company shall mail written notice of any such
Liquidation, not less than 60 days prior to the payment date stated therein, to
each record holder of Preferred Stock.
Section 4. Exchange.
(a)(i) Each share of Preferred Stock shall be exchangeable
into shares of Common Stock (subject to reduction pursuant to Section 4(a)(ii)
below and Section 4.10 of the Purchase Agreement) at the option of the holder in
whole or in part at any time after the earlier to occur of (A) the 120th day
after the Original Issue Date and (B) the date the Securities and Exchange
Commission (the "Commission") declares effective under the Securities Act of
1933, as amended (the "Securities Act"), a registration statement (the
"Underlying Shares Registration Statement") covering the resale of the shares of
Common Stock issuable upon exchange of the Preferred Stock and dividends payable
in respect thereof to the extent paid in shares of Common Stock (collectively,
the "Underlying Shares"). The holder shall effect exchanges hereunder by
surrendering the certificates representing the shares of Preferred Stock to be
exchanged to the Company, together with the form of notice attached hereto as
Exhibit A (the "Exchange Notice"). Each Exchange Notice shall specify the number
of shares of Preferred Stock to be exchanged and the date on which such exchange
is to be effected, which date may not be prior to the date the holder delivers
such Exchange Notice by facsimile (the "Exchange Date"). If no Exchange Date is
specified in an Exchange Notice, the Exchange Date shall be the date that the
Exchange Notice is deemed delivered pursuant to Section 7(b). Subject to
Sections 4(a)(ii) and 4(b) hereof and Section 4.10 of the Purchase Agreement,
each Exchange Notice, once given, shall be irrevocable. If the holder is
exchanging less than all of the shares of Preferred Stock represented by the
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stock certificates tendered by the holder with the Exchange Notice, or if an
exchange hereunder cannot be effected in full for any reason, the Company shall
honor such exchange to the extent permissible and shall promptly deliver to such
holder (in the manner and within the time set forth in Section 4(b)) a new stock
certificate representing the shares of Preferred Stock as have not been
exchanged.
(ii) Certain Regulatory Approval. If on the Exchange Date
applicable to any exchange under this Section 4(a), (A) the Common Stock is then
listed for trading on the American Stock Exchange or the Nasdaq National Market
or, if the rules of the Nasdaq Stock Market are hereafter amended to extend Rule
4460(i) promulgated thereby (or any successor or replacement provision thereof)
to the Nasdaq SmallCap Market and the Common Stock is then listed for trading on
such market, the Nasdaq SmallCap Market, (B) the Exchange Price then in effect
is such that the aggregate number of shares of the Common Stock that would then
be issuable upon exchange of all of the then outstanding shares of Preferred
Stock, together with any shares of the Common Stock previously issued upon
exchange of Preferred Stock and upon conversion of Convertible Debentures and in
respect of payment of dividends hereunder and interest on the Convertible
Debentures, would equal or exceed 20% of the number of shares of the Common
Stock outstanding on the Original Issue Date (the "Issuable Maximum"), and (C)
the Company has not previously obtained the Stockholder Approval (as defined
below), then the Company shall issue to the holder requesting to exchange shares
of Preferred Stock under this Agreement the Issuable Maximum and, with respect
to any shares of the Common Stock that otherwise would have been issuable to
such holder in respect of the Exchange Notice at issue or in respect of payment
of interest hereunder in excess of the Issuable Maximum, the holder shall have
the option to require the Company to either (1) as promptly as possible, but in
no event later than 90 days after such Exchange Date, convene a meeting of the
holders of the Common Stock and use its best efforts to obtain the Stockholder
Approval or (2) redeem, from funds legally available therefor at the time of
such redemption, the balance of the Preferred Stock subject to such Exchange
Notice and all other shares of Preferred Stock then held by the tendering holder
at a price per share equal to the sum of (A) the product of (i) the average Per
Share Market Value for the five (5) Trading Days immediately preceding (1) the
Exchange Date or (2) the date of payment in full by the Company of such
redemption price, whichever is greater, and (ii) the Exchange Ratio calculated
on the Exchange Date, plus (B) the aggregate of all then accrued but unpaid
dividends and all other amounts then due and payable on account of such share;
provided, however, that if the holder has requested that the Company obtain
Stockholder Approval under paragraph (1) above and the Company fails for any
reason to obtain such Stockholder Approval within the time period set forth in
(1) above, the Company shall be obligated to redeem the Preferred Stock in
accordance with the provisions of paragraph (2) above, and in such case the
interest contemplated by the immediately succeeding sentence shall be deemed to
accrue from the Exchange Date. If the holder has requested that the Company
redeem shares of Preferred Stock pursuant to this Section and the Company fails
for any reason to pay the redemption price under (2) above within seven days
after the Exchange Date, the Company will pay interest on such redemption price
at a rate of 15% per annum to the exchanging holder of Preferred Stock,
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accruing from the Exchange Date until the redemption price plus any accrued
interest thereon is paid in full. The entire redemption price, including
interest thereon, shall be paid in cash. "Stockholder Approval" means the
approval by a majority of the total votes cast on the proposal, in person or by
proxy, at a meeting of the stockholders of the Company held in accordance with
the Company's Certificate of Incorporation and by-laws, of the issuance by the
Company of shares of the Common Stock exceeding the Issuable Maximum as a
consequence of the exchange of shares of Preferred Stock into the Common Stock
at a price less than the greater of the book or market value on the Original
Issue Date as and to the extent required pursuant to Rule 713 of the American
Stock Exchange or Rule 4460(i) of the Nasdaq Stock Market (or any successor or
replacement provision thereof), as applicable.
(b) Not later than three Trading Days after the Exchange Date,
the Company will deliver to the holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 4.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the exchange of shares of
Preferred Stock (subject to reduction pursuant to Section 4(a)(ii) hereof and
Section 4.10 of the Purchase Agreement), (ii) certificates representing the
shares of Preferred Stock tendered for such exchange with the Exchange Notice
and not exchanged; (iii) a bank check in the amount of all accrued and unpaid
dividends on such shares of Preferred Stock (if the Company has elected to pay
accrued dividends in cash), together with all other amounts then due and payable
in accordance with the terms hereof, from funds legally available therefor, and
(iv) if the Company has elected to pay accrued and unpaid dividends on such
shares of Preferred Stock in shares of the Common Stock, certificates, which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 4.1(b) of the Purchase Agreement), representing such number
of shares of the Common Stock as equals such dividends divided by the average
Per Share Market Value for the five trading Days immediately preceding the
Exchange Date; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of the Common Stock issuable upon
exchange of any shares of Preferred Stock until certificates representing the
shares of Preferred Stock to exchanged are either delivered for exchange to the
Company or any transfer agent for the Preferred Stock or the Common Stock, or
the tendering holder notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the holder, use
its best efforts to deliver any certificate or certificates required to be
delivered by the Company under this Section electronically through the
Depository Trust Corporation or another established clearing corporation
performing similar functions. If in the case of any Exchange Notice such
certificate or certificates, including for purposes hereof, certificates
representing shares of the Common Stock to be issued on the Exchange Date on
account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable holder by the third Trading Day after the Exchange
Date, the holder shall be entitled by written notice to the Company at any time
on or before its receipt of any stock certificate or certificates thereafter, to
rescind such exchange, in which event the Company shall immediately return
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the certificates representing the shares of Preferred Stock tendered for
exchange. If the Company fails to deliver to the holder such certificate or
certificates pursuant to this Section, including for purposes hereof,
certificates representing shares of the Common Stock to be issued on the
Exchange Date on account of accrued but unpaid dividends hereunder, prior to the
fifth Trading Day after the Exchange Date, the Company shall pay to such holder
$1,500 in, at the option of the holder, cash or shares of Common Stock equal to
$1,500 divided by the average Per Share Market Value for the five trading Days
immediately preceding the Exchange Date or the date prior to the date of
delivery of such shares (whichever is less), as liquidated damages and not as a
penalty, for each day after such fifth Trading Day until such certificates are
delivered. If the Company fails to deliver to the holder any stock certificate
or certificates pursuant to this Section prior to the 20th day after the
Exchange Date, the Company shall, at the holder's option (i) redeem, from funds
legally available therefor at the time of such redemption, all of the shares of
Preferred Stock then held by the tendering holder (including the shares of
Preferred Stock tendered for and not exchanged by the Company hereunder), and
(ii) pay all accrued but unpaid dividends on account of the shares of Preferred
Stock for which the Company shall have failed to issue the Common Stock
certificates hereunder, in cash. The redemption price per share shall be equal
to the sum of (A) the product of (i) the average Per Share Market Value for the
five (5) Trading Days immediately preceding (1) the Exchange Date or (2) the
date of payment in full by the Company of such redemption price, whichever is
greater, and (ii) the Exchange Ratio calculated on the Exchange Date, plus (B)
the aggregate of all then accrued but unpaid dividends and all other amounts
then due and payable on account of such share. If the holder has requested that
the Company redeem shares of Preferred Stock pursuant to this Section and the
Company fails for any reason to pay the redemption price under (2) above within
seven days after such notice is deemed delivered pursuant to Section 7(b), the
Company will pay interest on the redemption price at a rate of 15% per annum, in
cash to such holder, accruing from such seventh day until the redemption price
and any accrued interest thereon is paid in full.
(c)(i) The exchange price (the "Exchange Price") in effect on
any Exchange Date shall be the lesser of (a) the average Per Share Market Value
for the five (5) Trading Days immediately preceding the Original Issue Date (the
"Initial Exchange Price") or (b) 85% of the average Per Share Market Value for
the five (5) Trading Days immediately preceding the Exchange Date; provided
that, (a) if the Underlying Shares Registration Statement is not filed on or
prior to July 7, 1997, or (b) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) days of the date
that the Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Shares Registration Statement will not be
"reviewed" or is not subject to further review or comment by the Commission, or
(c) if the Underlying Shares Registration Statement is not declared effective by
the Commission on or prior to the 120th day after the Original Issue Date (which
period shall be extended to 150 days after the Original Issued Date in the event
that the Commission notifies the Company that the Underlying Shares Registration
Statement can not be filed on Form S-3 promulgated under the Securities Act
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solely because the shares of Preferred Stock are convertible prior to the 180th
day after the Original Issue Date), or (d) if such Underlying Shares
Registration Statement is filed with and declared effective by the Commission
but thereafter ceases to be effective as to all Registrable Securities (as such
term is defined in the Registration Rights Agreement) at any time prior to the
expiration of the "Effectiveness Period" (as such term as defined in the
Registration Rights Agreement), without being succeeded within 10 Business Days
by a subsequent Underlying Shares Registration Statement filed with and declared
effective by the Commission, or (e) if trading in the Common Stock shall be
suspended for any reason for more than three Trading Days, or (f) if the
exchange rights of the holders of shares of preferred Stock hereunder are
suspended for any reason (any such failure being referred to as an "Event," and
for purposes of clauses (a), (c) and (f) the date on which such Event occurs, or
for purposes of clause (b) the date on which such five (5) days period is
exceeded, or for purposes of clause (d) the date which such 10 Business
Day-period is exceeded, or for purposes of clause (e) the date on which such
three Trading Day period is exceeded, being referred to as "Event Date"), the
Exchange Price shall be decreased by 2.5% each month (i.e., 82.5% as of the
Event Date and 80% as of the one month anniversary of the Event Date) until the
earlier to occur of the second month anniversary after the Event Date and such
time as the applicable Event is cured. Commencing the second month anniversary
after the Event Date, at the option of each holder for each applicable monthly
period either (a) the Company shall pay to the holders of the Preferred Stock
2.5% of the aggregate Stated Value of the Preferred Stock then held by such
holder (each holder being entitled to receive such portion of such amount as
equals its pro rata portion of the shares of Preferred Stock then outstanding),
in cash or (b) the Exchange Price shall be decreased by 2.5% for each additional
such month (to be effective in full on the monthly applicable Event Date) as
liquidated damages, and not as a penalty on the first day of each monthly
anniversary of the Event Date in either case until such time as the applicable
Event is cured. Any decrease in the Exchange Price pursuant to this Section
shall remain in effect notwithstanding the fact that the Event causing such
decrease has been subsequently cured and further monthly decreases have ceased.
The provisions of this Section are not exclusive and shall in no way limit the
Company's obligations under the Registration Rights Agreement. Notwithstanding
anything to the contrary set forth herein, the Company may not, without the
prior written consent of the holders, pay liquidated damages hereunder in cash
unless it shall have received the prior written consent of all lenders, debt
holders or holders of any class of securities of the Company or its Affiliates
that have the right to require such consent or to subordinate any such cash
payment, which consent shall provide that the payment by the Company of any such
liquidated damages hereunder (and the retention of such sum by the receiving
holder) is not subject to any applicable subordination rights of such lender or
holders of such class of securities.
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities (as defined in
Section 7) payable in shares of the Common Stock, (b) subdivide outstanding
shares of the Common Stock into a larger number of shares, (c) combine
outstanding shares of the Common Stock into a smaller
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number of shares, or (d) issue by reclassification of shares of the Common Stock
any shares of capital stock of the Company, the Initial Exchange Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
the Common Stock (excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares of the Common
Stock outstanding after such event. Any adjustment made pursuant to this Section
4(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of the Common Stock entitling them to subscribe for or purchase shares of the
Common Stock at a price per share less than the Per Share Market Value of the
Common Stock at the record date mentioned below, the Initial Exchange Price
shall be multiplied by a fraction, of which the denominator shall be the number
of shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of additional
shares of the Common Stock offered for subscription or purchase, and of which
the numerator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Initial Exchange Price
pursuant to this Section 4(c)(iii), if any such right or warrant shall expire
and shall not have been exercised, the Initial Exchange Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Initial Exchange Price made pursuant to the
provisions of this Section 4 after the issuance of such rights or warrants) had
the adjustment of the Initial Exchange Price made upon the issuance of such
rights or warrants been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall distribute to all holders of the Common
Stock (and not to holders of the Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security
(excluding those referred to in Sections 4(c)(ii) and (iii) above), then in each
such case the Initial Exchange Price at which shares of Preferred Stock shall
thereafter be exchangeable shall be determined by multiplying the Initial
Exchange Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value of the
Common Stock determined as of the record date mentioned above, and
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of which the numerator shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith; provided, however, that in the event of a distribution
exceeding ten percent (10%) of the net assets of the Company, such fair market
value shall be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith by the
holders of a majority in interest of the shares of preferred Stock then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of the
Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of the Common
Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.
(v) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Initial Exchange Price is adjusted pursuant
to Section 4(c)(ii),(iii) or (iv), the Company shall promptly mail to each
holder of shares of Preferred Stock, a notice setting forth the Initial Exchange
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(vii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person pursuant to
which the Company will not be the surviving entity, the sale or transfer of all
or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then outstanding shall have
the right thereafter to, at their option, (A) exchange such shares only into the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of the Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the holders of the Preferred Stock shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which such shares of Preferred Stock could have been exchanged
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange would have been entitled or (B) require the Company
to redeem, from funds legally available therefor at the time of such redemption,
its shares of Preferred Stock at a price per share equal to the sum of (A) the
product of (i) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (1) the effective date or the date of the closing, as the
case may be, of the reclassification,
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consolidation, merger, sale, transfer or share exchange the triggering such
redemption right or (2) the date of payment in full by the Company of the
redemption price hereunder, whichever is greater, and (ii) the Exchange Ratio
calculated on the date of the closing or the effective date, as the case may be,
of the reclassification, consolidation, merger, sale, transfer or share exchange
triggering such redemption right, as the case may be, plus (B) the aggregate of
accrued but unpaid dividends and all other amounts due and payable on account of
such share. The entire redemption price shall be paid in cash, and the terms of
payment of such redemption price shall be subject to the provisions set forth in
Section 5(c). The terms of any such consolidation, merger, sale, transfer or
share exchange shall include such terms so as to continue to give to the holder
of Preferred Stock the right to receive the securities, cash or property set
forth in this Section 4(b)(vii) upon any exchange or redemption following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(viii) If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which
the Company is a party, any sale or transfer of all
or substantially all of the assets of the Company,
of any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
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then the Company shall cause to be filed at each office or agency maintained for
the purpose of exchange of the Preferred Stock, and shall cause to be mailed to
the holders of shares of Preferred Stock at their last addresses as they shall
appear upon the stock books of the Company, at least 30 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to exchange shares of Preferred Stock
during the 30-day period commencing the date of such notice to the effective
date of the event triggering such notice.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially and
adversely affect the rights of the holders of the Preferred Stock (different
than or distinguished from the effect generally on rights of holders of any
class of the Company's capital stock) or if at any time any such conditions are
expected to arise by reason of any action contemplated by the Company, the
Company shall mail a written notice briefly describing the action contemplated
and the material adverse effects of such action on the rights of the holders of
the Preferred Stock at least 30 calendar days prior to the effective date of
such action, and an Appraiser selected by the holders of majority in interest of
the shares of Preferred Stock shall give its opinion as to the adjustment, if
any (not inconsistent with the standards established in this Section 4), of the
Exchange Price (including, if necessary, any adjustment as to the securities
into which shares of Preferred Stock may thereafter be exchangeable) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of the Preferred Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in good faith, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Appraiser. The Board of Directors shall make the adjustment recommended
forthwith upon the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that no such
adjustment of the Exchange Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Exchange Price to more than the Exchange Price then in effect.
(e) Upon an exchange hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on
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the Per Share Market Value at such time. If the Company elects not, or is
unable, to make such a cash payment, the holder shall be entitled to receive, in
lieu of the final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on exchange of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
exchange in a name other than that of the holder of such shares of Preferred
Stock so exchanged and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Shares of Preferred Stock exchanged into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
Class B Preferred Stock.
(h) Any and all notices or other communications or deliveries
to be provided by the holders of the Preferred Stock hereunder, including,
without limitation, any Exchange Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed to
the attention of the Chief Executive Officer of the Company at the facsimile
telephone number or address of the principal place of business of the Company as
set forth in the Purchase Agreement. Any and all notices or other communications
or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each holder of Preferred Stock at the facsimile telephone number or
address of such holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (Eastern
Time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:30 p.m. (Eastern Time) on any date and
earlier than 11:59 p.m. (Eastern Time) on such date, (iii) four days after
deposit in the United States mails, (iv) the Business Day following the date of
mailing, if send by nationally recognized overnight courier service, or (v) upon
actual receipt by the party to whom such notice is required to be given.
Section 5. Redemption.
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(a) The Company shall have the right, exercisable at any time
upon 20 Trading Days' notice to the holders of the Preferred Stock given at any
time after the Original Issue Date to redeem, from funds legally available
therefor at the time of such redemption, all or any portion of the shares of
Preferred Stock which have not previously been exchanged or redeemed, at a price
per share equal to the sum of (A) the product of (i) the average Per Share
Market Value for the five (5) Trading Days immediately preceding (1) the date of
the redemption notice referenced above or (2) the date of payment in full by the
Company of the redemption price hereunder, whichever is greater, and (ii) the
Exchange Ratio calculated on the date of such redemption notice, and (B) the
aggregate accrued but unpaid dividends and all other amounts due and payable in
respect of such share. The entire redemption price shall be paid in cash.
Holders of Preferred Stock may exchange any shares of Preferred Stock, including
shares subject to a redemption notice given under this Section, during the
period from the date of such redemption notice through the 19th Trading Day
thereafter. The Company shall honor all such exchanges and all exchanges
tendered prior to the date of the Company's redemption notice and shall not be
permitted to redeem the shares of Preferred Stock tendered for such exchanges
(whether occurring prior to the date of such redemption notice or during such 19
day period).
(b) If any portion of the redemption price under Section 5(a)
shall not be paid by the Company within seven (7) calendar days after the date
due, interest shall accrue thereon at the rate of 15% per annum until the
redemption price plus all such interest is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). In addition, if any portion of
such redemption price remains unpaid for more than 7 calendar days after the
date due, the holder of the Preferred Stock subject to such redemption may
elect, by written notice to the Company given within 30 days after the date due,
to either (i) demand exchange in accordance with the formula and the time frame
therefor set forth in Section 4 of all of the shares of Preferred Stock for
which such redemption price, plus accrued liquidated damages thereof, has not
been paid in full (the "Unpaid Redemption Shares"), in which event the Per Share
Market Price for such shares shall be the lower of the Per Share Market Price
calculated on the date such redemption price was originally due and the Per
Share Market Price as of the holder's written demand for exchange, or (ii)
invalidate ab initio such redemption, notwithstanding anything herein contained
to the contrary. If the holder elects option (i) above, the Company shall within
three (3) Trading Days of its receipt of such election deliver to the holder the
shares of Common Stock issuable upon exchange of the Unpaid Redemption Shares
subject to such holder exchange demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than three (3) Trading Days
from receipt of holder's notice of such election, return to the holder all of
the Unpaid Redemption Shares. Notwithstanding anything to the contrary contained
herein, the Company may not, without the written consent of the holder, redeem
shares of Preferred Stock unless both the payment thereof and the retention of
such paid cash by the holder is consented to in writing free of any
subordination prior thereto by all lenders or holders of any class of securities
of the Company who by agreement have the right to consent to or force the
subordination of such payment.
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Section 6. Certain Definitions. As used in this Agreement,
unless the context requires a different meaning, the following terms shall have
the meanings indicated in this Section 6.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the Company's common stock, $.01 par
value per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Junior Securities" means the Common Stock and all other
equity securities of the Company other than the Class A Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any such shares and regardless of the number of certificates which
may be issued to evidence such shares.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the American
Stock Exchange or other stock exchange or quotation system on which the Common
Stock is then listed or if there is no such price on such date, then the closing
bid price on such exchange or quotation system on the date nearest preceding
such date, or (b) if the Common Stock is not listed then on the American Stock
Exchange or any stock exchange or quotation system, the closing bid price for a
share of the Common Stock in the over-the-counter market, as reported by the
Nasdaq Stock Market or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant exchange period, as determined in good faith by
the holder, or (d) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an Appraiser selected
in good faith by the holders of a majority in interest of the share of Preferred
Stock; provided, however, that the Company, after receipt of the determination
by such Appraiser, shall have the right to select an additional Appraiser, in
which case, the fair market value shall be equal to the average of the
determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, between the Company and the Purchaser.
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"Trading Day" means (a) a day on which the Common Stock is
traded on the American Stock Exchange or other stock exchange or market on which
the Common Stock has been listed, or (b) if the Common Stock is not listed on
the American Stock Exchange or any stock exchange or market, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices).
Section 7. MISCELLANEOUS
(a) This Agreement, together with the Exhibits and Schedules
hereto, the Purchase Agreement and the Registration Rights Agreement (together
with the respective Exhibits and Schedules thereto), contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
(b) Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 4:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 4:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
If to the Company: Substance Abuse Technologies, Inc.
4517 N.W. 31st Avenue
Ft. Lauderdale, FL 33309
Facsimile No.: (954) 714-5049
Attn: Chief Executive Officer
With copies to: Gold & Wachtel, LLP
110 East 59th Street
New York, New York 10022
Facsimile No.: (212) 909-9455
Attn: Robert W. Berend
If to the Purchaser: Southbrook International Investments, Ltd
c/o Trippoak Advisors, Inc.
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630 Fifth Avenue, Suite 2000
New York, NY 10111
Facsimile No.: (212) 332-3256
Attn: Robert Miller
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(c) No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and the Purchaser, or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
(d) The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(e) This Agreement shall be binding upon, and inure to the
benefit of, the parties and their successors and permitted assigns. Neither the
Company nor the Purchaser may assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other, except that (i) the
Purchaser may assign its rights hereunder and under the Registration Rights
Agreement to an Affiliate thereof or to a managed account of either the
Purchaser or such Affiliate and (ii) any assignment of the Purchaser's rights
hereunder shall provide to such assignee the right to assign in accordance with
the provisions of clause (i) above. The assignment by a party of this Agreement
or any rights hereunder shall not affect the obligations of such party under
this Agreement.
(f) This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns and, other than
with respect to permitted assignees under Section 5.6, is not for the benefit
of, nor may any provision hereof be enforced by, any other person.
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(g) This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware without
regard to the principles of conflicts of law thereof.
(h) The obligations of the Company and the Purchaser contained
in this Agreement shall survive the closing of the transactions contemplated
hereby (or any earlier termination of this Agreement) and any exchange of shares
of Preferred Stock hereunder.
(i) This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
(j) The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public statement.
(k) In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
(l) In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
this Agreement and the Company will be entitled to specific performance of the
obligations of the Purchaser hereunder with respect to the subsequent transfer
of Preferred Stock and Underlying Shares. Each of the Company and the Purchaser
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
Company:
SUBSTANCE ABUSE TECHNOLOGIES, INC.
By:___________________________________
Name:
Title:
Purchaser:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD
By:___________________________________
Name:
Title:
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EXHIBIT A
NOTICE OF EXCHANGE
(To be Executed by the Registered Holder
in order to Exchange Shares of Preferred Stock)
The undersigned hereby elects to exchange the number of shares of Class B
Preferred Stock indicated below, into shares of Common Stock, par value $.01 per
share (the "Common Stock"), of Substance Abuse Technologies, Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any exchange, except for such transfer taxes, if any.
Exchange calculations: ________________________________________________________
Date to Effect Exchange
____________________________________________________
Number of shares of Preferred Stock to be Exchanged
____________________________________________________
Number of shares of Common Stock to be Issued
____________________________________________________
Applicable Exchange Price
____________________________________________________
Signature
____________________________________________________
Name
____________________________________________________
Address
The Company undertakes to promptly upon its receipt of this exchange notice
(and, in any case prior to the time it effects the exchange requested hereby),
notify the exchanging holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the exchange requested in this exchange
notice were effected in full, whereupon, if the Company determines that such
exchange would result in it owning in excess of 4.9% of the outstanding shares
of Common Stock on such date, the Company shall exchange up to an amount equal
to 4.9% of the outstanding shares of Common Stock and issue to the holder one or
more certificates representing shares of Preferred Stock which have not been
exchanged as a result of this provision.