-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K2yAfZLfsx/vrTJu2gDeytOX9Y47bIwneWzFUV11A6u2FUpF+LTYSllCbsiLaatu VwVGK47DNcUFCt9olbDIrg== /in/edgar/work/20000815/0000950144-00-010362/0000950144-00-010362.txt : 20000922 0000950144-00-010362.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950144-00-010362 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYSTEMONE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000934851 STANDARD INDUSTRIAL CLASSIFICATION: [3590 ] IRS NUMBER: 650226813 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21325 FILM NUMBER: 701156 BUSINESS ADDRESS: STREET 1: 8305 NW 27TH STREET STREET 2: SUITE 107 CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055938015 MAIL ADDRESS: STREET 1: 8305 NW 27TH STREET STREET 2: SUITE 107 CITY: MIAMI STATE: FL ZIP: 33122 FORMER COMPANY: FORMER CONFORMED NAME: MANSUR INDUSTRIES INC DATE OF NAME CHANGE: 19960717 10QSB 1 e10qsb.txt MANSUR INDUSTRIES / SYSTEMONE TECHNOLOGIES 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 COMMISSION FILE NO. 000-21325 SYSTEMONE TECHNOLOGIES INC. - -------------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Florida 65-0226813 - ------------------------------ ----------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 8305 N.W. 27th Street, Suite 107 Miami, Florida 33122 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (305) 593-8015 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) Mansur Industries Inc. - -------------------------------------------------------------------------------- (Former Name) Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the securities act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: The registrant had an aggregate of 4,742,923 shares of its Common Stock, par value $.001 per share, outstanding as of the close of business on August 13, 2000. 2 SYSTEMONE TECHNOLOGIES INC. INDEX TO FORM 10-QSB QUARTER ENDED JUNE 30, 2000 PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets- As of June 30, 2000 (unaudited) and December 31, 1999 Condensed Statements of Operations- For the three and six months ended June 30, 2000 and 1999 (unaudited) Condensed Statements of Cash Flows- For the six months ended June 30, 2000 and 1999 (unaudited) Notes to Condensed Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures 2 3 SYSTEMONE TECHNOLOGIES INC. CONDENSED BALANCE SHEETS As at June 30, 2000 and December 31, 1999 (In thousands)
June 30, December 31, 2000 1999 -------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 13 $ 912 Accounts receivable, net 1,806 2,748 Inventories, net 4,087 4,962 Prepaid assets 542 585 -------- -------- Total current assets 6,448 9,207 Property and equipment, net 2,653 2,866 Other assets 761 907 -------- -------- Total assets $ 9,862 $ 12,980 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses 3,662 3,721 Deferred revenue 213 160 Line of credit 1,879 957 Current installments of obligations under capital leases 297 319 -------- -------- Total current liabilities 6,051 5,157 Long-term debt, excluding current installments 18,890 18,263 -------- -------- Total liabilities 24,941 23,420 Stockholders' deficit: Preferred stock, Series B 55 53 Preferred stock, Series C 74 71 Preferred stock, Series D 20 -- Common stock 5 5 Additional paid-in capital 27,187 24,687 Accumulated deficit (42,420) (35,256) -------- -------- Total stockholders' deficit (15,079) (10,440) -------- -------- Total liabilities and stockholders' deficit $ 9,862 $ 12,980 ======== ========
See accompanying notes to condensed financial statements which are an integral part thereof. 3 4 SYSTEMONE TECHNOLOGIES INC. CONDENSED STATEMENTS OF OPERATIONS For the three and six months ended June 30, 2000 and 1999 (Unaudited) (In thousands)
Three Months Ended Six Months Ended ----------------------------------- ----------------------------------- June 30, June 30, June 30, June 30, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Sales $ 5,010 $ 5,202 $ 9,296 $ 9,215 Cost of sales 2,020 2,191 3,792 4,074 ----------- ----------- ----------- ----------- Gross margin 2,990 3,011 5,504 5,141 Operating expenses: Research and product development 77 73 243 246 Sales, general and administrative 5,037 5,688 10,848 11,195 ----------- ----------- ----------- ----------- 5,114 5,761 11,091 11,441 ----------- ----------- ----------- ----------- Loss from operations (2,124) (2,750) (5,587) (6,300) Interest expense, net (520) (477) (1,043) (925) ----------- ----------- ----------- ----------- Net loss (2,644) (3,227) (6,630) (7,225) =========== =========== =========== =========== Dividends on convertible preferred stock (278) (59) (534) (59) ----------- ----------- ----------- ----------- Net loss to common shares $ (2,922) $ (3,286) $ (7,164) $ (7,284) =========== =========== =========== =========== Basic and diluted net loss per common share $ (0.62) $ (0.71) $ (1.51) $ (1.58) =========== =========== =========== =========== Weighted-average of common shares outstanding 4,742,923 4,601,309 4,742,923 4,601,309 =========== =========== =========== ===========
See accompanying notes to condensed financial statements which are an integral part thereof. 4 5 SYSTEMONE TECHNOLOGIES INC. CONDENSED STATEMENTS OF CASH FLOWS For the six months ended June 30, 2000 and 1999 (In thousands) (Unaudited)
June 30, June 30, 2000 1999 ------- ------- Cash used in operating activities: Net loss $(6,630) $(7,225) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 396 185 Provision for bad debts -- 105 Provision for obsolete inventory -- 210 Non cash interest payments on convertible debt 750 782 Changes in operating assets and liabilities: Inventory 840 (1,171) Accounts receivable 942 (298) Other assets 44 (371) Deferred revenue 53 (127) Accounts payable and accrued expenses (59) 930 ------- ------- Net cash used in operating activities (3,664) (6,980) ------- ------- Cash used in investing activities: Purchase of equipment (3) (116) ------- ------- Net cash used in investing activities (3) (116) Cash provided from financing activities: Proceeds from issuance of convertible preferred stock 2,000 5,050 Proceeds from line of credit 922 496 Repayments of capital lease obligations (154) (165) ------- ------- Net cash provided from financing activities 2,768 5,381 ------- ------- Net decrease in cash and cash equivalents (899) (1,715) Cash and cash equivalents, beginning of period 912 3,199 ------- ------- Cash and cash equivalents, end of period $ 13 $ 1,484 ======= =======
See accompanying notes to condensed financial statements which are an integral part thereof. 5 6 SYSTEMONE TECHNOLOGIES INC. (FORMERLY KNOWN AS MANSUR INDUSTRIES INC.) NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS SystemOne Technologies Inc. (formerly known as Mansur Industries Inc.) (the "Company") is primarily engaged in the manufacture, marketing and sale of industrial parts cleaning equipment for use in the automotive, marine, aviation and general manufacturing industries. The Company's focus is on the design, development and manufacture of industrial cleaning equipment which incorporate continuous recycling and recovery technologies for solvents and solutions, reducing the need to replace and dispose of contaminants. (1) BASIS OF PRESENTATION The accompanying unaudited interim condensed financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-QSB. Accordingly, certain information and footnotes required by generally accepted accounting principles for complete financial statements are not included herein. The interim condensed statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange Commission for the year ended December 31, 1999. Interim condensed statements are subject to possible adjustments in connection with the annual audit of the Company's accounts for the full year 2000. In the Company's opinion, all adjustments necessary for a fair presentation of these interim condensed statements have been included and are of a normal and recurring nature. (2) CONVERTIBLE PREFERRED STOCK AND WARRANTS On May 2, 2000, the Company sold an aggregate of 20,000 shares (the "Shares") of newly created Series D Convertible Preferred Stock (the "Series D Preferred Stock") to three institutional investors for an aggregate purchase price of $2,000,000. In addition, the purchasers received warrants (the "May Warrants"), which expire in April 2005, to acquire an aggregate of 363,636 shares of the Company's common stock at an exercise price of $5.50 per share. Each share of Series D Preferred Stock has a liquidation value of $100. The dividend rate payable on the outstanding shares of Series D Preferred Stock is 8.25% of the liquidation value of each share per annum. Through the second anniversary of the issuance of the Series D Preferred Stock, all dividends are payable by the issuance of additional shares of Series D Preferred Stock valued at the liquidation 6 7 value. Thereafter, all such dividends may, at the option of the Company, be paid either through the issuance of additional shares of Series D Preferred Stock, cash or any combination of Series D Preferred Stock and cash. Each holder of shares of Series D Preferred Stock has the right, at any time or from time to time prior to May 17, 2004 (the "Redemption Date") to convert its shares of Series D Preferred Stock into shares of the Company's Common Stock at a conversion price of $5.50 per share, subject to adjustment in certain circumstances. Subject to earlier conversion, commencing on May 17, 2002, the Company shall have the right to redeem outstanding shares of Series D Preferred Stock at a redemption price of 104% (if redemption occurs during 2002) or 102% (if redemption occurs during 2003) of the liquidation value of the redeemed shares. The holders of Series D Preferred Stock will vote together with the holders of the Company's Common Stock, Series B 8.25% Convertible Preferred Stock ("Series B Preferred Stock"), and Series C 8.00% Convertible Preferred Stock ("Series C Preferred Stock") as a single class on all matters to come before a vote of the shareholders of the Company, with each share of Series D Preferred Stock entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible. The Company is also required to register the shares of common stock underlying the Series D Preferred Stock for resale under the Securities Act of 1933, as amended (the "Securities Act"). (3) SUBSEQUENT EVENTS On August 7, 2000, the Company entered into a Loan Agreement (the "Loan Agreement") with Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC under which it borrowed an aggregate of $2,500,000, evidenced by promissory notes (the "Subordinated Promissory Notes"), maturing February 7, 2002, subject to mandatory prepayment to the extent of any proceeds received by the Company from the sale of any new securities of the Company or the borrowing of any additional money (other than purchase money debt). The Subordinated Promissory Notes initially bear interest at the rate of 12% per annum until the six month anniversary of the Issuance Date, 14% until the nine month anniversary of the Issuance Date and 16% thereafter until repaid in full. The Company's obligations under the Loan Agreement are secured by a lien on substantially all of its assets other than its intellectual property although such obligations have been subordinated to the Revolver. Each of the Environmental Funds and Hanseatic are shareholders of the Company and Mr. Paul A. Biddelman, President of Hanseatic, and Mr. Kenneth Ch'uan-K'ai Leung, Chief Investment Officer of the Environmental Funds, are directors of the Company. Pursuant to the Loan Agreement, the Company issued warrants (the "August Warrants") to purchase an aggregate of 714,286 shares of its common stock at $3.50 per share and the Company is required to register such shares of common stock for resale under the Securities Act. The August Warrants may only be exercised for 50% and 75% of the common stock underlying the August Warrants prior to May 7, 2001 and August 7, 2001, respectively. In addition, if the loan is repaid prior to May 7, 2001, then 50% of the August Warrants will terminate, and, thereafter, if the loan is repaid prior to August 7, 2001, then 25% of the August Warrants will terminate. 7 8 In accordance with its terms, the conversion price of the Series B Preferred Stock was reduced to $4.81 and in accordance with their respective terms, the conversion prices of the Series C and Series D Preferred Stock as well as the exercise price of the May Warrants were reset to $3.50 as a result of the issuance of the August Warrants. In addition, each share of the Series B, Series C and Series D Preferred Stock is now convertible into 20.79, 28.57 and 28.57 shares of the Company's common stock respectively and the May Warrants are now exercisable for 571,428 shares of the Company's common stock. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the condensed Financial Statements, including the notes thereto, contained elsewhere in this 10-QSB and the Company's Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1999. GENERAL The Company was incorporated in November 1990 under the name Mansur Industries Inc. and, as a development stage company, devoted substantially all of its resources to research and development programs related to its full line of self contained, recycling industrial parts washers until June 1996. The Company commenced its planned principal operations in July 1996. Since July 1996, the Company has made its SystemOne(R) Washers and services available to the public through a third party leasing program and through direct sales. Under the third party leasing program, the Company recognizes revenue from the sale of parts washers at the time the equipment is delivered by the Company to the customer and the customer accepts such equipment. In general, the revenue recognized approximates the discounted present value of the payment stream related to the underlying lease. Commencing in January 1997 and continuing until June 1998, the Company maintained a distribution agreement with First Recovery, an affiliate of Ashland, Inc., whereby First Recovery served as the Company's exclusive distributor of the SystemOne(R) Washers. In an effort to accelerate market penetration and provide new opportunities for recurring service revenues, the Company completed the development of a direct marketing and distribution organization for its SystemOne(R) product line in 1998 and launched a new full-service program ("TotalCare") in the fourth quarter of 1999 to transition the Company from a pure equipment and manufacturing company into a full-service organization. This strategy was designed to allow the Company to offer aggressive factory direct pricing on sales of its products and realize recurring service revenues on its increasing customer base. In addition, commencing in the first quarter of 2000, the Company consolidated its nationwide distribution and service infrastructure, eliminating 8 9 redundant or nonproductive resources in the field and at its corporate office, and also restructured the direct sales and service organization in order to significantly cut operating expenses while enhancing efficiency and productivity. No assurance, however, can be given that the Company's direct marketing and distribution infrastructure, TotalCare service program, and restructuring of the sales and service organization will be successful. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 Sales revenues decreased by $192,000, or 3.7%, to $5,010,000 for the three months ended June 30, 2000 from $5,202,000 for the comparable period of 1999 because of a reduction in the size of the Company's sales force in an effort by the Company to reduce its selling costs. As a percentage of sales, gross margin represented 59.7% and 57.9% for the three months ended June 30, 2000 and 1999, respectively. The increase in gross margin as a percentage of sales for the three months ended June 30, 2000 is primarily the result of reduced per unit manufacturing costs achieved through increased efficiencies in production. Selling, general and administrative expenses for the three months ended June 30, 2000 were $5,037,000, a decrease of $651,000, or 11.4%, compared to selling, general and administrative expenses of $5,688,000 for the three months ended June 30, 1999. The decrease for the three months ended June 30, 2000 was primarily the result of the consolidation of the Company's nationwide distribution and service infrastructure, commencing in the first quarter of 2000, which eliminated redundant or nonproductive resources in the field and at its corporate office. The Company's research and development expenses increased by $4,000, from $73,000 for the three months ended June 30, 1999 to $77,000 for the three months ended June 30, 2000. The Company recognized net interest expense of $520,000 for the three months ended June 30, 2000, an increase of $43,000 compared to net interest expense of $477,000 for the three months ended June 30, 1999. This increase was primarily the result of the higher outstanding balance of the Company's line of credit in the current period compared to the comparable period of the prior year. As a result of the foregoing, the Company incurred a net loss of $2,644,000 for the three months ended June 30, 2000 compared to a net loss of $3,227,000 for the three months ended June 30, 1999. 9 10 SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Sales revenues increased by $81,000 to $9,296,000 for the six months ended June 30, 2000 from $9,215,000 for the comparable period of 1999. During the current period, gross margin increased by $363,000, or 7.0%, to $5,504,000 for the six months ended June 30, 2000 from $5,141,000 for the six months ended June 30, 1999. As a percentage of sales, gross margin represented 59.2% and 55.8% for the six months ended June 30, 2000 and 1999, respectively. The increase in gross margin as a percentage of sales for the six months ended June 30, 2000 compared to the comparable period of 1999 is primarily the result of reduced per unit manufacturing costs achieved through increased efficiencies in production. Selling, general and administrative expenses for the six months ended June 30, 2000 were $10,848,000, a decrease of $347,000, or 3.1%, compared to selling, general and administrative expenses of $11,195,000 for the six months ended June 30, 1999. The decrease for the six months ended June 30, 2000 was primarily the result of the consolidation of the Company's nationwide distribution and service infrastructure, commencing in the first quarter of 2000, which eliminated redundant or nonproductive resources in the field and at its corporate office. The Company's research and development expenses decreased by $3,000 from $246,000 during the six months ended June 30, 1999 to $243,000 for the six months ended June 30, 2000. The Company recognized net interest expense of $1,043,000 for the six months ended June 30, 2000, an increase of $118,000 compared to net interest expense of $925,000 for the six months ended June 30, 1999. This increase was primarily the result of the higher outstanding balance of the Company's line of credit in the current period compared to the comparable period of the prior year. As a result of the foregoing, the Company incurred a net loss of $6,630,000 for the six months ended June 30, 2000 compared to a net loss of $7,225,000 for the six months ended June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the six months ended June 30, 2000 decreased by $3,316,000 to $3,664,000, compared to net cash used in operating activities of $6,980,000 for the comparable six month period of the prior year. The decrease for the current period is primarily attributable to a decrease of approximately $595,000 in the net loss, from $7,225,000 to $6,630,000, a decrease of $942,000 in accounts receivable and a decrease of $875,000 in inventory. Net cash used in investing activities for the six months ended June 30, 2000 was $3,000, a decrease of $113,000, compared to $116,000 during the comparable period of the prior 10 11 year. This decrease was a result of decreased purchases of equipment during the six months ended June 30, 2000. Net cash provided from financing activities for the six months ended June 30, 2000 decreased by $2,613,000 to $2,768,000, from net cash provided from financing activities of $5,381,000 for the six months ended June 30, 1999. The decrease is primarily attributable to the proceeds of $2,000,000 from the issuance of convertible preferred stock in the current period compared to proceeds of $5,050,000 in the comparable period, offset by an increase of $426,000 in amounts advanced under the Company's revolving line of credit in the current period. At June 30, 2000, the Company had working capital of $397,000 and cash and cash equivalents of $13,000. On May 2, 2000, the Company sold an aggregate of 20,000 shares of new Series D Preferred Stock for an aggregate purchase price of $2,000,000. For a description of this transaction, see Note 2 to the Condensed Financial Statements included herein and Part II - Item 2 - Changes in Securities and Use of Proceeds, incorporated herein by reference. The Company's primary sources of working capital have been the net proceeds from sale of the Series D Preferred Stock, the net proceeds of the Series B and Series C Preferred Stock sold in 1999, the Company's lease financing arrangement with SierraCities.com, the revolving line of credit (the "Revolver") and direct sales to customers. The Revolver provides for a maximum credit line of $5,000,000 and amounts advanced under the Revolver accrue interest at a rate of prime plus 2.5%. At June 30, 2000, amounts totaling $1,879,000 had been advanced to the Company under the Revolver. Pursuant to certain borrowing criteria contained in the Revolver, the Company may not draw any advances beyond the $1,879,000 already advanced under the Revolver. The Company's material financial commitments relate primarily to its obligations to make lease payments with respect to the Company's principal executive and manufacturing facility in Miami, Florida and its nationwide direct distribution centers and equipment leases (approximately $184,000 per month), installment payments for financed manufacturing equipment (approximately $33,000 per month), non-cash interest payments on the Company's 8.25% Subordinated Convertible Notes (the "Notes") (approximately $148,000 per month), and non-cash dividends on the Company's Series B, Series C, and Series D Convertible Preferred Stock (approximately $95,000 per month). On August 2, 2000, the Company entered into an Addendum to that certain Vendor Lease Plan Agreement dated November 15, 1998 by and between SierraCities.com, Inc. (f/k/a First Sierra Financial, Inc., "SierraCities.com") (the "Lease Plan Agreement"). Pursuant to the Lease Plan Agreement, SierraCities.com will purchase for cash the revenue streams of lease payments for the initial term of leases of the Company's SystemOne(R) Washers. 11 12 After the initial term of the leases, the revenue streams from the leases will revert back to the Company. On August 7, 2000, the Company entered into a Loan Agreement (the "Bridge Loan") with Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC under which it borrowed $2,500,000. For a description of this transaction see Part II - Items 2. Changes in Securities and Use of Proceeds, incorporated herein by reference. Capital requirements relating to the implementation of the Company's business plan have been significant. The Company believes that its ability to generate cash from operations is dependent upon, among other things, the demand for its products and services and the success of its direct marketing and distribution capabilities. In order to reduce certain of the Company's up-front capital requirements associated with manufacturing operations, as well as distribution center and service fleet development, the Company leases, and plans to continue to lease rather than purchase, to the extent possible, equipment and vehicles. Although the Company believes that the Lease Plan Agreement should result in improved operating results and cash flow, the Company currently anticipates that it will require additional equity or debt financing in order for it to meet its cash needs, including to execute its direct marketing program and for the payment of preferred stock dividends and the repayment of the Bridge Loan. There can be no assurance that such financing will be available on terms acceptable to the Company or at all. Any such financing could cause further dilution of existing shareholders. In addition, the Company's ability to draw advances under its Revolver is currently limited by its available borrowing base and the Company is in discussions with the lender to expand its ability to access this facility, although there can be no assurance that a substantial increase in availability will be achieved. A failure to significantly improve the Company's financial performance or obtain necessary financing could require the Company to materially curtail or cease its operations. As indicated in the accompanying financial statements, as of June 30, 2000 the Company's accumulated deficit totaled $42,420,000. CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS. The foregoing Management's Discussion and Analysis contains various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events, including, but not limited to, statements regarding growth in sales of the Company's products and the sufficiency of the Company's cash flow for its future liquidity and capital resource needs. These forward looking statements are further qualified by important factors that could cause actual events to differ materially from those in such forward looking statements. 12 13 These factors include, without limitation, increased competition, the sufficiency of the Company's patents, the ability of the Company to manufacture its systems on a cost effective basis, market acceptance of the Company's products, the effects of governmental regulation and the ability of the Company to obtain adequate financing to support its operational and marketing plans, the expansion of its services network and future product development. Results actually achieved may differ materially from expected results included in these statements as a result of these or other factors. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS See Note 2 to the Company's Condensed Financial Statements included herein for information regarding the issuance and sale by the Company of shares of its Series D Preferred Stock, the May Warrants and the August Warrants, and certain changes to the Company's Series B and Series C Preferred Stock, which is incorporated herein by reference. In connection with the issuance of the Series D Preferred Stock, the Company entered into a Shareholders Agreement dated May 2, 2000 with Environmental Opportunities Fund, L.P., Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P., Environmental Opportunities Fund (Cayman), L.P, Hanseatic Americas LDC and Pierre Mansur (the "Shareholders Agreement"). Pursuant to the Shareholders Agreement, Messrs. Paul A. Biddelman and Kenneth Ch'uan-k'ai Leung were appointed to the Board of Directors on May 29, 2000. Also, if the Company does not meet certain targeted results of operations during the third quarter of 2000, either (i) one of its independent directors must resign or (ii) the Board of Directors will be expanded by two. The holders of Series D Preferred Stock will then be entitled to nominate one or more individuals for any resulting vacancies on the board. In addition, among other things, the Shareholders Agreement provides that certain decisions to be made by the board, including authorization of any merger or similar transaction or material acquisition, the issuance of certain securities or the employment of senior management, require concurrence of the directors designated by the holders of the Series D Convertible Preferred Stock. The Company also amended its 1998 Common Stock Purchase Rights Agreement to allow Hanseatic and the Environmental Funds to acquire the Series D Preferred Stock and the shares of common stock issuable upon conversion thereof without triggering the issuance of rights certificates. On August 7, 2000 (the "Issuance Date"), the Company entered into a Loan Agreement 13 14 with Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC under which it borrowed an aggregate of $2,500,000, evidenced by promissory notes (the "Subordinated Promissory Notes"), maturing February 7, 2002, subject to mandatory prepayment to the extent of any proceeds received by the Company from the sale of any new securities of the Company or the borrowing of any additional money (other than purchase money debt). The Subordinated Promissory Notes initially bear interest at the rate of 12% per annum until the six month anniversary of the Issuance Date, 14% until the nine month anniversary of the Issuance Date and 16% thereafter until repaid in full. The Company's obligations under the Loan Agreement are secured by a lien on substantially all of its assets other than its intellectual property although such obligations have been subordinated to the Revolver. Each of the Environmental Funds and Hanseatic are shareholders of the Company and Mr. Paul A. Biddelman, President of Hanseatic, and Mr. Kenneth Ch'uan-K'ai Leung, Chief Investment Officer of the Environmental Funds, are directors of the Company. Also pursuant to the Loan Agreement the Company issued the August Warrants. If the Company is unable to repay the Subordinated Promissory Notes at maturity, it will have to issue, subject to shareholder approval, additional warrants to the lenders that will be exercisable for 714,286 shares of the Company's common stock at $3.50 per share. Messrs. Paul and Pierre Mansur and Hanseatic and the Environmental Funds have agreed to vote any shares of Company voting stock owned by them in favor of such issuance. The Company also amended its 1998 Common Stock Purchase Rights Agreement to allow Hanseatic and the Environmental Funds to acquire the August Warrants and the shares of common stock issuable upon exercise thereof without triggering the issuance of rights certificates. The Series D Preferred Stock, the May Warrants, the August Warrants and the Subordinated Promissory Notes were issued in offerings exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) based upon the nature and number of offerees. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 2000 Annual Meeting of Shareholders on June 29, 2000; three items were submitted to a vote of security holders at that time: - - The election of five members to the Company's Board of Directors to hold office until the Company's 2001 Annual Meeting of Shareholders or until their successors are duly elected and qualified. Pierre G. Mansur, Paul I. Mansur, and Ronald J. Korn were re-elected as Directors of the Company. Paul A. Biddelman and Kenneth Ch'uan-k'ai 14 15 Leung were elected as new Directors of the Company. Including shares of Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, voting with the holders of Common Stock on an as-converted basis, 4,726,488 votes were cast in favor of the election of each of Pierre G. Mansur, Paul I. Mansur, Ronald J. Korn, Paul A. Biddelman and Kenneth Ch'uan-k'ai Leung and 5,500 votes were withheld for voting for each such director nominee. - - Consideration of a proposal to approve and ratify the amendment of the Company's 1996 Executive Incentive Compensation Plan to increase the number of shares of common stock reserved for issuance pursuant to grants of awards under such plan from 475,000 shares to 750,000 shares. Including shares of Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, voting with the holders of Common Stock on an as-converted basis, 4,722,088 votes were cast in favor of the proposal, 9,800 were cast against the proposal, and 100 votes were withheld for voting for such proposal. - - Consideration of a proposal to amend Article I of the Company's Articles of Incorporation to change the name of the Company from Mansur Industries Inc. to SystemOne Technologies Inc. Including shares of Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, voting with the holders of Common Stock on an as-converted basis, 4,731,188 votes were cast in favor of the proposal, 400 were cast against the proposal, and 400 votes were withheld for voting for such proposal. ITEM 5. OTHER INFORMATION. On July 12, 2000, the Company filed Articles of Merger with the Secretary of State for the State of Florida merging its wholly owned subsidiary, SystemOne Technologies Inc. with and into itself (the "Merger"). In connection with the Merger, on July 12, 2000, the Company filed Articles of Amendment to the Company's Amended and Restated Articles of Incorporation, filed on July 25, 1996 which changed the name of the Company from Mansur Industries Inc. to SystemOne Technologies Inc. In addition, the Company's trading symbol was changed to "STEK". ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following Exhibits are provided in accordance with the provisions of Item 601 of Regulation S-B and are filed herewith unless otherwise noted. EXHIBIT INDEX 3(i) Amended and Restated Articles of Incorporation dated July 25, 1996, as amended by Articles of Amendment dated May 17, 1999, Articles of Amendment dated August 24, 1999, Articles of Amendment dated May 2, 15 16 2000 and Articles of Amendment dated July 12, 2000. 4.1 Form of Warrant dated August 7, 2000. 4.2 First Amendment to Rights Agreement, dated as of May 2, 2000, by and between the Company and Continental Stock Transfer and Trust Company. 4.3 Second Amendment to Rights Agreement, dated as of August 7, 2000, by and between the Company and Continental Stock Transfer and Trust Company. 10.1 Loan Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.2 Form of Subordinated Promissory Note. 10.3 Letter Agreement amending the Loan Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P., Environmental Opportunities Fund (Cayman), L.P., Hanseatic Americas LDC, Paul Mansur and Pierre Mansur. 10.4 Security Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 27.1 Financial Data Schedule (b) Reports on Form 8-K Form 8-K dated May 12, 2000, filed with the Commission on May 15, 2000, reporting Item 5, Other Event, relating to the Company's sale of Series D Convertible Preferred Stock and Warrants on May 2, 2000. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYSTEMONE TECHNOLOGIES INC. Date: August 14, 2000 /s/ Paul I. Mansur ---------------------------------------- PAUL I. MANSUR Chief Executive Officer (Principal Executive Officer) Date: August 14, 2000 /s/ Steven M. Healy ---------------------------------------- STEVEN M. HEALY Director of Finance and Controller (Principal Financial Accounting Officer) 17 18 EXHIBITS 3(i) Amended and Restated Articles of Incorporation dated July 25, 1996, as amended by Articles of Amendment dated May 17, 1999, Articles of Amendment dated August 24, 1999, Articles of Amendment dated May 2, 2000 and Articles of Amendment dated July 12, 2000. 4.1 Form of Warrant dated August 7, 2000. 4.2 First Amendment to Rights Agreement, dated as of May 2, 2000, by and between the Company and Continental Stock Transfer and Trust Company. 4.3 Second Amendment to Rights Agreement, dated as of August 7, 2000, by and between the Company and Continental Stock Transfer and Trust Company. 10.1 Loan Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.2 Form of Subordinated Promissory Note. 10.3 Letter Agreement amending the Loan Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P., Environmental Opportunities Fund (Cayman), L.P., Hanseatic Americas LDC, Paul Mansur and Pierre Mansur. 10.4 Security Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 27.1 Financial Data Schedule 18 EX-3.(I) 2 ex3-i.txt AMENDED AND RESTATED ARTICLES OF INCORPORATION 1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MANSUR INDUSTRIES INC. ARTICLE I The name of the corporation is MANSUR INDUSTRIES INC. ARTICLE II The period of its duration is perpetual. ARTICLE III The date and time of the commencement of the corporate existence shall be November 13, 1990, the date of the filing of the original Articles with the Department of State for the State of Florida. ARTICLE IV The purpose or purposes for which the corporation is organized is to engage in the transaction of any or all lawful business for which the corporation may be incorporated under the provisions of the Florida General Corporation Act of the State of Florida. ARTICLE V This Corporation is authorized to issue Twenty Five Million (25,000,000) shares of $.001 par value common stock, which shall be designated "Common Shares" and One Million Five Hundred Thousand (1,500,000) shares of preferred stock of $1.00 per share par value, which shall be designated Preferred Shares". ARTICLE VI Preferred Shares may be issued from time to time in series. All Preferred Shares shall be of equal rank and identical, except in respect to the particulars that are set forth in these Articles or as they may be fixed by the Board of Directors consistent with these Articles. Consistent with the provisions of these Articles, the Board of Directors is authorized and required 2 to fix, in the manner and to the full extent provided and permitted by law, all provisions of the shares of each series set forth below: 1. The distinctive designation of all series and the number of shares which shall constitute such series; 2. The annual rate and nature of dividends payable on the shares of all series and the time and manner of payment; 3. The redemption price or prices, if any, for the shares of each, any or all series; 4. The obligation, if any, of the Corporation to maintain a sinking fund for the periodic redemption of shares of any series and to apply the sinking fund to the redemption of such shares; and 5. The rights, if any, of the holders of shares of each series to convert such shares into Common shares and the terms and conditions of such conversion. ARTICLE VII SECTION 1. DIVIDENDS. The holders of record of Preferred Shares shall be entitled to cash dividends when and as declared by the Board of Directors at the rate per share per annum and at the time and in the manner determined by the Board of Directors in the resolution authorizing each series of Preferred Shares. Cash dividends on Preferred Shares shall accrue from the date of issue. Upon the payment or setting apart for payment of all current dividends at the specified percentage rate per share per annum upon the outstanding Preferred Shares, the Directors may declare and pay dividends upon the Common Shares. Cash dividends on Preferred Shares shall, unless specifically fixed otherwise by the Board of Directors with respect to any particular class or series of preferred stock, be cumulative so that if, for any dividend period, cash dividends at the specified percentage rate per share per annum shall not have been declared and paid or set apart for payment on the Preferred Shares outstanding, the deficiency shall be declared and paid or set apart for payment prior to the making of any dividend or other distribution in the Common Shares. -2- 3 SECTION 2. RIGHTS UPON LIQUIDATION OR DISSOLUTION. In the event of any voluntary or involuntary liquidation, dissolution or winding up of this Corporation, the holders of record of the outstanding Preferred Shares shall be entitled to be paid the value established by the Board of Directors at the time any series of Preferred Shares is authorized, consistent with these Articles. If no such value is established at the time of authorization by the Board of Directors, then the holders of record of the Preferred Shares shall be entitled to be paid the book value for each of such Preferred Shares, plus accumulated dividends thereon up to the date of such liquidation, dissolution or winding up of this Corporation, whether or not this Corporation shall have a surplus or earnings available for dividends, and no more. After payment to the holders of Preferred Shares of the amount payable to them as above set forth, the remaining assets of this Corporation shall be payable to and distributed ratably among the holders of record of the Common Shares. SECTION 3. VOTING RIGHTS. Except as otherwise provided by law, the entire voting power for the election of Directors and for all other purposes shall be vested exclusively in the holders of the outstanding Common Shares. ARTICLE VIII SECTION 1. SERIES A 12% CUMULATIVE CONVERTIBLE PREFERRED STOCK. A. DESIGNATION. The shares of the second series of the Company's 12% Cumulative Convertible Preferred Stock, $1.00 par value, shall be designated "Series A 12% Cumulative Convertible Preferred Stock" (hereinafter the "Series A Preferred Stock") and the number of authorized shares constituting such series shall be 600,000. The number of authorized shares of Series A Preferred Stock may not be increased. B. DIVIDENDS. B.1. The holders of shares of Series A Preferred Stock shall be entitled, in preference to the Common Stock and any other stock of the Company, to receive cumulative cash dividends when and as declared by the Board of Directors out of funds legally available for the purpose, from the date of original issuance of such shares at a rate of $.60 per year per share of Series A Preferred Stock. The amount of dividends per share payable for any dividend period less than a full dividend period, shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in the period for which payable. Dividends shall be payable when and as declared by the Board of Directors, out of funds legally available therefor. Each such dividend shall be paid to the holders of record of shares of the Series A -3- 4 Preferred Stock as they appear on the stock register of the Corporation on any record date, not exceeding 30 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends may be declared and paid at any time, without reference to any regular dividend payment date, to holders of record on such date, not exceeding 45 days preceding the payment date thereof, as may be fixed by the Board of Directors. Dividends shall be cumulative, whether or not earned, and will accrue on each share of Series A Preferred Stock from the date of original issuance thereof. B2. If dividends at the rate per share set forth in paragraph B1 shall not have been declared and paid or set apart for payment on all outstanding shares of Series A Preferred Stock, then, until the aggregate deficiency shall be declared and fully paid or set apart for payment, the Company shall not (i) declare or pay or set apart for payment any dividends or make any other distribution on any capital stock of the Company ranking junior to, or on parity with, the Series A Preferred Stock with respect to the payment of dividends or upon liquidation (such stock being herein referred to as "Junior or Parity Stock"), or dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Junior Stock, or (ii) make any payment on account of the purchase, redemption, retirement or other acquisition of any Junior Stock or any options, warrants or rights to subscribe for or purchase any Junior or Parity Stock. C. LIQUIDATION PREFERENCE. Upon any liquidation (complete or partial), dissolution or winding up of the Company, or sale of substantially all the Company's assets, whether voluntary or involuntary, or any similar distribution of its assets to its shareholders which results in a return of capital, whether voluntary or involuntary, the holders of Series A Preferred Stock, in preference to all other future issues of preferred stock or any junior stock, shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders (whether from capital, surplus or earnings) an amount per share of Series A Preferred Stock equal to $5.00 plus twice the amount of aggregate dividends accrued through the date of distribution computed in accordance with this paragraph, through the effective date of liquidation or sale. D. REDEMPTION. D1. REDEMPTION OF SERIES A PREFERRED STOCK. The Company shall purchase or redeem the Series A Preferred Stock on June 30, 1996, or any extension of such redemption date which the Board of Directors of the Company may declare at their sole discretion. (a) For each share of the Series A Preferred Stock redeemed by the Company, pursuant to this paragraph D1, the Company shall be obligated to pay to the holder thereof, upon surrender, by such holder at the Company's principal office of the certificate representing such share, endorsed in blank or accompanied by an appropriate form of assignment, an amount in cash (the "Redemption Price") equal to the appropriate liquidation preference price of $5.00, plus twice the aggregate amount of dividends accrued with respect to such Series A Preferred Stock, calculated in accordance with this paragraph, through the date of -4- 5 redemption, which date shall be specified in the Company's notice to the Preferred Shareholder. (b) The number of shares of Series A Preferred Stock to be redeemed from each holder thereof in redemptions under this paragraph D1 shall be the number of whole shares, as nearly as practicable to the nearest share, determined by multiplying the total number of shares of Series A Preferred Stock to be redeemed times a fraction, the numerator of which shall be the total number of shares of Series A Preferred Stock then held by such holder and the denominator of which shall be the total number of shares of Preferred Stock then outstanding. In case less than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (c) Notice of any redemption of Series A Preferred Stock, specifying the date and time of redemption and the Redemption Price, shall be mailed by certified or registered mail, return receipt requested, to each holder of record of shares to be redeemed, at the address for such holder shown on the Company's records, not more than 60 nor less than 30 days prior to the date on which such redemption is to be made. If less than all the shares of the Series A Preferred Stock owned by such holder are then to be redeemed, the notice shall also specify the number of such shares and the certificate numbers thereof which are to be redeemed. Upon mailing any such notice of redemption, the Company shall become obligated to redeem, on the date specified therein, all shares of the Series A Preferred Stock specified in such notice. D2. RIGHTS AFTER REDEMPTION OR REPURCHASE. On the date any share of Series A Preferred Stock is redeemed or repurchased under this paragraph D, all rights of the holder of such share as a shareholder of the Company by reason of the ownership of such share shall cease, except the right to receive the Redemption Price of such share upon the presentation and surrender of the certificate representing such share, and such share shall not be deemed to be outstanding after the date on which it is redeemed or repurchased. D3. REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE CANCELED. Any shares of Series A Preferred Stock redeemed or repurchased pursuant to this section or otherwise acquired by the Company in any manner whatsoever shall be canceled and shall not under any circumstances be reissued, sold or transferred. The Company shall from time to time take such action as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly. -5- 6 E. CONVERSION. E1. CONVERSION PROCEDURES. (a) A holder of shares of Series A Preferred Stock may, at the holder's option, at any time prior to the effective date of redemption, as specified in the Company's notice in accordance with Paragraph D1(c) hereof, convert all or any part (in whole numbers of shares only) of the shares of Series A Preferred Stock held by such holder into such number of fully paid and nonassessable whole shares of Common Stock, on a one for one basis, that is one share of Series A Preferred Stock may be converted into one whole share of Common Stock. (b) Each conversion of shares of Series A Preferred Stock shall be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Company (or such other office or agency of the Company as the Company may designate by notice in writing to the holder or holders of the Series A Preferred Stock) at any time during its usual business hours, together with written notice by the holder of such Series A Preferred Stock stating that such holder desires to convert the shares, or a stated number of the shares, represented by such certificate or certificates, into shares of Common Stock. Such notice shall also specify the name or names (with addresses) and denominations in which the certificate or certificates for Common Stock shall be issued and shall include instructions for delivery thereof. Such conversion shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates shall have been surrendered, and as of such date (the "Conversion Date") the rights of the holder of such Series A Preferred Stock (or specified portion thereof) as such holder shall cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby. (c) As soon as possible after the Conversion Date (but in no event more than 30 days after the Conversion Date, the Company shall deliver to the converting holder or, with respect to the certificate(s) specified in (a) below, as specified by such converting holder: (i) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion registered in such name or names and such denomination or denominations as the converting holder shall have specified; and (ii) a certificate representing any shares of Series A Preferred Stock which shall have been represented by the certificate or certificates which shall have been delivered to the Company in connection with such -6- 7 conversion but which shall not have been converted. (iii) A Company check in the amount of any accrued but unpaid dividends, which dividends have not been converted to shares of Common Stock. E2. AUTHORIZATION AND ISSUANCE OF COMMON STOCK. (a) The Company will at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issue upon the conversion of the Series A Preferred Stock, as provided in this paragraph, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series A Preferred Stock together with accrued interest thereon. The Company covenants that all shares of Common Stock which shall be so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens, and charges. The Company will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation. (b) The Company will not take any action which results in any adjustment of the number of shares of Common Stock acquirable upon conversion of shares of the Series A Preferred Stock if after such action the total number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock then outstanding, together with the total number of shares of Common Stock then outstanding and the total number of shares of Common Stock reserved for any purpose other than issuance upon conversion of Series A Preferred Stock, would exceed the total number of shares of Common Stock then authorized by these Articles of Incorporation. (c) If any shares of Common Stock required to be reserved for purposes of conversions of shares of Series A Preferred Stock under this paragraph E2 require registration with, or approval of, any governmental authority under any federal or state law (other than any registration under the Securities Act of 1933, as then in effect, or any similar federal statute then in force, or any state securities law, required by reason of any transfer involved in such conversion), or listing on any domestic securities exchange, before such shares may be issued upon conversion, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved for listing or listed on such domestic securities exchange, as the case may be. (d) The issuance of certificates for shares of Common Stock upon conversion of shares of the Series A Preferred Stock shall be made without charge to the holders of such shares for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such conversion and the related -7- 8 issuance of shares of Common Stock, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series A Preferred Stock converted. (e) The Company will not close its books against the transfer of any share of Series A Preferred Stock or of any share of Common Stock issued or issuable upon the conversion of such shares in any manner which interferes with the timely conversion of such shares. E3. SUBDIVISIONS AND COMBINATIONS. In the event the Company shall at any time subdivide (by any stock split, stock dividend or otherwise) one or more classes of its outstanding Common Stock into a greater number of shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision forthwith shall be proportionately reduced. Conversely, in the event the outstanding shares of one or more classes of the Common Stock shall be combined into a smaller number of shares (by reverse stock split or otherwise), the Conversion Price in effect immediately prior to such combination shall be proportionately increased. E4. LIQUIDATING DIVIDENDS. While any shares of Series A Preferred Stock are outstanding, the Company will not declare a dividend (other than a dividend payable in Common Stock, Options or Convertible Securities) upon Common Stock payable otherwise than out of earnings or retained earnings (determined in accordance with generally accepted accounting principles, consistently applied). For purposes of this paragraph E4, a dividend other than in cash shall be considered payable out of earnings or earned surplus only to the extent that such earnings or earned surplus are charged an amount equal to the fair value of such dividend. E5. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any capital reorganization or reclassification of the capital stock of the Company, or any consolidation or merger of the Company with or into another corporation, or any sale of all or substantially all of the Company's assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive (either directly, or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby each of the holders of the Series A Preferred Stock shall thereafter have the right to acquire and receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Company immediately theretofore acquirable and receivable upon the conversion of such holder's Series A Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore acquirable and receivable upon conversion of such Series A Preferred Stock had such reorganization, reclassification, consolidation, merger or sale not taken place, and, in any such case, appropriate provision shall be made with respect to such holder's rights and interests to the end that the provisions of this paragraph E (including without limitation provisions for adjustments of the Conversion Price and -8- 9 of the number of shares of Common Stock acquirable and receivable upon the exercise of the conversion rights granted in this paragraph E) shall thereafter be applicable in relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of such holder's shares (including, in the case of any such consolidation, merger or sale in which the successor corporation or purchasing corporation is other than the Company, an immediate adjustment of the Conversion Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger or sale). In the event of a merger or consolidation of the Company with or into another corporation or the sale of all or substantially all of the Company's assets to another corporation, as a result of which a number of shares of common stock of the surviving or purchasing corporation greater or lesser than the number of shares of Common Stock of the Company outstanding immediately prior to such merger, consolidation or sale are issuable to holders of Common Stock, then the Conversion Price in effect immediately prior to such merger, consolidation or sale shall be adjusted (pursuant to paragraph E) as though there were a subdivision or combination of the outstanding shares of Common Stock. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered by first class mail, postage prepaid, to each holder of Series A Preferred Stock at the address of each such holder as shown on the books of the Company, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire or receive. If the purchase, tender or exchange offer is made to and accepted by the holders of more than fifty percent (50%) of the outstanding shares of Common Stock, the Company shall not effect any consolidation, merger or sale with the person having made such offer or with any affiliate of such person unless prior to the consummation of such consolidation, merger or sale each of the holders of Series A Preferred Stock shall have been given a reasonable opportunity to then elect to receive upon the conversion of such holder's shares either the stock, securities or assets then issuable with respect to the Common Stock or the stock, securities or assets, or the equivalent, issued to previous holders of the Common Stock in accordance with such offer. E6. NOTICE OF ADJUSTMENT. Immediately upon any adjustment of the Conversion Price, the Company shall send written notice thereof to all holders of Series A Preferred Stock (by first class mail, postage prepaid, addressed to each such holder at the address for such holder shown on the books of the Company), which notice shall state the Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares of Common Stock acquirable and receivable upon conversions of all shares of Series A Preferred Stock held by each such holder, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. -9- 10 E7. OTHER ADJUSTMENT-RELATED NOTICES. In the event that at any time: (a) the Company shall declare a dividend (or any other distribution) upon its Common Stock payable otherwise than in cash out of earnings or earned surplus; (b) the Company shall offer for subscription pro rata to the holders of any class of its Common Stock any additional shares of stock of any class or other rights; (c) there shall be any capital reorganization, reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (d) there shall be any voluntary or involuntary dissolution, liquidation, winding up or similar distribution of the Company; then, in connection with any such event, the Company shall give, by first class mail, postage prepaid, addressed to the holders of Series A Preferred Stock at the address for each such holder as shown on the books of the Company: (a) at least 60 days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding up or similar distribution; and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding up or similar distribution, at least 60 days prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding up or similar distribution). E8. CERTAIN EVENTS. If any event occurs as to which, in the opinion of the Board of Directors, the other provisions of this paragraph E are not strictly applicable or if strictly applicable would not fairly protect the conversion rights of the Series A Preferred Stock in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such conversion rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Conversion Price as otherwise determined pursuant to this paragraph E except in the event of a combination of shares of the type contemplated in paragraph E3 and then in no event to an amount larger than the Conversion Price as adjusted pursuant to paragraph E3. F. VOTING. Except as otherwise provided by law or herein, the holders of shares of Series A Preferred Stock shall not be entitled to vote upon any matter relating to the business or -10- 11 affairs of the Company or for any other purposes. G. REGISTRATION OF TRANSFER. The Company shall keep at its principal office (or such other place as the Company reasonably designates) a register for the registration of shares of Series A Preferred Stock. Upon the surrender of any certificate representing Series A Preferred Stock at such place, the Company shall, at the request of the registered holder of such certificate, execute and deliver (at the Company's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares represented by the surrendered certificate, subject to the requirements of applicable securities laws. Each such new certificate shall be registered in such name and shall represent such number of shares as shall be requested by the holder of the surrendered certificate, shall be substantially identical in form to the surrendered certificate, and the holders of the shares represented by such new certificate shall be entitled to receive all mandatory redemption payments on the shares represented by the surrendered certificate. H. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the registered holder shall be deemed satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of the Series A Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that if the registered holder is an institutional investor its own agreement of indemnity, without bond, shall be satisfactory) or, in the case of any such mutilation, upon surrender of such certificate, the Company shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares represented by such lost, stolen, destroyed or mutilated certificate. The term "outstanding" when used herein with reference to shares of the Series A Preferred Stock as of any particular time shall not include any shares represented by any certificate in lieu of which a new certificate has been executed and delivered by the Company in accordance with paragraph 8 or this paragraph, but shall include only those shares represented by such new certificate. I. RESTRICTIONS ON COMPANY ACTION. So long as any shares of Series A Preferred Stock shall be outstanding, and in addition to any other approvals or consents required by law, without the prior affirmative vote or written consent of the holders of fifty percent (50%) of all shares of Series A Preferred Stock at the time outstanding: (i) The Company shall not authorize, create or issue any shares, or securities convertible into such shares, of any class of stock having preference over, or being on a parity with, the Series A Preferred Stock with respect to rights upon dissolution, liquidation, winding up or similar distribution of the Company or distribution of assets to its shareholders by way of return of capital, whether voluntary or involuntary. (ii) The Company shall not sell, lease, or convey all or substantially all of the property or business of the Company (which for purposes hereof, "substantially all" shall be deemed to constitute fifty percent (50%) or more) and -11- 12 shall not effect a merger or consolidation of or with any other corporation or corporations unless such merger or consolidation shall be with a Subsidiary of the Company or unless as a result of such merger or consolidation and after giving effect thereto (a) the Company shall be the surviving corporation, (b) the Series A Preferred Stock then outstanding shall continue to be outstanding, (c) there shall be no alteration or change in the powers or designation or the preferences and rights, and the qualifications, limitations or restrictions applicable to outstanding shares of Series A Preferred Stock, in any material respect prejudicial to the holders thereof, and (d) there shall not be created or thereafter exist any new class or series of stock, or securities convertible into such stock, having preference over, or being on a parity with, the Series A Preferred Stock with respect to rights upon dissolution, liquidation, winding up or similar distribution or distribution of assets to shareholders by way of return of capital of the Company. (iii) The Company shall not amend, alter or repeal any of the provisions of these Articles of Incorporation or the Bylaws of the Company in any manner which would adversely affect the preferences and rights and the qualifications, limitations or restrictions of the Series A Preferred Stock or the holders thereof, nor shall the Company increase the number of shares of Series A Preferred Stock which the Company is authorized to issue. (iv) The Company shall not enter into any agreement which would by its terms prohibit or in any way restrict the Company from redeeming the Series A Preferred Stock or performing any other obligation to the holders of the Series A Preferred Stock imposed on the Company by these Articles of Incorporation. J. DEFINITIONS. The following terms shall have the following meanings, which meanings shall be equally applicable to the singular and plural forms of such terms: (i) "Common Stock" means, collectively, the Common Stock and any capital stock of any class of the Company hereafter authorized which shall not be limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution, winding up or similar distribution of the Company. (ii) "Common Stock Deemed Outstanding" means, at any given time, the sum of (a) the number of shares of Common Stock actually outstanding at such time (exclusive of any shares of Common Stock owned or held by or for the account of the Company), plus (b) the number of shares of Common Stock deemed to be outstanding under paragraph E hereof at such time. (iii) "Conversion Price" means $1.00, as such price may be adjusted from time to time pursuant to the provisions of paragraph E hereof. -12- 13 (iv) "Person" means and includes an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated organization or a government or any department or agency thereof. (v) "Junior Security" means the Company's Common Stock and any other equity security of any kind which the Company shall at any time issue or be authorized to issue other than the Series A Preferred Stock. The terms and conditions of Series A Preferred Stock are set forth in these Articles. (vi) "Series A Preferred Stock" means the Company's second series of 12% Cumulative Convertible Preferred Stock, par value $1.00 per share. (vii) "Subsidiary" means any corporation at least 50% of the voting stock of every class of which shall, at the time as of which any determination is being made, be owned by the Company either directly or through one or more Subsidiaries. K. SEVERABILITY. The unenforceability or invalidity of any provision or provisions hereof shall not affect or tender invalid or unenforceable any other provision or provisions herein contained. ARTICLE IX The number of directors constituting the Board of Directors of the Corporation is a minimum of one (1). The number of directors may be increased or diminished from time to time, pursuant to the Bylaws of the Corporation, but shall never be less than one (1). ARTICLE X The principal place of business and mailing address of this Corporation is: 8425 S.W. 129th Terrace Miami, Florida 33156 ARTICLE XI The by-laws of the Corporation may be adopted, altered, amended or repealed from time to time by either the shareholders or the Board of Directors, but the Board of Directors shall not alter, amend or repeal any by-laws adopted by the shareholders if the shareholders specifically provide that such bylaws are not subject to amendment or repeal by the directors. -13- 14 ARTICLE XII SECTION 1. INDEMNIFICATION This Corporation shall indemnify and shall advance expenses on behalf of its officers and directors to the fullest extent not prohibited by law in existence either now or hereafter. SECTION 2. DIRECTORS AND OFFICERS INSURANCE The Corporation shall have power to purchase and maintain insurance on behalf of any person who was or is a director or officer of the Corporation, or who is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have authority to indemnify him or her against such liability under the provisions of these articles, or under the law. -14- 15 ARTICLES OF AMENDMENT CERTIFICATE OF DESIGNATION OF SERIES B CONVERTIBLE PREFERRED STOCK OF MANSUR INDUSTRIES INC. (Pursuant to Section 607.0602 of the Florida Business Corporation Act) ------------------------------------ Mansur Industries Inc., a corporation organized and existing under the Business Corporation Act of the State of Florida (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 607.0602 of the Business Corporation Act at a meeting duly called and held on May 5, 1999: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Articles of Incorporation of the Corporation, the Board of Directors hereby creates a series of Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: Series B Convertible Preferred Stock: Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series B Convertible Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting the Series B Preferred Stock shall be 150,000, of which 50,000 shares shall be reserved for use in connection with the payment of dividends on the outstanding shares of Series B Preferred Stock pursuant to Section 3 hereof. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series B Preferred Stock to a number less than the number of shares then outstanding and no increase shall increase the number of shares of Series B Preferred Stock above the total number of authorized shares. Section 2. RANK. The Series B Preferred Stock shall rank as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or 16 involuntary: (i) senior to all of the Corporation's common stock, par value $.001 per share (the "Common Stock"); (ii) senior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to the Series B Preferred Stock (collectively, with the Common Stock, "Junior Securities" or "Junior Stock"); and (iii) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series B Preferred Stock ("Parity Securities" or "Parity Stock"). While any shares of Series B Preferred Stock are outstanding, no equity securities senior to the Series B Preferred Stock ("Senior Securities") or Parity Securities shall be authorized or issued without the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of the Series B Preferred Stock, voting as a class. This prohibition shall not include the authorization or issuance of any form of debt securities or instruments to a bank or other institution. Section 3. DIVIDENDS. (a) The dividend rate payable with respect to the outstanding shares of Series B Preferred Stock ("Dividend Rate") shall be 8.25% of the Liquidation Value (as defined below) of each share per annum. During the period commencing on the date of initial issuance of the Series B Preferred Stock and continuing through the second anniversary of the date thereof, all such dividends shall be paid by the Corporation, in lieu of cash, through the issuance of additional shares of Series B Preferred Stock valued at the Liquidation Value. Thereafter, all such dividends may, at the option of the Corporation, be paid in lieu of cash, through the issuance of additional shares of the Series B Preferred Stock, cash legally available for payment thereof, or any combination of Series B Preferred Stock and cash whether or not such dividends have been declared. If dividends are paid by the Corporation through the issuance of additional shares of Series B Preferred Stock and such dividends would, but for the provisions hereof, be payable with a fractional share, the Corporation shall pay, in lieu of such fractional share, cash in an amount equal to the value of such fractional share. Dividends on the Series B Preferred Stock shall accrue from the date of issuance or thereafter, from the most recent date on which dividends were payable, and shall be payable semi-annually on June 30 and December 31 of each year (each a "Dividend Payment Date"), commencing on June 30, 1999; provided, however, that if any such day is a non-business day, the Dividend Payment Date will be the next business day. Each declared dividend shall be payable to holders of record as they appear at the close of business on the stock books of the Corporation on June 10 and December 10 of each year (each of such dates a "Record Date"). Semi-annual dividend periods (each a "Dividend Period") shall commence on and include the 1st day of July and January of each year and shall end on and include the day next preceding the next following Dividend Payment Date. (b) No dividends shall be declared or paid or set apart for payment on any Common Stock, Parity Stock or Junior Stock during any semi-annual period unless full dividends on the Series B Preferred Stock for all Dividend Periods ending prior to or during such semi-annual period have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment. When dividends are not so paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series B Preferred 2 17 Stock and any other Parity Stock, dividends upon the Series B Preferred Stock and dividends on such other Parity Stock payable during such semi-annual period shall be declared pro rata so that the amount of such dividends so payable per share on the Series B Preferred Stock and such other Parity Stock shall in all cases bear to each other the same ratio that full dividends on the shares of Series B Preferred Stock and full dividends, if any, on shares of such other Parity Stock, bear to each other. If full dividends on the Series B Preferred Stock have not been declared and paid or set apart for payment, no dividend or distribution, other than in shares of Junior Stock, may be declared, set aside or paid on any shares of Junior Stock. Holders of the Series B Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the dividends provided for herein. No interest or sum of money in lieu of interest shall be payable in respect of any declared dividend payment or payments on the Series B Preferred Stock which may be in arrears. As used herein, the phrase "set apart" in respect of the payment of dividends shall require deposit of any funds in a bank or trust company in a separate deposit account maintained for the benefit of the holders of the Series B Preferred Stock, or, in the case of payment of dividends through the issuance of shares of the Corporation's Common Stock, the deposit of certificates representing such shares of Common Stock with such bank or trust company. Section 4. VOTING RIGHTS. On all matters to come before the shareholders of the Corporation, the holders of Series B Preferred Stock will vote together with the holders of the Common Stock as a single class, with each share of Series B Preferred Stock 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 (as hereinafter defined) is calculated except as required by law. The affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock shall be necessary for the issuance of Senior Securities, the authorization or issuance of securities convertible into such Senior Securities, or the amendment to the Corporation's Articles of Incorporation so as to adversely affect the Series B Preferred Stock, or waiver of any other covenants. To the extent that under Florida law the vote of the holders of shares of Series B Preferred Stock, voting separately as a class, 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 the Series B Preferred Stock shall constitute the approval of such action by the class. Holders of shares of Series B Preferred Stock shall be entitled to notice of all shareholder meetings or written consents with respect to which they would be entitled to vote, which notice shall be provided pursuant to the Corporation's bylaws and applicable law. Section 5. CONVERSION. Subject to and upon compliance with this SECTION 5, the holders of shares of Series B Preferred Stock shall have conversion rights as follows: (a) OPTIONAL CONVERSION. Each holder of a share of Series B Preferred Stock shall have the right, at any time or from time to time prior to the Redemption Date (as defined below), at the office of the Corporation or any transfer agent for the Series B Preferred Stock, to convert such share of Series B Preferred Stock into that number of fully paid and 3 18 nonassessable shares of Common Stock equal to $100 divided by the Conversion Price of such share of Series B Preferred Stock as set forth in SECTION 6 hereof. The number of shares of Common Stock into which the Series B Preferred Stock may be converted is hereinafter referred to as the "Conversion Rate"). Notwithstanding the foregoing, the Corporation shall not be obligated to accept shares of Series B Preferred Stock for conversion if such conversion would require the Corporation to issue a certificate or certificates evidencing less than an aggregate of 50,000 shares of Common Stock on any Date of Conversion (as defined below). (b) EARLY CONVERSION EVENT. If, after the first anniversary of the date of issuance of the shares of Series B Preferred Stock, the closing bid price of the Common Stock, as reported on Nasdaq (or the closing sale price if the Common Stock is then traded on any principal national exchange or Nasdaq National Market) exceeds 175% of the Conversion Price for a period of twenty (20) consecutive trading days, including the twenty (20) trading days prior to such first anniversary (the "Calculation Period"), an early conversion event ("Early Conversion Event") shall have occurred. Upon the first Early Conversion Event, if any, in each calendar quarter, the aggregate Liquidation Value of the outstanding shares of Series B Preferred Stock shall automatically and without any action by the holders of the Series B Preferred Stock or the Corporation be converted into shares of Common Stock, on a pro rata basis, in an amount determined in accordance with the following formula: CPS = [(V-Y)] x 22 x CP where CPS is the aggregate stated Liquidation Value of the Series B Preferred Stock to be converted; V is the average daily reported volume of trading in the Common Stock on all national securities exchanges and/or reported through the automated quotation system of a registered national securities association during the Calculation Period and Y is the sum of (i) shares of Common Stock which the Corporation then has the right to issue upon an "Early Conversion Event" under the Corporation's outstanding 8 1/4% Subordinated Convertible Notes due 2003 (tHE "Convertible Notes"), plus (ii) shares of Common Stock subject to then effective resale registration statements of the Corporation other than Registration Statements on Form S 8 or S-4 and other than registration statements with respect to Common Stock underlying the Convertible Notes and the Series B Preferred Stock which remain unsold at such time; and CP is the applicable Conversion Price. For purposes of calculating V, trading volume in excess of 100,000 shares on any trading day shall not be included, unless such amounts do not exceed 200% of the trailing 30-day average reported volume of trading. Notwithstanding the foregoing, none of the outstanding shares of Series B Preferred Stock shall be converted as a result of an Early Conversion Event pursuant to this SECTION 5 unless the resale of the shares of Common Stock issuable upon such conversion is subject to an effective Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), or an exemption from registration under the Securities Act is then available. Accrued dividends on the shares of Series B Preferred Stock converted upon the occurrence of an Early Conversion Event shall be paid on the next Dividend Payment Date in accordance with SECTION 3 hereof. 4 19 (c) MECHANICS OF CONVERSION. Before a holder shall be entitled to receive shares of Common Stock upon conversion of shares of Series B Preferred Stock, the holder of shares of Series B Preferred Stock shall (i) fax or otherwise deliver a copy of the fully executed notice of conversion in the form attached hereto as EXHIBIT A ("Notice of Conversion") to the Corporation at its principal office and to the office of its designated transfer agent that such holder elects to convert the same, which notice shall specify the number of shares of Series B Preferred Stock to be converted and shall contain the Conversion Price (together with a copy of the first page of each certificate to be converted) prior to 5:00 p.m., Eastern Standard time (the "Conversion Notice Deadline") on the date of conversion specified on the Notice of Conversion and (ii) surrender the original certificate or certificates for the shares of Series B Preferred Stock to be converted, duly endorsed, and deliver the original Notice of Conversion by either overnight courier or two-day courier, to the principal office of the Corporation or to the office of its designated transfer agent; PROVIDED, HOWEVER, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series B Preferred Stock are delivered to the Corporation or its transfer agent as provided above. Upon the conversion of shares of Series B Preferred Stock in connection with an Early Conversion Event, the Corporation shall send to the holders of shares of Series B Preferred Stock a Notice of Early Conversion (in the form attached hereto as EXHIBIT B) stating the aggregate Liquidation Value of shares of Series B Preferred Stock to be converted and the number of shares of Common Stock into which such Liquidation Value shall be converted. Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of any certificate representing shares of Series B Preferred Stock, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Corporation, and upon surrender and cancellation of any certificate representing shares of Series B Preferred Stock, if mutilated, the Corporation shall execute and deliver a new certificate of like tenor and date. No fractional shares of Common Stock shall be issued upon conversion of the Series B Preferred Stock. In lieu of any fractional share to which the holder of shares of Series B Preferred Stock would otherwise be entitled, the Corporation shall pay cash to such holder in an amount equal to such fraction multiplied by the Conversion Price then in effect. In the case of a dispute as to the calculation of the Conversion Rate, the Corporation's calculation shall be deemed conclusive absent manifest error. The Corporation shall use all reasonable efforts to issue and deliver within seven (7) business days after delivery to the Corporation of the certificates representing the shares of Series B Preferred Stock to be converted, or after such agreement and indemnification, to such holder of shares of Series B Preferred Stock at the address of the holder on the books of the Corporation, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid. The date on which conversion occurs (the "Date of Conversion") shall be deemed to be the date set forth in such Notice of Conversion, provided (i) that the advance copy of the Notice of Conversion is delivered to and received by the Corporation before 5:00 p.m., Eastern Standard time, on the Date of Conversion, and (ii) that the 5 20 original stock certificates representing the shares of Series B Preferred Stock to be converted are received by the Corporation or the transfer agent within two (2) business days thereafter. In the case of an Early Conversion Event, the last date of the Calculation Period shall be deemed to be the Date of Conversion. The person or persons entitled to receive the shares of Series B Preferred Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Date of Conversion. In the case of an optional conversion, if the original certificates representing the shares of Series B Preferred Stock to be converted are not received by the Corporation or the transfer agent within two (2) business days after the Date of Conversion or if the facsimile of the Notice of Conversion is not received by the Corporation or its transfer agent prior to the Conversion Notice Deadline, the Notice of Conversion, at the Corporation's option, may be declared null and void. Following any conversion of shares of Series B Preferred Stock, such shares of Series B Preferred Stock shall no longer be outstanding and all rights of a holder with respect to the shares surrendered for conversion shall immediately terminate except for the right to receive Common Stock. All shares of Series B Preferred Stock subject of an Early Conversion Event shall be deemed to be cancelled upon such holder's receipt of shares of Common Stock in connection with any such conversion. (d) RESERVATION OF SHARES. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series B Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Section 6. CONVERSION PRICE. The "Conversion Price" per share of the Series B Preferred Stock shall be $8.25, subject to adjustment as set forth below, with all such adjustments, if any, being cumulative from the date of initial issuance of shares of Series B Preferred Stock such that all outstanding shares of Series B Preferred Stock have the same Conversion Price regardless of their date of issuance. 6.1 ADJUSTMENT OF THE NUMBER OF SHARES OF COMMON STOCK AND THE CONVERSION PRICE. The number of shares of Common Stock issuable upon conversion and the Conversion Price shall be subject to adjustment as follows: (a) In case the Corporation shall at any time after the date of the initial issuance of Series B Preferred Stock and prior to the conversion of all outstanding shares thereof (A) pay a dividend or make a distribution on its Common Stock in shares of its capital stock (whether in shares of Common Stock or of capital stock of any other class), (B) subdivide its outstanding shares of Common Stock into a greater number of shares, (C) combine its outstanding shares of Common Stock into a smaller number of shares, or (D) reclassify, 6 21 reorganize or effect any similar transaction with respect to any of its shares of Common Stock, or in substitution or exchange therefor (other than a change in par value, or from par value to no par value, or from no par value to par value), then the number and, if applicable, kind of shares of Common Stock to be received by any Holder shall be adjusted so that the Holder will be entitled to receive on conversion the number and kind of shares of capital stock which it would have owned immediately following such action had its Series B Preferred Stock been converted immediately prior thereto. An adjustment made pursuant to this subsection (a) shall become effective immediately after the payment date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, reclassification, reorganization or similar transaction. If, as a result of an adjustment made pursuant to this subsection (a), a Holder shall become entitled to receive shares of two or more classes of capital stock of the Corporation, the Board of Directors or a duly authorized committee thereof shall in good faith determine (which determination shall be conclusive and binding) the allocation of the Conversion Price between or among shares of such classes of capital stock. After such allocation, the Conversion Price and number of shares of each class of capital stock that is issuable upon conversion shall thereafter be subject to adjustment in a manner and on terms determined by the Board of Directors (which determination shall be conclusive and binding) to be as nearly equivalent as practicable to those applicable to Common Stock under this Section 6. (b) (i) From the date of the initial issuance of the shares of Series B Preferred Stock to and including the first anniversary of the date thereof, if the Corporation shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares (as hereinafter defined) for consideration per share (the "Issuance Price") less than the Conversion Price (as herein defined) per share in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the Issuance Price. (ii) After the first anniversary and prior to the second anniversary of the initial issuance of the shares of Series B Preferred Stock, if the Corporation shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share less than the Conversion Price per share in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the price (calculated to the nearest cent) determined: by dividing (A) an amount equal to the sum of (1) the number of shares of Common Stock outstanding on a fully diluted basis immediately prior to such issuance multiplied by the Conversion Price per share in effect immediately prior to such issuance and (2) the consideration, if any, received by the Corporation upon such issuance by (B) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such issuance. (iii) If at any time prior to the second anniversary of the initial issuance of the shares of Series B Preferred Stock, the Corporation shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share greater than the Conversion Price but lower than the market price per share in effect immediately 7 22 prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the price (calculated to the nearest cent) determined by multiplying the Conversion Price in effect immediately prior to such issuance by the factor determined by dividing (A) an amount equal to the sum of (1) the number of shares of Common Stock outstanding on a fully diluted basis immediately prior to such issuance multiplied by the market price per share in effect immediately prior to such issuance and (2) the consideration, if any, received by the Corporation upon such issuance by (B) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such issuance multiplied by the market price per share in effect immediately prior to such issuance; PROVIDED, HOWEVER, no adjustment shall be made to the Conversion Price if (i) such issuance is in connection with a firm commitment underwritten public offering or (ii) the consideration per share is equal to or greater than 85% of the market price per share in effect immediately prior to such issuance. For purposes hereof, the "market price" as of any measurement date shall be the average of the closing prices of the Common Stock for each of the 10 consecutive trading days immediately preceding such measurement date. (c) CERTAIN ADJUSTMENT FACTORS. For the purposes of any adjustment of the Conversion Price pursuant to paragraph (b) above, the following provisions shall be applicable: (x) CASH. In the case of the issuance of shares of Common Stock for cash, the amount of the consideration received by the Corporation shall be deemed to be the amount of the cash proceeds received by the Corporation for such shares of Common Stock before deducting therefrom any discounts, commissions, taxes or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof; and (y) CONSIDERATION OTHER THAN CASH. In the case of the issuance of shares of Common Stock (other than upon the conversion of shares of capital stock or other securities of the Corporation) for consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof (as determined by the Board of Directors of the Corporation based on an opinion of an outside financial advisor of recognized regional or national standing, which may, but need not, be the independent public accountants who serve as the regular auditors of the Corporation (the "Financial Advisor"), whose determination shall be conclusive and binding), irrespective of any accounting treatment; and (z) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the issuance of (i) options, warrants or other rights to purchase or acquire shares of Common Stock (whether or not exercisable immediately following such issuance), (ii) securities by their terms convertible into or exchangeable for shares 8 23 of Common Stock (whether or not so convertible or exchangeable immediately following such issuance), or (iii) options, warrants or rights to purchase such convertible or exchangeable securities (whether or not exercisable immediately following such issuance): (1) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options, warrants or other rights to purchase or acquire shares of Common Stock shall be deemed to have been issued at the time such options, warrants or other rights are first issued and for a consideration equal to the consideration (determined in the manner provided in clauses (x) and (y) above), if any, received by the Corporation upon the issuance of such options, warrants or other rights plus the purchase price provided in such options, warrants or other rights for the shares of Common Stock covered thereby (if the purchase price per share of Common Stock is expressed as a range, the purchase price per share for purposes of this subparagraph (z)(1) shall be the average of such range of prices); (2) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities, or upon the exercise of options, warrants or other rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereto shall be deemed to have been issued at the time such convertible or exchangeable securities or such options, warrants or other rights are first issued and for a consideration equal to the consideration, if any, received by the Corporation for any such convertible or exchangeable securities or options, warrants or other rights (excluding any cash received on account of accrued interest or accumulated dividends), plus the additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such securities and the exercise of any options, warrants or other rights (the consideration in each case to be determined in the manner provided in clauses (x) and (y) above); (3) on any change in the number of shares of Common Stock deliverable upon exercise of any such options, warrants or other rights which have become exercisable or conversion of or exchange of such convertible or exchangeable securities which have become convertible or exchangeable, or any change in the consideration to be received by the Corporation upon such exercise, conversion or exchange, the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had such adjustment been made upon the original issuance of such options, warrants or other rights; provided, however, no adjustment shall be made with respect to such 9 24 options, warrants or other rights exercised prior to such change, or securities converted or exchanged prior to such change; (4) on the expiration or cancellation of any such options, warrants or other rights, or the termination of the right to convert or exchange such convertible or exchangeable securities, if the Conversion Price shall have been adjusted upon such securities being issued or becoming exercisable, convertible or exchangeable, such Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options, warrants or other rights, or upon the conversion or exchange of such securities; and (5) if the Conversion Price shall have been adjusted when such options, warrants or other rights were first issued or such convertible or exchangeable securities were first issued, no further adjustment of the Conversion Price shall be made for the actual issuance of shares of Common Stock upon the exercise, conversion or exchange thereof. (d) EXCLUDED SHARES. "Excluded Shares" shall mean (i) any shares of Common Stock issued in a transaction described in Section 6(a) of this Agreement; and (ii) issuances of shares of Common Stock from time to time pursuant to employment agreements, stock option or bonus plans authorized by the Board of Directors of the Corporation as of the date hereof, (iii) issuances of Common Stock, or warrants, options or rights to acquire shares of Common Stock, or securities convertible into or exchangeable for Common Stock pursuant to the terms of any acquisition by the Corporation of all or substantially all of the operating assets, or more than fifty percent (50%) of the voting capital stock or other management interest of any business entity in a transaction negotiated on an arms-length basis and expressly approved in advance by the Board of Directors of the Corporation; (iv) issuances of shares of Common Stock from time to time upon the exercise, exchange or conversion of warrants, options, convertible securities, the Notes (whether or not outstanding as of the date hereof) or other securities outstanding as of the date hereof, and (v) issuances of shares of Common Stock from time to time pursuant to the anti-dilution provisions of other securities. (e) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1.2% in such price; PROVIDE, HOWEVER, that any adjustments which by reason of this subsection (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest tenth of a cent or to the nearest one-hundredth of a share, as the case may be. 10 25 (f) The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issuance of Common Stock for the purposes of this Section 6. 6.2 RIGHTS TO PURCHASE OTHER SECURITIES. If any of the following shall occur: (a) any consolidation or merger to which the Corporation is a party, other than a consolidation or a merger in which the Corporation is the continuing or surviving Corporation and which does not result in any reclassification of, or change (other than as a result of a subdivision or combination) in, outstanding shares of the Common Stock, or (b) any sale or transfer to another corporation or entity of all or substantially all of the assets of the Corporation; then, and in either such case, the Holder of each share of Series B Preferred Stock then outstanding shall have the right to purchase the kind and amount of shares of stock and/or other securities and property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock issuable upon conversion of such stock immediately prior to such consolidation, merger, sale, or transfer. The provisions of this Section 6.2 shall similarly apply to successive consolidations, mergers, sales or transfers. 6.3 NOTICE OF ADJUSTMENT. Whenever the number of shares of Common Stock issuable upon the conversion of each share of Series B Preferred Stock or the Conversion Price of such shares of Series B Preferred Stock is adjusted or reduced, as herein provided, the Corporation shall mail by first class, postage prepaid, to each Holder (a) notice of any reduction on or before the day the reduction takes effect, which shall state the reduced Conversion Price and the period during which it will be in effect and/or (b) a certificate setting forth the number of shares of Common Stock issuable upon the conversion of each share of Series B Preferred Stock and the Conversion Price on such shares of Series B Preferred Stock after adjustment setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. 6.4 NO ADJUSTMENT FOR DIVIDEND. No adjustment in respect of any cash dividends shall be made while the Series B Preferred Stock is outstanding or upon the conversion of the Series B Preferred Stock. 6.5 CERTAIN EVENTS. If any event occurs as to which in the reasonable judgment of the Board of Directors of the Corporation , in good faith, the other provisions of this Section 6 are not strictly applicable but the lack of any adjustment would not in the opinion of the Board of Directors of the Corporation fairly reflect the purchase rights of the Holders of the Series B Preferred Stock in accordance with the basic intent and principles of the provisions of this Agreement then the Board of Directors of the Corporation shall appoint a Financial Advisor which shall give its opinion upon the adjustment, if any, on a basis consistent with the basic 11 26 intent and principles established and the other provisions of this Section 6, necessary to preserve, without dilution, the exercise rights of the Holders. Upon receipt of such opinion, the Corporation shall forthwith make the adjustments described therein which adjustments shall be conclusive and binding. Section 7. STATUS OF CONVERTED OR REACQUIRED SHARES. Any shares of Series B Preferred Stock converted into shares of Common Stock pursuant to SECTION 5 hereof or purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the conversion or acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Series B Preferred Stock and may be reissued as part of a new series of preferred stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Certificate of Designation creating a series of preferred stock or any similar stock or as otherwise required by law. Section 8. LIQUIDATION, DISSOLUTION OR CHANGE OF CONTROL. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of shares of Series B Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders under applicable law, prior and in preference to any distribution to holders of the Common Stock or any Junior Securities but in parity with any distribution to holders of Parity Securities, an amount of $100 per share (the "Liquidation Value"), plus a sum equal to all dividends accrued on such shares (whether or not declared) and unpaid for the then current Dividend Period. If upon the occurrence of such event, the assets and funds to be distributed among the holders of shares of Series B Preferred Stock and Parity Securities shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of shares of Series B Preferred Stock and Parity Securities, respectively, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of shares of Series B Preferred Stock and Parity Securities, pro rata, based on the respective liquidation amounts to which each such series of stock is entitled by the Corporation's Articles of Incorporation and any certificate of designation of preferences. (b) Upon the completion of the distribution required by subsection 8(a) above, if assets remain in the Corporation, they shall be distributed to holders of Parity Securities (unless holders of Parity Securities have received distributions pursuant to subsection 8(a)) and Junior Securities in accordance with the Corporation's Articles of Incorporation, including any duly adopted certificate(s) of designation of preferences. (c) (i) Upon a Change of Control (as defined below) of the Corporation, each holder of the Series B Preferred Stock will have the option to require the Corporation to repurchase such holder's shares of Series B Preferred Stock at a price per share equal to the Liquidation Value plus any accrued and unpaid dividends. A "Change of Control" shall have occurred: (A) when any person or group is or becomes the beneficial owner of 50% or 12 27 more of the then outstanding voting shares of the Corporation, (B) when, during any period of two consecutive years after the closing of the sale of the Series B Preferred Stock, individuals who at the beginning of such period constituted the Corporation's Board of Directors, or whose nomination for election by the Corporation's shareholders was approved by a vote of a majority of the directors of the Corporation then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors then in office or (C) upon any sale, transfer or other conveyance of all or substantially all of the assets of the Corporation. (ii) Upon the occurrence of a Change of Control, the Corporation will offer to repurchase (the "Change of Control Purchase Offer") all outstanding shares of Series B Preferred Stock, and each holder of outstanding shares of Series B Preferred Stock will have the right to require that the Corporation repurchase such holder's shares of Series B Preferred Stock, at the price set forth in clause (i) of this subsection 8(c). Within 30 days following any Change of Control, the Corporation shall mail a notice, by first class mail, to each holder of record of Series B Preferred Stock (a "Change of Control Notice"), at his address of record, stating: (A) that a Change of Control has occurred and that such holder has the right to require the Corporation to purchase such holder's shares of Series B Preferred Stock at the price set forth above; (B) the circumstances and relevant facts regarding such Change of Control; (C) the date on which the Corporation will repurchase any shares of Series B Preferred Stock which the holders require the Corporation to repurchase in accordance with this subsection 8(c), which date shall be no earlier than 30 days nor later than 60 days from the date such Change of Control Notice is mailed (the "Change of Control Purchase Date"); (D) that, unless the Corporation defaults in making such payment, any shares of Series B Preferred Stock accepted for payment pursuant to the Change of Control Purchase Offer shall cease to accrue dividends after the Change of Control Purchase Date; (E) that holders of Series B Preferred Stock electing to have their shares repurchased pursuant to any Change of Control Purchase Offer shall be required to surrender the original certificates for the shares of Series B Preferred Stock at the address specified in the notice, at least three business days before the Change of Control Purchase Date; and 13 28 (F) that the holders of Series B Preferred Stock shall be entitled to withdraw their election if the Corporation receives, not later than the last business day prior to the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the number of shares of Series B Preferred Stock the holder delivered for repurchase and a statement that such holder is withdrawing his election to have such shares repurchased. (iii) Each holder of shares of Series B Preferred Stock electing to have such shares purchased by the Corporation pursuant to this subsection 8(c) shall deliver to the Corporation at its principal office, at least three business days prior to the Change of Control Purchase Date, the original certificate or certificate(s) for the shares to be purchased duly endorsed, together with written notice to the Corporation specifying the number of shares of Series B Preferred Stock to be purchased. Holders of Series B Preferred Stock will be entitled to withdraw their election if the Corporation receives, not later than one business day prior to the Change of Control Purchase Date, a telegram, facsimile transmission or letter, at its principal office, setting forth the name of the holder, the number of shares of Series B Preferred Stock which were delivered by the holder for purchase by the Corporation and a statement that such holder is withdrawing his election to have such shares purchased. (iv) Promptly following the Change of Control Purchase Date, the Corporation will mail or deliver to each holder of shares of Series B Preferred Stock who properly tendered such shares to the Corporation for purchase pursuant to this subsection 8(c) and did not withdraw such election, at his, her or its address of record, an amount equal to the purchase price for the shares of Series B Preferred Stock so delivered for purchase as set forth in this subsection 8(c). Unless the Corporation shall have defaulted in the payment of the purchase price for shares of Series B Preferred Stock tendered for purchase by the Corporation, all rights of the holders of such shares (except the right to receive the purchase price therefor) shall cease with respect to such shares on the Change of Control Purchase Date and such shares shall not, after the Change of Control Purchase Date, be deemed to be outstanding and shall not have the status of Series B Preferred Stock. (v) The Corporation will comply, to the extent applicable, with the requirements of Section 14(e) of the Securities Exchange Act of 1934, as amended, and any other applicable securities laws or regulations in connection with the repurchase of Series B Preferred Stock pursuant to this subsection 8(c). To the extent that the provisions of any securities laws or regulations conflict with the provisions of this subsection 8(c), the Corporation will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section by virtue thereof. Section 9. CONSOLIDATION, MERGER, ETC. Except as set forth in Section 8(c) hereof, in the event of a merger, reorganization, recapitalization or similar event of or with respect to the Corporation (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Corporation's equity securities upon such 14 29 Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any affiliate thereof), the Series B Preferred Stock shall be assumed by the acquiring entity and thereafter the Series B Preferred Stock shall be convertible into such class and type of securities as the holder of shares of Series B Preferred Stock would have received had such holder converted the Series B Preferred Stock immediately prior to such Corporate Change. Section 10. REDEMPTION. (a) OPTIONAL REDEMPTION. Subject to earlier conversion, commencing on May 17, 2002 and continuing through the Mandatory Redemption Date (as defined below), the Corporation shall have the right, exercisable at any time and from time to time, to redeem shares of Series B Preferred Stock of the following prices plus the payment of all accrued and unpaid dividends: Year Redeemed Price ------------- ----- 2002 104% of Liquidation Value 2003 102% of Liquidation Value If less than all of the outstanding shares of Series B Preferred Stock are called for redemption pursuant to this SECTION 10(A), shares of Series B Preferred Stock shall be redeemed on a pro rata basis among the holders thereof. Each holder of Series B Preferred Stock will be given notice of such redemption and will have the right to convert the Series B Preferred Stock into shares of Common Stock prior to the redemption date specified in such notice. (b) MANDATORY REDEMPTION. (i) The Corporation will be required to redeem the outstanding shares of Series B Preferred Stock on May 17, 2004 (the "Mandatory Redemption Date"), at a redemption price per share equal to the Liquidation Value plus accrued and unpaid dividends. (ii) If at any time, (A) the Corporation shall breach the terms and conditions contained in this certificate of designation, (B) the Corporation shall breach any representation, warranty, or covenant contained in that certain Series B Convertible Stock Purchase Agreement, dated May 6, 1999, between the Corporation and the holders of the Series B Preferred Stock or any subsequent Series B Stock Purchase agreement with like terms, or (C) the Corporation shall fail to make a dividend payment on a Dividend Payment Date (each a "Breach"), and any holder of shares of Series B Preferred Stock shall give written notice to the Corporation of its desire to have the Corporation redeem its shares of Series B Preferred Stock, such shares shall be redeemed by the Corporation at a redemption price per share equal to the greater of the amounts that would at that time be payable under Section 10(a) hereof had the Corporation exercised its right to redeem the shares of Series B Preferred Stock thereunder or the Liquidation Value plus accrued and unpaid dividends; PROVIDED, HOWEVER, no holder shall have 15 30 the right to request a redemption of its shares of Series B Preferred Stock pursuant to this SECTION 10(B)(II) unless and until the Corporation shall have failed to cure any such Breach within a period of ten (10) days after having received written notice thereof. (c) MECHANICS OF REDEMPTION. Notice of redemption of the Series B Preferred Stock, specifying the redemption date and place of redemption, shall be given by first class mail to each holder of record of the shares to be redeemed, at his address of record, not less than 30 nor more than 60 calendar days prior to the date upon which the Corporation shall redeem the Series B Preferred Stock (the "Redemption Date"). Each such notice shall also specify the redemption price applicable to the shares to be redeemed. If less than all the shares owned by such holder are then to be redeemed, the notice shall also specify the number of shares thereof which are to be redeemed and the fact that a new certificate or certificates representing any unredeemed shares shall be issued without cost to such holder. (i) Notice of redemption of shares of the Series B Preferred Stock having been given as provided in SECTION 10(B), then unless the Corporation shall have defaulted in the payment of the redemption price and all accrued and unpaid dividends (whether or not declared), all rights of the holders thereof (except the right to receive the redemption price and all accrued and unpaid dividends, whether or not declared) shall cease with respect to such shares on the Redemption Date and such shares shall not, after the Redemption Date, be deemed to be outstanding and shall not have the status of Series B Preferred Stock. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (ii) Shares of the Series B Preferred Stock are not subject or entitled to the benefit of a sinking fund. (iii) Notwithstanding the foregoing, if notice of redemption shall have been given pursuant to this SECTION 10 and any holder of the Series B Preferred Stock shall, prior to the close of business on the date three business days next preceding the Redemption Date, give written notice to the Corporation pursuant to SECTION 5 hereof of the conversion of any or all of the shares held by the holder (accompanied by a certificate or certificates for such shares, duly endorsed or assigned to the Corporation), then the redemption shall not become effective as to such shares and the conversion shall become effective as provided in SECTION 5. (iv) If on the Mandatory Redemption Date funds legally available to the Corporation for redemption of all outstanding shares of Series B Preferred Stock are insufficient to redeem all such shares of Series B Preferred Stock, such available funds shall be used by the Corporation to redeem shares of Series B Preferred Stock from all holders ratably in proportion to the full number of shares they would otherwise be entitled to have redeemed. In the event that less than all outstanding shares of Series B Preferred Stock are redeemed on the Mandatory Redemption Date, the Corporation will continue to redeem shares of Series B Preferred Stock from time to time as soon as practicable after funds become legally available 16 31 therefor (ratably if the funds legally available remain insufficient to redeem all shares required to be redeemed) until all shares of Series B Preferred Stock required to be redeemed shall have been redeemed. Until actually redeemed, each share of Series B Preferred Stock will continue to enjoy all rights and benefits hereof, including the right to convert into shares of Common Stock. (d) CONVERSION PRICE ADJUSTMENT FOR FAILURE TO REDEEM. If the Corporation fails to redeem all outstanding shares of Series B Preferred Stock on the Mandatory Redemption Date, then, without any action by the holders of shares of Series B Preferred Stock, the then current Conversion Price respecting any shares of Series B Preferred Stock not redeemed by the Corporation shall be reduced (but shall not be increased) to the greater of: (i) fifty percent (50%) of the then current Conversion Price, and (ii) the closing price of the Common Stock as reported by Nasdaq (or such principal national exchange on which the Common Stock is then listed) on the Mandatory Redemption Date. Section 11. AMENDMENT. The Articles of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least a majority of the outstanding shares of Series B Preferred Stock, voting together as a single class. Section 12. NOTICES. Written notice of each meeting of the shareholders of the Corporation shall be given by first-class mail not less than ten (10) days prior to such meeting to each holder of record of the Series B Preferred Stock to the address of such record holder shown on the Corporation's records. 17 32 IN WITNESS WHEREOF, this Certificate of Designation has been executed on behalf of the Corporation by its Chief Executive Officer this 13th day of May, 1999. MANSUR INDUSTRIES INC. By: /s/ Paul I. Mansur -------------------------------- Paul I. Mansur Chief Executive Officer 18 33 EXHIBIT A NOTICE OF CONVERSION (To be Executed by the Registered Holder in Order to Convert the Series B Preferred Stock) The undersigned hereby irrevocably elects to convert ______ shares of Series B Preferred Stock, represented by stock certificate No(s). ________________ (the "Series B Preferred Stock Certificates") into shares of common stock, par value $.001 per share ("Common Stock"), of Mansur Industries Inc., (the "Corporation") according to the conditions of the Certificate of Designation of Series B Preferred Stock, as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Series B Preferred Stock shall be made pursuant to registration of such shares of Common Stock under the Securities Act of 1933, as amended, or pursuant to an exemption from registration under such Act. Conversion Calculations: ----------------------------------------- Date of Conversion ----------------------------------------- Applicable Conversion Price ----------------------------------------- Signature ----------------------------------------- Name Address: ----------------------------------------- ----------------------------------------- *No shares of Common Stock will be issued until the original Series B Preferred Stock Certificate(s) to be converted and the Notice of Conversion are received by the Corporation or its designated Transfer Agent. The original Stock Certificate(s) representing the Series B Preferred Stock to be converted and the Notice of Conversion must be received by the Corporation or its designated Transfer Agent by the second business day following the Date of Conversion, or the Notice of Conversion, at the Corporation's option, may be declared null and void. 19 34 EXHIBIT B NOTICE OF EARLY CONVERSION EVENT Mansur Industries Inc. (the "Corporation ") hereby notifies ____________________, the holder of ___________ shares (the "Shares") of the Corporation 's Series B Preferred Stock (the "Series B Preferred Stock"), that an Early Conversion Event occurred on __________, and as such, you are hereby directed to surrender the Shares as $______ of the aggregate Liquidation Value of such Shares has been automatically converted into shares of the Corporation 's common stock, par value $.001 per share (the "Conversion Shares"), in accordance with the terms of the Certificate of Designation respecting the Series B Preferred Stock. Unless otherwise instructed, the Corporation shall issue the Conversion Shares and a new certificate representing the Shares not converted in the name of the holder of the Shares and deliver same as soon as practicable and in accordance with the provisions of the Certificate of Designation to the address set forth in the Corporation 's register respecting the Series B Preferred Stock. Date: ---------------------------- MANSUR INDUSTRIES INC. By: ------------------------------ Name: Title: 20 35 ARTICLES OF AMENDMENT CERTIFICATE OF DESIGNATION OF SERIES C CONVERTIBLE PREFERRED STOCK OF MANSUR INDUSTRIES INC. (PURSUANT TO SECTION 607.0602 OF THE FLORIDA BUSINESS CORPORATION ACT) ------------------------------------ Mansur Industries Inc., a corporation organized and existing under the Business Corporation Act of the State of Florida (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 607.0602 of the Business Corporation Act at a meeting duly called and held on August 23, 1999: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Articles of Incorporation of the Corporation, the Board of Directors hereby creates a series of Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: Series C Convertible Preferred Stock: Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series C Convertible Preferred Stock" (the "Series C Preferred Stock") and the number of shares constituting the Series C Preferred Stock shall be 150,000, of which 50,000 shares shall be reserved for use in connection with the payment of dividends on the outstanding shares of Series C Preferred Stock pursuant to Section 3 hereof. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series C Preferred Stock to a number less than the number of shares then outstanding, plus the number reserved as aforesaid, and no increase shall increase the number of shares of Series C Preferred Stock above the total number of authorized shares. 36 Section 2. RANK. The Series C Preferred Stock shall rank as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary: (i) senior to all of the Corporation's common stock, par value $.001 per share (the "Common Stock"); (ii) senior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to the Series C Preferred Stock (collectively, with the Common Stock, "Junior Securities" or "Junior Stock"); (iii) on parity with the Series B Preferred Stock, par value $1.00 per share ("Series B Preferred Stock") of the Company: and (iv) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series B Preferred Stock or Series C Preferred Stock ("Parity Securities" or "Parity Stock"). While any shares of Series C Preferred Stock are outstanding, no equity securities senior to the Series C Preferred Stock, as to distribution of assets, payment of dividends or otherwise ("Senior Securities") or Parity Securities and no options, warrants or other rights (collectively, "Options") to purchase or acquire Senior Securities or Parity Securities, or any securities (collectively, "Convertible Securities") by their terms convertible into or exchangeable for Senior Securities or Parity Securities, or any Options to purchase or acquire such Convertible Securities, shall be authorized or issued and (except for shares issued as dividends on outstanding shares of Series C Preferred Stock) no additional shares of Series C Preferred Stock, or Options to acquire Series C Preferred Stock, or Convertible Securities convertible into or exchangeable for Series C Preferred Stock, or any Option to acquire such Convertible Securities, shall be issued, in each case, without the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock, voting as a single class. This prohibition shall not include the authorization or issuance of any form of debt securities or instruments to a bank or other institution. Section 3. DIVIDENDS. (a) The dividend rate payable with respect to the outstanding shares of Series C Preferred Stock ("Dividend Rate") shall be 8.00% of the Liquidation Value (as defined below) of each share per annum. During the period commencing on the date of initial issuance of the Series C Preferred Stock and continuing through the second anniversary of the date thereof, all such dividends shall be paid by the Corporation, in lieu of cash, through the issuance of additional shares of Series C Preferred Stock valued at the Liquidation Value. Thereafter, all such dividends may, at the option of the Corporation, be paid in lieu of cash, through the issuance of additional shares of the Series C Preferred Stock, cash legally available for payment thereof, or any combination of Series C Preferred Stock and cash whether or not such dividends have been declared. If dividends are paid by the Corporation through the issuance of additional shares of Series C Preferred Stock and such dividends would, but for the provisions hereof, be payable with a fractional share, the Corporation shall pay, in lieu of such fractional share, cash in an amount equal to the value of such fractional share. Dividends on the Series C Preferred Stock shall accrue from the date of issuance or thereafter, from the most recent date on which dividends were payable, and shall be payable semi-annually on June 30 and December 31 of each year (each a "Dividend Payment Date"), commencing on December 31, 1999; provided, however, that 2 37 if any such day is a non-business day, the Dividend Payment Date will be the next business day. Each declared dividend shall be payable to holders of record as they appear at the close of business on the stock books of the Corporation on June 10 and December 10 of each year (each of such dates a "Record Date"). Semi-annual dividend periods (each a "Dividend Period") shall commence on and include the 1st day of July and January of each year and shall end on and include the day next preceding the next following Dividend Payment Date. (b) No dividends shall be declared or paid or set apart for payment on any Common Stock, Parity Stock or Junior Stock during any semi-annual period unless full dividends on the Series C Preferred Stock for all Dividend Periods ending prior to or during such semi-annual period have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment. When dividends are not so paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series C Preferred Stock and any other Parity Stock, dividends upon the Series C Preferred Stock and dividends on such other Parity Stock payable during such semi-annual period shall be declared pro rata so that the amount of such dividends so payable per share on the Series C Preferred Stock and such other Parity Stock shall in all cases bear to each other the same ratio that full dividends on the shares of Series C Preferred Stock and full dividends, if any, on shares of such other Parity Stock, bear to each other. If full dividends on the Series C Preferred Stock have not been declared and paid or set apart for payment, no dividend or distribution, other than in shares of Junior Stock, may be declared, set aside or paid on any shares of Junior Stock. Holders of the Series C Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the dividends provided for herein. No interest or sum of money in lieu of interest shall be payable in respect of any declared dividend payment or payments on the Series C Preferred Stock which may be in arrears. As used herein, the phrase "set apart" in respect of the payment of dividends shall require deposit of any funds in a bank or trust company in a separate deposit account maintained for the benefit of the holders of the Series C Preferred Stock, or, in the case of payment of dividends through the issuance of shares of the Corporation's Series C Preferred Stock, the deposit of certificates representing such shares of Series C Preferred Stock with such bank or trust company. Section 4. VOTING RIGHTS. On all matters to come before the shareholders of the Corporation, the holders of Series C Preferred Stock will vote together with the holders of the Common Stock and Series B Preferred Stock as a single class, with each share of Series C Preferred Stock and Series B Preferred Stock 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 (as hereinafter defined) is calculated except as required by law. To the extent that under Florida law or this Certificate of Designation the vote of the holders of shares of Series C Preferred Stock, voting separately as a class, 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 the Series C Preferred Stock shall constitute the approval of such action by the class. Holders of shares of Series C Preferred Stock shall be 3 38 entitled to notice of all shareholder meetings or written consents with respect to which they would be entitled to vote, which notice shall be provided pursuant to the Corporation's bylaws and applicable law. Section 5. CONVERSION. Subject to and upon compliance with this SECTION 5, the holders of shares of Series C Preferred Stock shall have conversion rights as follows: (a) OPTIONAL CONVERSION. Each holder of a share of Series C Preferred Stock shall have the right, at any time or from time to time prior to the Redemption Date (as defined below), at the office of the Corporation or any transfer agent for the Series C Preferred Stock, to convert such share of Series C Preferred Stock into that number of fully paid and nonassessable shares of Common Stock equal to $100 divided by the Conversion Price of such share of Series C Preferred Stock as set forth in SECTION 6 hereof. The number of shares of Common Stock into which the Series C Preferred Stock may be converted is hereinafter referred to as the "Conversion Rate." Notwithstanding the foregoing, the Corporation shall not be obligated to accept shares of Series C Preferred Stock for conversion if such conversion would require the Corporation to issue a certificate or certificates evidencing less than an aggregate of 50,000 shares of Common Stock on any Date of Conversion (as defined below). (b) EARLY CONVERSION EVENT. If, after the first anniversary of the date of issuance of the shares of Series C Preferred Stock, the closing bid price of the Common Stock, as reported on Nasdaq (or the closing sale price if the Common Stock is then traded on any principal national exchange or Nasdaq National Market) exceeds 175% of the Conversion Price for a period of twenty (20) consecutive trading days, including the twenty (20) trading days prior to such first anniversary (the "Calculation Period"), an early conversion event ("Early Conversion Event") shall have occurred. Upon the first Early Conversion Event, if any, in each calendar quarter, the aggregate Liquidation Value of the outstanding shares of Series C Preferred Stock shall automatically and without any action by the holders of the Series C Preferred Stock or the Corporation be converted into shares of Common Stock, on a pro rata basis, in an amount determined in accordance with the following formula: CPS = [(V-Y)] x 22 x CP where CPS is the aggregate stated Liquidation Value of the Series C Preferred Stock to be converted; V is the average daily reported volume of trading in the Common Stock on all national securities exchanges and/or reported through the automated quotation system of a registered national securities association during the Calculation Period and Y is the sum of (i) shares of Common Stock which the Corporation then has the right to issue upon an "Early Conversion Event" under the Corporation's outstanding 8 1/4% Subordinated Convertible Notes due 2003 (the "Convertible Notes"), plus (ii) shares of Common Stock subject to then effective resale registration statements of the Corporation other than Registration Statements on Form S-8 or S-4 and other than registration statements with respect to Common Stock underlying the Convertible Notes, the Series B Preferred Stock and the Series C Preferred Stock which remain unsold at such time; and CP is the applicable Conversion Price. For purposes of calculating V, 4 39 trading volume in excess of 100,000 shares on any trading day shall not be included, unless such amounts do not exceed 200% of the trailing 30-day average reported volume of trading. Notwithstanding the foregoing, none of the outstanding shares of Series C Preferred Stock shall be converted as a result of an Early Conversion Event pursuant to this SECTION 5 unless the resale of the shares of Common Stock issuable upon such conversion is subject to an effective Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), or an exemption from registration under the Securities Act is then available. Accrued dividends on the shares of Series C Preferred Stock converted upon the occurrence of an Early Conversion Event shall be paid on the next Dividend Payment Date in accordance with SECTION 3 hereof. (c) MECHANICS OF CONVERSION. Before a holder shall be entitled to receive shares of Common Stock upon conversion of shares of Series C Preferred Stock, the holder of shares of Series C Preferred Stock shall (i) fax or otherwise deliver a copy of the fully executed notice of conversion in the form attached hereto as EXHIBIT A ("Notice of Conversion") to the Corporation at its principal office and to the office of its designated transfer agent that such holder elects to convert the same, which notice shall specify the number of shares of Series C Preferred Stock to be converted and shall contain the Conversion Price (together with a copy of the first page of each certificate to be converted) prior to 5:00 p.m., Eastern Standard time (the "Conversion Notice Deadline") on the date of conversion specified on the Notice of Conversion and (ii) surrender the original certificate or certificates for the shares of Series C Preferred Stock to be converted, duly endorsed, and deliver the original Notice of Conversion by either overnight courier or two-day courier, to the principal office of the Corporation or to the office of its designated transfer agent; PROVIDED, HOWEVER, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series C Preferred Stock are delivered to the Corporation or its transfer agent as provided above. Upon the conversion of shares of Series C Preferred Stock in connection with an Early Conversion Event, the Corporation shall send to the holders of shares of Series C Preferred Stock a Notice of Early Conversion (in the form attached hereto as EXHIBIT B) stating the aggregate Liquidation Value of shares of Series C Preferred Stock to be converted and the number of shares of Common Stock into which such Liquidation Value shall be converted. Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of any certificate representing shares of Series C Preferred Stock, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Corporation, and upon surrender and cancellation of any certificate representing shares of Series C Preferred Stock, if mutilated, the Corporation shall execute and deliver a new certificate of like tenor and date. No fractional shares of Common Stock shall be issued upon conversion of the Series C Preferred Stock. In lieu of any fractional share to which the holder of shares of Series C Preferred Stock would otherwise be entitled, the Corporation shall pay cash to such holder in an amount equal to such fraction multiplied by the Conversion Price then in effect. In the case of a 5 40 dispute as to the calculation of the Conversion Price, the Corporation's calculation shall be deemed conclusive absent manifest error. The Corporation shall use all reasonable efforts to issue and deliver within seven (7) business days after delivery to the Corporation of the certificates representing the shares of Series C Preferred Stock to be converted, or after such agreement and indemnification, to such holder of shares of Series C Preferred Stock at the address of the holder on the books of the Corporation, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid. The date on which conversion occurs (the "Date of Conversion") shall be deemed to be the date set forth in such Notice of Conversion, provided (i) that the advance copy of the Notice of Conversion is delivered to and received by the Corporation before 5:00 p.m., Eastern time, on the Date of Conversion, and (ii) that the original stock certificates representing the shares of Series C Preferred Stock to be converted are received by the Corporation or the transfer agent within two (2) business days thereafter. In the case of an Early Conversion Event, the last date of the Calculation Period shall be deemed to be the Date of Conversion. The person or persons entitled to receive the shares of Series C Preferred Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Date of Conversion. In the case of an optional conversion, if the original certificates representing the shares of Series C Preferred Stock to be converted are not received by the Corporation or the transfer agent within two (2) business days after the Date of Conversion or if the facsimile of the Notice of Conversion is not received by the Corporation or its transfer agent prior to the Conversion Notice Deadline, the Notice of Conversion, at the Corporation's option, may be declared null and void. Following any conversion of shares of Series C Preferred Stock, such shares of Series C Preferred Stock shall no longer be outstanding and all rights of a holder with respect to the shares surrendered for conversion shall immediately terminate except for the right to receive Common Stock. All shares of Series C Preferred Stock subject to an Early Conversion Event shall be deemed to be cancelled upon such holder's receipt of shares of Common Stock in connection with any such conversion. (d) RESERVATION OF SHARES. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series C Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series C Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Section 6. CONVERSION PRICE. The "Conversion Price" per share of the Series C Preferred Stock shall be $11.50, subject to adjustment as set forth below, with all such adjustments, if any, being cumulative from the date of initial issuance of shares of Series C 6 41 Preferred Stock such that all outstanding shares of Series C Preferred Stock have the same Conversion Price regardless of their date of issuance. 6.1 ADJUSTMENT OF THE NUMBER OF SHARES OF COMMON STOCK AND THE CONVERSION PRICE. The number of shares of Common Stock issuable upon conversion and the Conversion Price shall be subject to adjustment as follows: (a) In case the Corporation shall at any time after the date of the initial issuance of Series C Preferred Stock and prior to the conversion of all outstanding shares thereof (A) pay a dividend or make a distribution on its Common Stock in shares of its capital stock (whether in shares of Common Stock, of capital stock of any other class or Options to purchase or acquire capital stock, Convertible Securities convertible or exchangeable for capital stock, or Options with respect to such Convertible Securities), (B) subdivide its outstanding shares of Common Stock into a greater number of shares, (C) combine its outstanding shares of Common Stock into a smaller number of shares, or (D) reclassify, reorganize or effect any similar transaction with respect to any of its shares of Common Stock, or in substitution or exchange therefor (other than a change in par value, or from par value to no par value, or from no par value to par value), then the number and, if applicable, kind of shares of Common Stock to be received by any holder of shares of Series C Preferred Stock (a "Holder") shall be adjusted so that the Holder will be entitled to receive on conversion the number and kind of shares of capital stock or other securities which it would have owned immediately following such action had its Series C Preferred Stock been converted immediately prior thereto. An adjustment made pursuant to this subsection (a) shall become effective immediately after the payment date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, reclassification, reorganization or similar transaction. If, as a result of an adjustment made pursuant to this subsection (a), a Holder shall become entitled to receive shares of two or more classes of capital stock of the Corporation or other securities, the Board of Directors or a duly authorized committee thereof shall in good faith determine (which determination shall be conclusive and binding) the allocation of the Conversion Price between or among shares of such classes of capital stock or other securities. After such allocation, the Conversion Price and number of shares of each class of capital stock that is issuable upon conversion shall thereafter be subject to adjustment in a manner and on terms determined by the Board of Directors (which determination shall be conclusive and binding) to be as nearly equivalent as practicable to those applicable to Common Stock under this Section 6. (b) (i) From the date of the initial issuance of the shares of Series C Preferred Stock to and including the first anniversary of the date thereof, if the Corporation shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares (as hereinafter defined) for consideration per share (the "Issuance Price") less than the Conversion Price (as herein defined) per share in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the Issuance Price. 7 42 (ii) After the first anniversary and prior to the second anniversary of the initial issuance of the shares of Series C Preferred Stock, if the Corporation shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share less than the Conversion Price per share in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the price (calculated to the nearest cent) determined: by dividing (A) an amount equal to the sum of (1) the number of shares of Common Stock outstanding on a fully diluted basis immediately prior to such issuance multiplied by the Conversion Price per share in effect immediately prior to such issuance and (2) the consideration, if any, received by the Corporation upon such issuance by (B) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such issuance. (iii) If at any time prior to the second anniversary of the initial issuance of the shares of Series C Preferred Stock, the Corporation shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share greater than the Conversion Price but lower than the market price per share in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the price (calculated to the nearest cent) determined by multiplying the Conversion Price in effect immediately prior to such issuance by the factor determined by dividing (A) an amount equal to the sum of (1) the number of shares of Common Stock outstanding on a fully diluted basis immediately prior to such issuance multiplied by the market price per share in effect immediately prior to such issuance and (2) the consideration, if any, received by the Corporation upon such issuance by (B) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such issuance multiplied by the market price per share in effect immediately prior to such issuance; PROVIDED, HOWEVER, no adjustment shall be made to the Conversion Price if (i) such issuance is in connection with a firm commitment underwritten public offering or (ii) the consideration per share is equal to or greater than 85% of the market price per share in effect immediately prior to such issuance. For purposes hereof, the "market price" as of any measurement date shall be the average of the closing prices of the Common Stock for each of the 10 consecutive trading days immediately preceding such measurement date. (c) CERTAIN ADJUSTMENT FACTORS. For the purposes of any adjustment of the Conversion Price pursuant to paragraph (b) above, the following provisions shall be applicable: (x) CASH. In the case of the issuance of shares of Common Stock for cash, the amount of the consideration received by the Corporation shall be deemed to be the amount of the cash proceeds received by the Corporation for such shares of Common Stock before deducting therefrom any discounts, commissions, taxes or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof; and 8 43 (y) CONSIDERATION OTHER THAN CASH. In the case of the issuance of shares of Common Stock (other than upon the conversion of shares of capital stock or other securities of the Corporation) for consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof (as determined by the Board of Directors of the Corporation based on an opinion of an outside financial advisor of recognized regional or national standing, which may, but need not, be the independent public accountants who serve as the regular auditors of the Corporation (the "Financial Advisor"), whose determination shall be conclusive and binding), irrespective of any accounting treatment; and (z) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the issuance of (i) Options to purchase or acquire shares of Common Stock (whether or not exercisable immediately following such issuance), (ii) Convertible Securities by their terms convertible into or exchangeable for shares of Common Stock (whether or not so convertible or exchangeable immediately following such issuance), or (iii) Options to purchase such Convertible Securities (whether or not exercisable immediately following such issuance): (1) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such Options to purchase or acquire shares of Common Stock shall be deemed to have been issued at the time such Options are first issued and for a consideration equal to the consideration (determined in the manner provided in clauses (x) and (y) above), if any, received by the Corporation upon the issuance of such Options plus the purchase price provided in such Options for the shares of Common Stock covered thereby (if the purchase price per share of Common Stock is expressed as a range, the purchase price per share for purposes of this subparagraph (z)(1) shall be the average of such range of prices); (2) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such Convertible Securities, or upon the exercise of Options to purchase or acquire such Convertible Securities and the subsequent conversion or exchange thereto shall be deemed to have been issued at the time such convertible or exchangeable securities or such options, warrants or other rights are first issued and for a consideration equal to the consideration, if any, received by the Corporation for any such Convertible Securities or Options (excluding any cash received on account of accrued interest or accumulated dividends), plus the additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such Convertible Securities and the exercise of any Options (the consideration 9 44 in each case to be determined in the manner provided in clauses (x) and (y) above); (3) on any change in the number of shares of Common Stock deliverable upon exercise of any such Options which have become exercisable or conversion of or exchange of such Convertible Securities which have become convertible or exchangeable, or any change in the consideration to be received by the Corporation upon such exercise, conversion or exchange, the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had such adjustment been made upon the original issuance of such Options; provided, however, no adjustment shall be made with respect to such Options exercised prior to such change, or Convertible Securities converted or exchanged prior to such change; (4) on the expiration or cancellation of any such Options or the termination of the right to convert or exchange such Convertible Securities, if the Conversion Price shall have been adjusted upon such securities being issued or becoming exercisable, convertible or exchangeable, such Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options, warrants or other rights, or upon the conversion or exchange of such securities; and (5) if the Conversion Price shall have been adjusted when such Options were first issued or such Convertible Securities were first issued, no further adjustment of the Conversion Price shall be made for the actual issuance of shares of Common Stock upon the exercise, conversion or exchange thereof. (d) EXCLUDED SHARES. "Excluded Shares" shall mean (i) any shares of Common Stock issued in a transaction described in Section 6.1(a) of this Agreement; and (ii) issuances of shares of Common Stock from time to time pursuant to employment agreements, stock option or bonus plans authorized by the Board of Directors of the Corporation as of the date hereof, (iii) issuances of Common Stock, or Options to acquire shares of Common Stock, or Convertible Securities convertible into or exchangeable for Common Stock pursuant to the terms of any acquisition by the Corporation of all or substantially all of the operating assets, or more than fifty percent (50%) of the voting capital stock or other controlling interest of any business entity in a transaction negotiated on an arms-length basis and expressly approved in advance by the Board of Directors of the Corporation; (iv) issuances of shares of Common Stock from time to time upon the exercise, exchange or conversion of warrants, options, convertible securities, the Convertible Notes or other securities outstanding as of the date hereof, and (v) issuances of shares of Common Stock from time to time pursuant to the anti-dilution provisions of other 10 45 securities. For purposes hereof, "voting capital stock" shall be deemed to be capital stock of any class or classes, however designated having ordinary voting power for the election of members of the board of directors or other governing body and "controlling" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a party, whether through the ownership of voting capital stock, by contract or otherwise. (e) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1.2% in such price; PROVIDED, HOWEVER, that any adjustments which by reason of this subsection (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest tenth of a cent or to the nearest one-hundredth of a share, as the case may be. (f) The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issuance of Common Stock for the purposes of this Section 6. 6.2 RIGHTS TO PURCHASE OTHER SECURITIES. If any of the following shall occur: Without limiting any provisions of Section 9: (a) any Corporate Change (as hereinafter defined) to which the Corporation is a party, other than a Corporate Change in which the Corporation is the continuing or surviving Corporation and which does not result in any reclassification of, or change (other than as a result of a subdivision or combination) in, outstanding shares of the Common Stock, or (b) any sale or transfer to another corporation or entity of all or substantially all of the assets of the Corporation; then, and in either such case, the Holder of each share of Series C Preferred Stock then outstanding shall have the right to purchase the kind and amount of shares of stock and/or other securities and property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock issuable upon conversion of such stock immediately prior to such consolidation, merger, sale, or transfer. The provisions of this Section 6.2 shall similarly apply to successive consolidations, mergers, sales or transfers. 6.3 NOTICE OF ADJUSTMENT. Whenever the number of shares of Common Stock issuable upon the conversion of each share of Series C Preferred Stock or the Conversion Price of such shares of Series C Preferred Stock is adjusted or reduced, as herein provided, the Corporation shall mail by first class, postage prepaid, to each Holder (a) notice of any reduction on or before the day the reduction takes effect, which shall state the reduced Conversion Price and the period during which it will be in effect and/or (b) a certificate setting forth the number of 11 46 shares of Common Stock issuable upon the conversion of each share of Series C Preferred Stock and the Conversion Price on such shares of Series C Preferred Stock after adjustment setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. 6.4 NO ADJUSTMENT FOR DIVIDEND. No adjustment in respect of any cash dividends shall be made while the Series C Preferred Stock is outstanding or upon the conversion of the Series C Preferred Stock. 6.5 CERTAIN EVENTS. If any event occurs as to which in the reasonable judgment of the Board of Directors of the Corporation , in good faith, the other provisions of this Section 6 are not strictly applicable but the lack of any adjustment would not in the opinion of the Board of Directors of the Corporation fairly reflect the purchase rights of the Holders of the Series C Preferred Stock in accordance with the basic intent and principles of the provisions of this Agreement then the Board of Directors of the Corporation shall appoint a Financial Advisor which shall give its opinion upon the adjustment, if any, on a basis consistent with the basic intent and principles established and the other provisions of this Section 6, necessary to preserve, without dilution, the exercise rights of the Holders. Upon receipt of such opinion, the Corporation shall forthwith make the adjustments described therein which adjustments shall be conclusive and binding. Section 7. STATUS OF CONVERTED OR REACQUIRED SHARES. Any shares of Series C Preferred Stock converted into shares of Common Stock pursuant to SECTION 5 hereof or purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the conversion or acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Series C Preferred Stock and may be reissued as part of a new series of preferred stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Certificate of Designation creating a series of preferred stock or any similar stock or as otherwise required by law. Section 8. LIQUIDATION, DISSOLUTION OR CHANGE OF CONTROL. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of shares of Series C Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders under applicable law, prior and in preference to any distribution to holders of the Common Stock or any Junior Securities but in parity with any distribution to holders of Parity Securities, an amount of $100 per share (the "Liquidation Value"), plus a sum equal to all dividends accrued on such shares (whether or not declared) and unpaid through and including the then current Dividend Period. If upon the occurrence of such event, the assets and funds to be distributed among the holders of shares of Series B Preferred Stock, Series C Preferred Stock and Parity Securities shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of shares of Series B Preferred Stock, Series C Preferred 12 47 Stock and Parity Securities, respectively, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of shares of Series B Preferred Stock, Series C Preferred Stock and Parity Securities, pro rata, based on the respective liquidation amounts to which each such series of stock is entitled by the Corporation's Articles of Incorporation and any certificate of designation of preferences. (b) Upon the completion of the distribution required by subsection 8(a) above, if assets remain in the Corporation, they shall be distributed to holders of Parity Securities (unless holders of Parity Securities have received distributions pursuant to subsection 8(a)) and Junior Securities in accordance with the Corporation's Articles of Incorporation, including any duly adopted certificate(s) of designation of preferences. (c) (i) Upon a Change of Control (as defined below) of the Corporation, each holder of the Series C Preferred Stock will have the option to require the Corporation to repurchase such holder's shares of Series C Preferred Stock at a price per share equal to the Liquidation Value plus any accrued and unpaid dividends. A "Change of Control" shall have occurred: (A) when any person or group is or becomes the beneficial owner of 50% or more of the then outstanding voting capital stock of the Corporation, (B) when, during any period of two consecutive years after the closing of the sale of the Series C Preferred Stock, individuals who at the beginning of such period constituted the Corporation's Board of Directors, or whose nomination for election by the Corporation's shareholders was approved by a vote of a majority of the directors of the Corporation then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors then in office or (C) upon any sale, transfer or other conveyance of all or substantially all of the assets of the Corporation. (ii) Upon the occurrence of a Change of Control, the Corporation will offer to repurchase (the "Change of Control Purchase Offer") all outstanding shares of Series C Preferred Stock, and each holder of outstanding shares of Series C Preferred Stock will have the right to require that the Corporation repurchase such holder's shares of Series C Preferred Stock, at the price set forth in clause (i) of this subsection 8(c). Within 30 days following any Change of Control, the Corporation shall mail a notice, by first class mail, to each holder of record of Series C Preferred Stock (a "Change of Control Notice"), at his address of record, stating: (A) that a Change of Control has occurred and that such holder has the right to require the Corporation to purchase such holder's shares of Series C Preferred Stock at the price set forth above; (B) the circumstances and relevant facts regarding such Change of Control; (C) the date on which the Corporation will repurchase any shares of Series C Preferred Stock which the holders require the 13 48 Corporation to repurchase in accordance with this subsection 8(c), which date shall be no earlier than 30 days nor later than 60 days from the date such Change of Control Notice is mailed (the "Change of Control Purchase Date"); (D) that, unless the Corporation defaults in making such payment, any shares of Series C Preferred Stock accepted for payment pursuant to the Change of Control Purchase Offer shall cease to accrue dividends after the Change of Control Purchase Date; (E) that holders of Series C Preferred Stock electing to have their shares repurchased pursuant to any Change of Control Purchase Offer shall be required to surrender the original certificates for the shares of Series C Preferred Stock at the address specified in the notice, at least three business days before the Change of Control Purchase Date; and (F) that the holders of Series C Preferred Stock shall be entitled to withdraw their election if the Corporation receives, not later than the last business day prior to the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the number of shares of Series C Preferred Stock the holder delivered for repurchase and a statement that such holder is withdrawing his election to have such shares repurchased. (iii) Each holder of shares of Series C Preferred Stock electing to have such shares purchased by the Corporation pursuant to this subsection 8(c) shall deliver to the Corporation at its principal office, at least three business days prior to the Change of Control Purchase Date, the original certificate or certificate(s) for the shares to be purchased duly endorsed, together with written notice to the Corporation specifying the number of shares of Series C Preferred Stock to be purchased. Holders of Series C Preferred Stock will be entitled to withdraw their election if the Corporation receives, not later than one business day prior to the Change of Control Purchase Date, a telegram, facsimile transmission or letter, at its principal office, setting forth the name of the holder, the number of shares of Series C Preferred Stock which were delivered by the holder for purchase by the Corporation and a statement that such holder is withdrawing his election to have such shares purchased. (iv) Promptly following the Change of Control Purchase Date, the Corporation will mail or deliver to each holder of shares of Series C Preferred Stock who properly tendered such shares to the Corporation for purchase pursuant to this subsection 8(c) and did not withdraw such election, at his, her or its address of record, an amount equal to the purchase price for the shares of Series C Preferred Stock so delivered for purchase as set forth in this subsection 8(c). Unless the Corporation shall have defaulted in the payment of the purchase price for shares of Series C Preferred Stock tendered for purchase by the Corporation, all rights of the holders of such shares (except the right to receive the purchase price therefor) shall cease 14 49 with respect to such shares on the Change of Control Purchase Date and such shares shall not, after the Change of Control Purchase Date, be deemed to be outstanding and shall not have the status of Series C Preferred Stock. (v) The Corporation will comply, to the extent applicable, with the requirements of Section 14(e) of the Securities Exchange Act of 1934, as amended, and any other applicable securities laws or regulations in connection with the repurchase of Series C Preferred Stock pursuant to this subsection 8(c). To the extent that the provisions of any securities laws or regulations conflict with the provisions of this subsection 8(c), the Corporation will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section by virtue thereof. Section 9. CONSOLIDATION, MERGER, ETC. Except as set forth in Section 8(c) hereof, and without limiting any provision of Section 6.2 hereof, in the event of a merger, reorganization, recapitalization or similar event of or with respect to the Corporation (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Corporation's equity securities upon such Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any Affiliate thereof), the Series C Preferred Stock shall be assumed by the acquiring entity and thereafter the Series C Preferred Stock shall be convertible into such class and type of securities as the holder of shares of Series C Preferred Stock would have received had such holder converted the Series C Preferred Stock immediately prior to such Corporate Change. Section 10. REDEMPTION. (a) OPTIONAL REDEMPTION. Subject to earlier conversion, commencing on May 17, 2002 and continuing through the Mandatory Redemption Date (as defined below), the Corporation shall have the right, exercisable at any time and from time to time, to redeem shares of Series C Preferred Stock at the following prices plus the payment of all accrued and unpaid dividends: YEAR REDEEMED PRICE ------------- ----- 2002 104% of Liquidation Value 2003 102% of Liquidation Value If less than all of the outstanding shares of Series C Preferred Stock are called for redemption pursuant to this SECTION 10(A), shares of Series C Preferred Stock shall be redeemed on a pro rata basis among the holders thereof. Each holder of Series C Preferred Stock will be given notice of such redemption pursuant to Section 10(c) and will have the right to convert the Series C Preferred Stock into shares of Common Stock prior to the redemption date specified in such notice. 15 50 (b) MANDATORY REDEMPTION. (i) The Corporation will be required to redeem the outstanding shares of Series C Preferred Stock on May 17, 2004 (the "Mandatory Redemption Date"), at a redemption price per share equal to the Liquidation Value plus accrued and unpaid dividends. (ii) If at any time, (A) the Corporation shall breach the terms and conditions contained in this certificate of designation, (B) the Corporation shall breach any representation, warranty, or covenant contained in that certain Series C Convertible Stock Purchase Agreement, dated August __, 1999, between the Corporation and the initial Holders or any subsequent Series C Stock Purchase Agreement with like terms, or (C) the Corporation shall fail to make a dividend payment on a Dividend Payment Date (each a "Breach"), prompt notice of such Breach shall be given to each Holder by the Corporation at such time as the Corporation becomes aware of such Breach and (without limiting any rights of Holder) prompt notice of such Breach shall be given to the Corporation by each Holder at such time such Holder becomes aware of such Breach, and any Holder shall give written notice to the Corporation of its desire to have the Corporation redeem its shares of Series C Preferred Stock, such shares shall be redeemed by the Corporation at a redemption price per share equal to the greater of the amounts that would at that time be payable under Section 10(a) hereof had the Corporation exercised its right to redeem the shares of Series B Preferred Stock thereunder or the Liquidation Value plus accrued and unpaid dividends; PROVIDED, HOWEVER, no Holder shall have the right to request a redemption of its shares of Series C Preferred Stock pursuant to this SECTION 10(B)(II) unless and until the Corporation shall have failed to cure any such Breach within a period of ten (10) days after having received written notice thereof from the Holder. (c) MECHANICS OF REDEMPTION. Notice of redemption of the Series C Preferred Stock, specifying the redemption date and place of redemption, shall be given by first class mail to each holder of record of the shares to be redeemed, at his address of record, not less than 30 nor more than 60 calendar days prior to the date upon which the Corporation shall redeem the Series C Preferred Stock (the "Redemption Date"). Each such notice shall also specify the redemption price applicable to the shares to be redeemed. If less than all the shares owned by such holder are then to be redeemed, the notice shall also specify the number of shares thereof which are to be redeemed and the fact that a new certificate or certificates representing any unredeemed shares shall be issued without cost to such holder. (i) Notice of redemption of shares of the Series C Preferred Stock having been given as provided in SECTION 10(C), then unless the Corporation shall have defaulted in the payment of the redemption price and all accrued and unpaid dividends (whether or not declared), all rights of the holders thereof (except the right to receive the redemption price and all accrued and unpaid dividends, whether or not declared) shall cease with respect to such shares on the Redemption Date and such shares shall not, after the Redemption Date, be deemed to be outstanding and shall not have the status of Series C Preferred Stock. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. 16 51 (ii) Shares of the Series C Preferred Stock are not subject or entitled to the benefit of a sinking fund. (iii) Notwithstanding the foregoing, if notice of redemption shall have been given pursuant to this SECTION 10 and any holder of the Series C Preferred Stock shall, prior to the close of business on the date three business days next preceding the Redemption Date, give written notice to the Corporation pursuant to SECTION 5 hereof of the conversion of any or all of the shares held by the holder (accompanied by a certificate or certificates for such shares, duly endorsed or assigned to the Corporation), then the redemption shall not become effective as to such shares and the conversion shall become effective as provided in SECTION 5. (iv) If on the Mandatory Redemption Date funds legally available to the Corporation for redemption of all outstanding shares of Series B Preferred Stock and Series C Preferred Stock are insufficient to redeem all such shares of Series B Preferred Stock and Series C Preferred Stock, such available funds shall be used by the Corporation to redeem shares of Series B Preferred Stock and Series C Preferred Stock from all holders ratably in proportion to the full number of shares they would otherwise be entitled to have redeemed. In the event that less than all outstanding shares of Series B Preferred Stock and Series C Preferred Stock are redeemed on the Mandatory Redemption Date, the Corporation will continue to redeem shares of Series B Preferred Stock and Series C Preferred Stock from time to time as soon as practicable after funds become legally available therefor (ratably if the funds legally available remain insufficient to redeem all shares required to be redeemed) until all shares of Series B Preferred Stock and Series C Preferred Stock required to be redeemed shall have been redeemed. Until actually redeemed, each share of Series C Preferred Stock will continue to enjoy all rights and benefits hereof, including the right to convert into shares of Common Stock. (d) CONVERSION PRICE ADJUSTMENT FOR FAILURE TO REDEEM. If the Corporation fails to redeem all outstanding shares of Series C Preferred Stock on the Mandatory Redemption Date, then, without any action by the holders of shares of Series C Preferred Stock, the then current Conversion Price respecting any shares of Series C Preferred Stock not redeemed by the Corporation shall be reduced (but shall not be increased) to the greater of: (i) fifty percent (50%) of the then current Conversion Price, and (ii) the closing price of the Common Stock as reported by Nasdaq (or such principal national exchange on which the Common Stock is then listed) on the Mandatory Redemption Date. Section 11. AMENDMENT. The Articles of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series C Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least a majority of the outstanding shares of Series C Preferred Stock, voting together as a single class. Section 12. NOTICES. Written notice of each meeting of the shareholders of the Corporation shall be given by first-class mail not less than ten (10) days prior to such meeting to each holder of record of the Series C Preferred Stock to the address of such record holder shown on the Corporation's records. 17 52 IN WITNESS WHEREOF, this Certificate of Designation has been executed on behalf of the Corporation by its Chief Executive Officer this 23rd day of August, 1999. MANSUR INDUSTRIES INC. By: /s/ PAUL I. MANSUR ---------------------- Paul I. Mansur Chief Executive Officer 18 53 EXHIBIT A NOTICE OF CONVERSION (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT THE SERIES C PREFERRED STOCK) The undersigned hereby irrevocably elects to convert ______ shares of Series C Preferred Stock, represented by stock certificate No(s). ________________ (the "Series C Preferred Stock Certificates") into shares of common stock, par value $.001 per share ("Common Stock"), of Mansur Industries Inc., (the "Corporation") according to the conditions of the Certificate of Designation of Series C Preferred Stock, as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Series C Preferred Stock shall be made pursuant to registration of such shares of Common Stock under the Securities Act of 1933, as amended, or pursuant to an exemption from registration under such Act. Conversion Calculations: ------------------------------------ Date of Conversion ------------------------------------ Applicable Conversion Price ------------------------------------ Signature ------------------------------------ Name Address: ------------------------------------ ------------------------------------ *No shares of Common Stock will be issued until the original Series C Preferred Stock Certificate(s) to be converted and the Notice of Conversion are received by the Corporation or its designated Transfer Agent. The original Stock Certificate(s) representing the Series C Preferred Stock to be converted and the Notice of Conversion must be received by the Corporation or its designated Transfer Agent by the second business day following the Date of Conversion, or the Notice of Conversion, at the Corporation's option, may be declared null and void. 54 EXHIBIT B NOTICE OF EARLY CONVERSION EVENT Mansur Industries Inc. (the "Corporation ") hereby notifies ____________________, the holder of ___________ shares (the "Shares") of the Corporation 's Series C Preferred Stock (the "Series C Preferred Stock"), that an Early Conversion Event occurred on __________, and as such, you are hereby directed to surrender the Shares as $______ of the aggregate Liquidation Value of such Shares has been automatically converted into shares of the Corporation 's common stock, par value $.001 per share (the "Conversion Shares"), in accordance with the terms of the Certificate of Designation respecting the Series C Preferred Stock. Unless otherwise instructed, the Corporation shall issue the Conversion Shares and a new certificate representing the Shares not converted in the name of the holder of the Shares and deliver same as soon as practicable and in accordance with the provisions of the Certificate of Designation to the address set forth in the Corporation's register respecting the Series C Preferred Stock. Date: ------------------------------ MANSUR INDUSTRIES INC. By: ------------------------------ Name: -------------------------- Title: -------------------------- 55 ARTICLES OF AMENDMENT CERTIFICATE OF DESIGNATION OF SERIES D CONVERTIBLE PREFERRED STOCK OF MANSUR INDUSTRIES INC. (PURSUANT TO SECTION 607.0602 OF THE FLORIDA BUSINESS CORPORATION ACT) ------------------------------------ Mansur Industries Inc., a corporation organized and existing under the Business Corporation Act of the State of Florida (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 607.0602 of the Business Corporation Act at a meeting duly called and held on May 1, 2000: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Articles of Incorporation of the Corporation, the Board of Directors hereby creates a series of Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: Series D Convertible Preferred Stock: Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series D Convertible Preferred Stock" (the "Series D Preferred Stock") and the number of shares constituting the Series D Preferred Stock shall be 150,000, of which 50,000 shares shall be reserved for use in connection with the payment of dividends on the outstanding shares of Series D Preferred Stock pursuant to Section 3 hereof. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series D Preferred Stock to a number less than the number of shares then outstanding, plus the number reserved as aforesaid, and no increase shall increase the number of shares of Series D Preferred Stock above the total number of authorized shares. Section 2. RANK. The Series D Preferred Stock shall rank as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary: 56 (i) senior to all of the Corporation's common stock, par value $.001 per share (the "Common Stock"); (ii) senior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to the Series D Preferred Stock (collectively, with the Common Stock, "Junior Securities" or "Junior Stock"); (iii) on parity with the Series B Convertible Preferred Stock, par value $1.00 per share ("Series B Preferred Stock") of the Company; (iv) on parity with the Series C Convertible Preferred Stock, par value $1.00 per share ("Series C Preferred Stock") of the Company; and (iv) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock ("Parity Securities" or "Parity Stock"). While any shares of Series D Preferred Stock are outstanding, no equity securities senior to the Series D Preferred Stock, as to distribution of assets, payment of dividends or otherwise ("Senior Securities") or Parity Securities and no options, warrants or other rights (collectively, "Options") to purchase or acquire Senior Securities or Parity Securities, or any securities (collectively, "Convertible Securities") by their terms convertible into or exchangeable for Senior Securities or Parity Securities, or any Options to purchase or acquire such Convertible Securities, shall be authorized or issued and (except for shares issued as dividends on outstanding shares of Series D Preferred Stock) no additional shares of Series D Preferred Stock, or Options to acquire Series D Preferred Stock, or Convertible Securities convertible into or exchangeable for Series D Preferred Stock, or any Option to acquire such Convertible Securities, shall be issued, in each case, without the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series D Preferred Stock, voting as a single class. This prohibition shall not include the authorization or issuance of any form of debt securities or instruments to a bank or other institution. Section 3. DIVIDENDS. (a) The dividend rate payable with respect to the outstanding shares of Series D Preferred Stock ("Dividend Rate") shall be 8.25% of the Liquidation Value (as defined below) of each share per annum. During the period commencing on the date of initial issuance of the Series D Preferred Stock and continuing through the second anniversary of the date thereof, all such dividends shall be paid by the Corporation, in lieu of cash, through the issuance of additional shares of Series D Preferred Stock valued at the Liquidation Value. Thereafter, all such dividends may, at the option of the Corporation, be paid in lieu of cash, through the issuance of additional shares of the Series D Preferred Stock, cash legally available for payment thereof, or any combination of Series D Preferred Stock and cash whether or not such dividends have been declared. If dividends are paid by the Corporation through the issuance of additional shares of Series D Preferred Stock and such dividends would, but for the provisions hereof, be payable with a fractional share, the Corporation shall pay, in lieu of such fractional share, cash in an amount equal to the value of such fractional share. Dividends on the Series D Preferred Stock shall accrue from the date of issuance or thereafter, from the most recent date on which dividends were payable, and shall be payable semi-annually on June 30 and December 31 of each year (each a "Dividend Payment Date"), commencing on June 30, 2000; PROVIDED, HOWEVER, that if 2 57 any such day is a non-business day, the Dividend Payment Date will be the next business day. Each declared dividend shall be payable to holders of record as they appear at the close of business on the stock books of the Corporation on June 10 and December 10 of each year (each of such dates a "Record Date"). Semi-annual dividend periods (each a "Dividend Period") shall commence on and include the 1st day of July and January of each year and shall end on and include the day next preceding the next following Dividend Payment Date. (b) No dividends shall be declared or paid or set apart for payment on any Common Stock, Parity Stock or Junior Stock during any semi-annual period unless full dividends on the Series D Preferred Stock for all Dividend Periods ending prior to or during such semi-annual period have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment. When dividends are not so paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series D Preferred Stock and any other Parity Stock, dividends upon the Series D Preferred Stock and dividends on such other Parity Stock payable during such semi-annual period shall be declared pro rata so that the amount of such dividends so payable per share on the Series D Preferred Stock and such other Parity Stock shall in all cases bear to each other the same ratio that full dividends on the shares of Series D Preferred Stock and full dividends, if any, on shares of such other Parity Stock, bear to each other. If full dividends on the Series D Preferred Stock have not been declared and paid or set apart for payment, no dividend or distribution, other than in shares of Junior Stock, may be declared, set aside or paid on any shares of Junior Stock. Holders of the Series D Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the dividends provided for herein. No interest or sum of money in lieu of interest shall be payable in respect of any declared dividend payment or payments on the Series D Preferred Stock which may be in arrears. As used herein, the phrase "set apart" in respect of the payment of dividends shall require deposit of any funds in a bank or trust company in a separate deposit account maintained for the benefit of the holders of the Series D Preferred Stock, or, in the case of payment of dividends through the issuance of shares of the Corporation's Series D Preferred Stock, the deposit of certificates representing such shares of Series D Preferred Stock with such bank or trust company. Section 4. VOTING RIGHTS. On all matters to come before the shareholders of the Corporation, the holders of Series D Preferred Stock will vote together with the holders of the Common Stock, Series B Preferred Stock and Series C Preferred Stock as a single class, with each share of Series D Preferred Stock, Series B Preferred Stock and Series C Preferred Stock 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 (as hereinafter defined) is calculated except as required by law. To the extent that under Florida law or this Certificate of Designation the vote of the holders of shares of Series D Preferred Stock, voting separately as a class, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of the Series D Preferred Stock shall constitute the approval of such action by the class. Holders of shares of Series D Preferred Stock shall be 3 58 entitled to notice of all shareholder meetings or written consents with respect to which they would be entitled to vote, which notice shall be provided pursuant to the Corporation's bylaws and applicable law. Section 5. CONVERSION. Subject to and upon compliance with this SECTION 5, the holders of shares of Series D Preferred Stock shall have conversion rights as follows: (a) OPTIONAL CONVERSION. (i) Each holder of a share of Series D Preferred Stock shall have the right, at any time or from time to time prior to the Redemption Date (as defined below), at the office of the Corporation or any transfer agent for the Series D Preferred Stock, to convert such share of Series D Preferred Stock into that number of fully paid and nonassessable shares of Common Stock equal to $100 divided by the Conversion Price of such share of Series D Preferred Stock as set forth in SECTION 6 hereof. The number of shares of Common Stock into which the Series D Preferred Stock may be converted is hereinafter referred to as the "Conversion Rate." Notwithstanding the foregoing, the Corporation shall not be obligated to accept shares of Series D Preferred Stock for conversion if such conversion would require the Corporation to issue a certificate or certificates evidencing less than an aggregate of 50,000 shares of Common Stock on any Date of Conversion (as defined below). (ii) Without limiting any other rights herein set forth, if at any time or from time to time prior to the Redemption Date the Corporation issues any equity security (within the meaning of Section 3(a)(11) of the Securities Exchange Act of 1934, as amended) or any debt securities convertible into equity securities, other than Excluded Shares, each holder of a share of Series D Preferred Stock shall have the right to convert such share of Series D Preferred Stock into, as the case may be, (A) a number of such fully paid and nonassessable equity securities determined by dividing $100 by the purchase price of each such equity security in such transaction or (B) $100 aggregate principal amount of such convertible debt securities. This right of conversion shall terminate on the later to occur of (A) the first anniversary of the issuance of the shares of Series D Preferred Stock and (B) the date on which the Corporation first consummates the sale of shares of its equity securities or convertible debt securities for gross cash proceeds to the Corporation of $2.0 million or more, other than Excluded Shares. In the event any holder of a share of Series D Preferred Stock exercises any right under this subparagraph (ii), any securities so acquired shall be accompanied by all registration and other contractual rights, as acquired generally by purchasers of the Corporation's equity or convertible debt securities in the transaction giving rise to such rights. (b) EARLY CONVERSION EVENT. If, after the first anniversary of the date of issuance of the shares of Series D Preferred Stock, the closing bid price of the Common Stock, as reported on Nasdaq (or the closing sale price if the Common Stock is then traded on any principal national exchange or Nasdaq National Market) exceeds 175% of the Conversion Price for a period of twenty (20) consecutive trading days, including the twenty (20) trading days prior to such first anniversary (the "Calculation Period"), an early conversion event ("Early Conversion Event") shall have occurred. Upon the first Early Conversion Event, if any, in each calendar quarter, the aggregate Liquidation Value of the outstanding shares of Series D Preferred 4 59 Stock shall automatically and without any action by the holders of the Series D Preferred Stock or the Corporation be converted into shares of Common Stock, on a pro rata basis, in an amount determined in accordance with the following formula: CPS = (V x 22 - Y) x CP where CPS is the aggregate stated Liquidation Value of the Series D Preferred Stock to be converted; V is the average daily reported volume of trading in the Common Stock on all national securities exchanges and/or reported through the automated quotation system of a registered national securities association during the Calculation Period and Y is the sum of (i) shares of Common Stock which the Corporation then has the right to issue upon an "Early Conversion Event" under the Corporation's outstanding 8 1/4% Subordinated Convertible Notes due 2003 (the "Convertible Notes") or under the Series B Preferred Stock and the Series C Preferred Stock, plus (ii) shares of Common Stock subject to then effective resale registration statements of the Corporation other than Registration Statements on Form S-8 or S-4 and other than registration statements with respect to Common Stock underlying the Convertible Notes, the Series B Preferred Stock, the Series C Preferred Stock and Series D Preferred Stock which remain unsold at such time, plus (iii) shares of Common Stock issuable upon exercise of the Warrants; and CP is the applicable Conversion Price. For purposes of calculating V, trading volume in excess of 100,000 shares on any trading day shall not be included, unless such amounts do not exceed 200% of the trailing 30-day average reported volume of trading. Notwithstanding the foregoing, none of the outstanding shares of Series D Preferred Stock shall be converted as a result of an Early Conversion Event pursuant to this SECTION 5 unless the resale of the shares of Common Stock issuable upon such conversion is subject to an effective Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), or an exemption from registration under the Securities Act is then available. Accrued dividends on the shares of Series D Preferred Stock converted upon the occurrence of an Early Conversion Event shall be paid on the next Dividend Payment Date in accordance with SECTION 3 hereof. (c) MECHANICS OF CONVERSION. Before a holder shall be entitled to receive shares of Common Stock or other securities of the Corporation upon conversion of shares of Series D Preferred Stock, the holder of shares of Series D Preferred Stock shall (i) fax or otherwise deliver a copy of the fully executed notice of conversion in the form attached hereto as EXHIBIT A ("Notice of Conversion") to the Corporation at its principal office and to the office of its designated transfer agent that such holder elects to convert the same, which notice shall specify the number of shares of Series D Preferred Stock to be converted and shall contain the Conversion Price (together with a copy of the first page of each certificate to be converted) prior to 5:00 p.m., Eastern Standard time (the "Conversion Notice Deadline") on the date of conversion specified on the Notice of Conversion and (ii) surrender the original certificate or certificates for the shares of Series D Preferred Stock to be converted, duly endorsed, and deliver the original Notice of Conversion by either overnight courier or two-day courier, to the principal office of the Corporation or to the office of its designated transfer agent; PROVIDED, HOWEVER, that 5 60 the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock or other securities of the Corporation issuable upon such conversion unless the certificates evidencing such shares of Series D Preferred Stock are delivered to the Corporation or its transfer agent as provided above. Upon the conversion of shares of Series D Preferred Stock in connection with an Early Conversion Event, the Corporation shall send to the holders of shares of Series D Preferred Stock a Notice of Early Conversion (in the form attached hereto as EXHIBIT B) stating the aggregate Liquidation Value of shares of Series D Preferred Stock to be converted and the number of shares of Common Stock into which such Liquidation Value shall be converted. Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of any certificate representing shares of Series D Preferred Stock, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Corporation, and upon surrender and cancellation of any certificate representing shares of Series D Preferred Stock, if mutilated, the Corporation shall execute and deliver a new certificate of like tenor and date. No fractional shares of Common Stock or other securities of the Corporation shall be issued upon conversion of the Series D Preferred Stock. In lieu of any fractional share to which the holder of shares of Series D Preferred Stock would otherwise be entitled, the Corporation shall pay cash to such holder in an amount equal to such fraction multiplied by the Conversion Price then in effect. In the case of a dispute as to the calculation of the Conversion Price, the Corporation's calculation shall be deemed conclusive absent manifest error. The Corporation shall use all reasonable efforts to issue and deliver within seven (7) business days after delivery to the Corporation of the certificates representing the shares of Series D Preferred Stock to be converted, or after such agreement and indemnification, to such holder of shares of Series D Preferred Stock at the address of the holder on the books of the Corporation, a certificate or certificates for the number of shares of Common Stock or other securities of the Corporation to which the holder shall be entitled as aforesaid. The date on which conversion occurs (the "Date of Conversion") shall be deemed to be the date set forth in such Notice of Conversion, provided (i) that the advance copy of the Notice of Conversion is delivered to and received by the Corporation before 5:00 p.m., Eastern time, on the Date of Conversion, and (ii) that the original stock certificates representing the shares of Series D Preferred Stock to be converted are received by the Corporation or the transfer agent within two (2) business days thereafter. In the case of an Early Conversion Event, the last date of the Calculation Period shall be deemed to be the Date of Conversion. The person or persons entitled to receive the shares of Series D Preferred Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock or other securities of the Corporation on the Date of Conversion. In the case of an optional conversion, if the original certificates representing the shares of Series D Preferred Stock to be converted are not received by the Corporation or the transfer agent within two (2) business days after the Date of Conversion or if the facsimile of the Notice of Conversion is not received by the Corporation or its transfer agent prior to the Conversion Notice Deadline, the Notice of Conversion, at the Corporation's option, may be declared null and void. 6 61 Following any conversion of shares of Series D Preferred Stock, such shares of Series D Preferred Stock shall no longer be outstanding and all rights of a holder with respect to the shares surrendered for conversion shall immediately terminate except for the right to receive Common Stock or other securities of the Corporation. All shares of Series D Preferred Stock subject to an Early Conversion Event shall be deemed to be cancelled upon such holder's receipt of shares of Common Stock or other securities of the Corporation in connection with any such conversion. (d) RESERVATION OF SHARES. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock or other securities of the Corporation such number of shares of Common Stock or other securities as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock or other securities shall not be sufficient to effect the conversion of all then outstanding shares of Series D Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock or other securities of the Corporation to such number of shares as shall be sufficient for such purpose. (e) NOTICE OF CERTAIN EVENTS. The Corporation shall deliver written notice to each holder of Series D Preferred Stock at each issuance of equity securities or convertible debt securities giving rise to a right under paragraph (a)(ii) immediately preceding at least 30 days prior to the consummation thereof, describing in reasonable detail the pertinent transaction. Section 6. CONVERSION PRICE. The "Conversion Price" per share of the Series D Preferred Stock shall be $5.50, subject to adjustment as set forth below, with all such adjustments, if any, being cumulative from the date of initial issuance of shares of Series D Preferred Stock such that all outstanding shares of Series D Preferred Stock have the same Conversion Price regardless of their date of issuance. 6.1 ADJUSTMENT OF THE NUMBER OF SHARES OF COMMON STOCK AND THE CONVERSION PRICE. The number of shares of Common Stock issuable upon conversion and the Conversion Price shall be subject to adjustment as follows: (a) In case the Corporation shall at any time after the date of the initial issuance of Series D Preferred Stock and prior to the conversion of all outstanding shares thereof (A) pay a dividend or make a distribution on its Common Stock in shares of its capital stock (whether in shares of Common Stock, of capital stock of any other class or Options to purchase or acquire capital stock, Convertible Securities convertible or exchangeable for capital stock, or Options with respect to such Convertible Securities), (B) subdivide its outstanding shares of Common Stock into a greater number of shares, (C) combine its outstanding shares of Common Stock into a smaller number of shares, or (D) reclassify, reorganize or effect any similar transaction with respect to any of its shares of Common Stock, or in substitution or exchange therefor (other than a change in par value, or from par value to no par value, or from no par value 7 62 to par value), then the number and, if applicable, kind of shares of Common Stock to be received by any holder of shares of Series D Preferred Stock (a "Holder") shall be adjusted so that the Holder will be entitled to receive on conversion the number and kind of shares of capital stock or other securities which it would have owned immediately following such action had its Series D Preferred Stock been converted immediately prior thereto. An adjustment made pursuant to this subsection (a) shall become effective immediately after the payment date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, reclassification, reorganization or similar transaction. If, as a result of an adjustment made pursuant to this subsection (a), a Holder shall become entitled to receive shares of two or more classes of capital stock of the Corporation or other securities, the Board of Directors or a duly authorized committee thereof shall in good faith determine (which determination shall be conclusive and binding) the allocation of the Conversion Price between or among shares of such classes of capital stock or other securities. After such allocation, the Conversion Price and number of shares of each class of capital stock that is issuable upon conversion shall thereafter be subject to adjustment in a manner and on terms determined by the Board of Directors (which determination shall be conclusive and binding) to be as nearly equivalent as practicable to those applicable to Common Stock under this Section 6. (b) (i) From the date of the initial issuance of shares of Series D Preferred Stock until the later of (A) the first anniversary of the date of such issuance and (B) the date on which the Corporation first consummates a sale of equity securities or debt securities convertible into equity securities for gross cash proceeds to the Company of $2.0 million or more (such period through such later date, the "Reset Period"), other than Excluded Shares (as hereinafter defined), if the Corporation shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share (the "Issuance Price") less than the Conversion Price (as herein defined) per share in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the Issuance Price. (ii) If, at any time subsequent to the Reset Period and prior to the first anniversary of the expiration of the Reset Period, the Corporation shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share less than the Conversion Price per share in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the price (calculated to the nearest cent) determined: by dividing (A) an amount equal to the sum of (1) the number of shares of Common Stock outstanding on a fully diluted basis immediately prior to such issuance multiplied by the Conversion Price per share in effect immediately prior to such issuance and (2) the consideration, if any, received by the Corporation upon such issuance by (B) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such issuance. (iii) If, at any time from the date of the initial issuance of shares of Series D Preferred Stock, prior to the first anniversary of the expiration of the Reset Period, the Corporation shall issue or enter into any agreement to issue any shares of Common Stock 8 63 other than Excluded Shares for consideration per share greater than the Conversion Price but lower than the market price per share in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the price (calculated to the nearest cent) determined by multiplying the Conversion Price in effect immediately prior to such issuance by the factor determined by dividing (A) an amount equal to the sum of (1) the number of shares of Common Stock outstanding on a fully diluted basis immediately prior to such issuance multiplied by the market price per share in effect immediately prior to such issuance and (2) the consideration, if any, received by the Corporation upon such issuance by (B) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such issuance multiplied by the market price per share in effect immediately prior to such issuance; PROVIDED, HOWEVER, no adjustment shall be made to the Conversion Price if (i) such issuance is in connection with a firm commitment underwritten public offering or (ii) the consideration per share is equal to or greater than 85% of the market price per share in effect immediately prior to such issuance. For purposes hereof, the "market price" as of any measurement date shall be the average of the closing prices of the Common Stock for each of the 10 consecutive trading days immediately preceding such measurement date. (c) CERTAIN ADJUSTMENT FACTORS. For the purposes of any adjustment of the Conversion Price pursuant to paragraph (b) above, the following provisions shall be applicable: (x) CASH. In the case of the issuance of shares of Common Stock for cash, the amount of the consideration received by the Corporation shall be deemed to be the amount of the cash proceeds received by the Corporation for such shares of Common Stock before deducting therefrom any discounts, commissions, taxes or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof; and (y) CONSIDERATION OTHER THAN CASH. In the case of the issuance of shares of Common Stock (other than upon the conversion of shares of capital stock or other securities of the Corporation) for consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof (as determined by the Board of Directors of the Corporation based on an opinion of an outside financial advisor of recognized regional or national standing, which may, but need not, be the independent public accountants who serve as the regular auditors of the Corporation (the "Financial Advisor"), whose determination shall be conclusive and binding), irrespective of any accounting treatment; and (z) OPTIONS AND CONVERTIBLE SECURITIES. In the case of the issuance of (i) Options to purchase or acquire shares of Common Stock (whether or not exercisable immediately following such issuance), (ii) Convertible 9 64 Securities by their terms convertible into or exchangeable for shares of Common Stock (whether or not so convertible or exchangeable immediately following such issuance), or (iii) Options to purchase such Convertible Securities (whether or not exercisable immediately following such issuance): (1) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such Options to purchase or acquire shares of Common Stock shall be deemed to have been issued at the time such Options are first issued and for a consideration equal to the consideration (determined in the manner provided in clauses (x) and (y) above), if any, received by the Corporation upon the issuance of such Options plus the purchase price provided in such Options for the shares of Common Stock covered thereby (if the purchase price per share of Common Stock is expressed as a range, the purchase price per share for purposes of this subparagraph (z)(1) shall be the average of such range of prices); (2) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such Convertible Securities, or upon the exercise of Options to purchase or acquire such Convertible Securities and the subsequent conversion or exchange thereto shall be deemed to have been issued at the time such convertible or exchangeable securities or such options, warrants or other rights are first issued and for a consideration equal to the consideration, if any, received by the Corporation for any such Convertible Securities or Options (excluding any cash received on account of accrued interest or accumulated dividends), plus the additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such Convertible Securities and the exercise of any Options (the consideration in each case to be determined in the manner provided in clauses (x) and (y) above); (3) on any change in the number of shares of Common Stock deliverable upon exercise of any such Options which have become exercisable or conversion of or exchange of such Convertible Securities which have become convertible or exchangeable, or any change in the consideration to be received by the Corporation upon such exercise, conversion or exchange, the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had such adjustment been made upon the original issuance of such Options; provided, however, no adjustment shall be made with respect to such Options exercised prior to such change, or Convertible Securities converted or exchanged prior to such change; 10 65 (4) on the expiration or cancellation of any such Options or the termination of the right to convert or exchange such Convertible Securities, if the Conversion Price shall have been adjusted upon such securities being issued or becoming exercisable, convertible or exchangeable, such Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options, warrants or other rights, or upon the conversion or exchange of such securities; and (5) if the Conversion Price shall have been adjusted when such Options were first issued or such Convertible Securities were first issued, no further adjustment of the Conversion Price shall be made for the actual issuance of shares of Common Stock upon the exercise, conversion or exchange thereof. (d) EXCLUDED SHARES. "Excluded Shares" shall mean (i) any shares of Common Stock issued in a transaction described in Section 6.1(a) of this Agreement; (ii) issuances of shares of Common Stock from time to time pursuant to employment agreements, stock option or bonus plans authorized by the Board of Directors of the Corporation as of the date hereof, (iii) issuances of Common Stock, or Options to acquire shares of Common Stock, or Convertible Securities convertible into or exchangeable for Common Stock pursuant to the terms of any acquisition by the Corporation of all or substantially all of the operating assets, or more than fifty percent (50%) of the voting capital stock or other controlling interest of any business entity in a transaction negotiated on an arms-length basis and expressly approved in advance by the Board of Directors of the Corporation; (iv) issuances of shares of Common Stock from time to time upon the exercise, exchange or conversion of warrants, options, convertible securities, the Convertible Notes or other securities outstanding as of the date hereof and pursuant to the written terms of such securities as they exist as of the date hereof and (v) issuances of shares of Common Stock from time to time pursuant to the anti-dilution provisions of other securities. For purposes hereof, "voting capital stock" shall be deemed to be capital stock of any class or classes, however designated having ordinary voting power for the election of members of the board of directors or other governing body and "controlling" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a party, whether through the ownership of voting capital stock, by contract or otherwise. (e) For further clarity, any change to the conversion price or other terms of the 8 1/4% Subordinated Convertible Notes Due 2003 shall not count toward determining the Reset Period, but shall, notwithstanding any other provision herein, be taken into account in determining whether any adjustment to the Conversion Price is due under this Section 6.1. (f) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1.2% in such price; PROVIDED, HOWEVER, that any adjustments which by reason of this subsection (e) are not required to be made 11 66 shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6 shall be made to the nearest tenth of a cent or to the nearest one-hundredth of a share, as the case may be. (g) The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issuance of Common Stock for the purposes of this Section 6. 6.2 RIGHTS TO PURCHASE OTHER SECURITIES. If any of the following shall occur: Without limiting any provisions of Section 9: (a) any Corporate Change (as hereinafter defined) to which the Corporation is a party, other than a Corporate Change in which the Corporation is the continuing or surviving Corporation and which does not result in any reclassification of, or change (other than as a result of a subdivision or combination) in, outstanding shares of the Common Stock, or (b) any sale or transfer to another corporation or entity of all or substantially all of the assets of the Corporation; then, and in either such case, the Holder of each share of Series D Preferred Stock then outstanding shall have the right to purchase the kind and amount of shares of stock and/or other securities and property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock issuable upon conversion of such stock immediately prior to such consolidation, merger, sale, or transfer. The provisions of this Section 6.2 shall similarly apply to successive consolidations, mergers, sales or transfers. 6.3 NOTICE OF ADJUSTMENT. Whenever the number of shares of Common Stock issuable upon the conversion of each share of Series D Preferred Stock or the Conversion Price of such shares of Series D Preferred Stock, or the Conversion Price, is adjusted or reduced, as herein provided, the Corporation shall mail by first class, postage prepaid, to each Holder (a) notice of any reduction on or before the day the reduction takes effect, which shall state the reduced Conversion Price and the period during which it will be in effect and/or (b) a certificate setting forth the number of shares of Common Stock issuable upon the conversion of each share of Series D Preferred Stock and the Conversion Price on such shares of Series D Preferred Stock after adjustment setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. The Corporation shall further deliver notice to each Holder, in the manner aforesaid, of the expiration of the Reset Period. 6.4 NO ADJUSTMENT FOR DIVIDEND. No adjustment in respect of any cash dividends shall be made while the Series D Preferred Stock is outstanding or upon the conversion of the Series D Preferred Stock. 12 67 6.5 CERTAIN EVENTS. If any event occurs as to which in the reasonable judgment of the Board of Directors of the Corporation , in good faith, the other provisions of this Section 6 are not strictly applicable but the lack of any adjustment would not in the opinion of the Board of Directors of the Corporation fairly reflect the purchase rights of the Holders of the Series D Preferred Stock in accordance with the basic intent and principles of the provisions of this Agreement then the Board of Directors of the Corporation shall appoint a Financial Advisor which shall give its opinion upon the adjustment, if any, on a basis consistent with the basic intent and principles established and the other provisions of this Section 6, necessary to preserve, without dilution, the exercise rights of the Holders. Upon receipt of such opinion, the Corporation shall forthwith make the adjustments described therein which adjustments shall be conclusive and binding. Without limiting the generality of the foregoing provisions of this Section 6.5, in the event any holder of Series D Preferred Stock becomes entitled under Section 5(a)(ii) hereof to convert any share thereof into any securities of the Corporation other than Common Stock: (i) the number and kind of such securities shall be subject thereafter to modification pursuant to comparable principles to those applicable under this Section 6 to the Common Stock; (ii) the purchase price in such conversion shall be subject to modification pursuant to comparable principles to those applicable under this Section 6 to the Conversion Price; and (iii) any and all notices under this Section 6 applicable to modifications in the Conversion Price or the securities issuable upon conversion of the Series D Preferred Stock shall apply MUTATIS MUTANDIS to modifications in the rights under Section 5(a)(ii) hereof, in each case under clauses (i), (ii) and (iii) immediately preceding, so as to preserve without dilution, the rights of the Holders. Section 7. STATUS OF CONVERTED OR REACQUIRED SHARES. Any shares of Series D Preferred Stock converted into shares of Common Stock pursuant to SECTION 5 hereof or purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the conversion or acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Series D Preferred Stock and may be reissued as part of a new series of preferred stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Certificate of Designation creating a series of preferred stock or any similar stock or as otherwise required by law. Section 8. LIQUIDATION, DISSOLUTION OR CHANGE OF CONTROL. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of shares of Series D Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders under applicable law, prior and in preference to any distribution to holders of the Common Stock or any Junior Securities but in parity with any distribution to holders of Parity Securities, an amount of $100 per share (the "Liquidation Value"), plus a sum equal to all dividends accrued on such shares (whether or not declared) and unpaid through and including the then current Dividend Period. If upon the occurrence of such event, the assets and funds to be distributed among the holders of shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Parity Securities shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of shares of Series B Preferred Stock, Series C Preferred Stock, 13 68 Series D Preferred Stock and Parity Securities, respectively, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of shares of Series B Preferred Stock, Series C Preferred Stock and Parity Securities, pro rata, based on the respective liquidation amounts to which each such series of stock is entitled by the Corporation's Articles of Incorporation and any certificate of designation of preferences. (b) Upon the completion of the distribution required by subsection 8(a) above, if assets remain in the Corporation, they shall be distributed to holders of Parity Securities (unless holders of Parity Securities have received distributions pursuant to subsection 8(a)) and Junior Securities in accordance with the Corporation's Articles of Incorporation, including any duly adopted certificate(s) of designation of preferences. (c) (i) Upon a Change of Control (as defined below) of the Corporation, each holder of the Series D Preferred Stock will have the option to require the Corporation to repurchase such holder's shares of Series D Preferred Stock at a price per share equal to the Liquidation Value plus any accrued and unpaid dividends. A "Change of Control" shall have occurred: (A) when any person or group is or becomes the beneficial owner of 50% or more of the then outstanding voting capital stock of the Corporation, (B) when, during any period of two consecutive years after the closing of the sale of the Series D Preferred Stock, individuals who at the beginning of such period constituted the Corporation's Board of Directors, or whose nomination for election by the Corporation's shareholders was approved by a vote of a majority of the directors of the Corporation then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors then in office or (C) upon any sale, transfer or other conveyance of all or substantially all of the assets of the Corporation. (ii) Upon the occurrence of a Change of Control, the Corporation will offer to repurchase (the "Change of Control Purchase Offer") all outstanding shares of Series D Preferred Stock, and each holder of outstanding shares of Series D Preferred Stock will have the right to require that the Corporation repurchase such holder's shares of Series D Preferred Stock, at the price set forth in clause (i) of this subsection 8(c). Within 30 days following any Change of Control, the Corporation shall mail a notice, by first class mail, to each holder of record of Series D Preferred Stock (a "Change of Control Notice"), at his address of record, stating: (A) that a Change of Control has occurred and that such holder has the right to require the Corporation to purchase such holder's shares of Series D Preferred Stock at the price set forth above; (B) the circumstances and relevant facts regarding such Change of Control; 14 69 (C) the date on which the Corporation will repurchase any shares of Series D Preferred Stock which the holders require the Corporation to repurchase in accordance with this subsection 8(c), which date shall be no earlier than 30 days nor later than 60 days from the date such Change of Control Notice is mailed (the "Change of Control Purchase Date"); (D) that, unless the Corporation defaults in making such payment, any shares of Series D Preferred Stock accepted for payment pursuant to the Change of Control Purchase Offer shall cease to accrue dividends after the Change of Control Purchase Date; (E) that holders of Series D Preferred Stock electing to have their shares repurchased pursuant to any Change of Control Purchase Offer shall be required to surrender the original certificates for the shares of Series D Preferred Stock at the address specified in the notice, at least three business days before the Change of Control Purchase Date; and (F) that the holders of Series D Preferred Stock shall be entitled to withdraw their election if the Corporation receives, not later than the last business day prior to the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the number of shares of Series D Preferred Stock the holder delivered for repurchase and a statement that such holder is withdrawing his election to have such shares repurchased. (iii) Each holder of shares of Series D Preferred Stock electing to have such shares purchased by the Corporation pursuant to this subsection 8(c) shall deliver to the Corporation at its principal office, at least three business days prior to the Change of Control Purchase Date, the original certificate or certificate(s) for the shares to be purchased duly endorsed, together with written notice to the Corporation specifying the number of shares of Series D Preferred Stock to be purchased. Holders of Series D Preferred Stock will be entitled to withdraw their election if the Corporation receives, not later than one business day prior to the Change of Control Purchase Date, a telegram, facsimile transmission or letter, at its principal office, setting forth the name of the holder, the number of shares of Series D Preferred Stock which were delivered by the holder for purchase by the Corporation and a statement that such holder is withdrawing his election to have such shares purchased. (iv) Promptly following the Change of Control Purchase Date, the Corporation will mail or deliver to each holder of shares of Series D Preferred Stock who properly tendered such shares to the Corporation for purchase pursuant to this subsection 8(c) and did not withdraw such election, at his, her or its address of record, an amount equal to the purchase price for the shares of Series D Preferred Stock so delivered for purchase as set forth in this subsection 8(c). Unless the Corporation shall have defaulted in the payment of the purchase 15 70 price for shares of Series D Preferred Stock tendered for purchase by the Corporation, all rights of the holders of such shares (except the right to receive the purchase price therefor) shall cease with respect to such shares on the Change of Control Purchase Date and such shares shall not, after the Change of Control Purchase Date, be deemed to be outstanding and shall not have the status of Series D Preferred Stock. (v) The Corporation will comply, to the extent applicable, with the requirements of Section 14(e) of the Securities Exchange Act of 1934, as amended, and any other applicable securities laws or regulations in connection with the repurchase of Series D Preferred Stock pursuant to this subsection 8(c). To the extent that the provisions of any securities laws or regulations conflict with the provisions of this subsection 8(c), the Corporation will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section by virtue thereof. Section 9. CONSOLIDATION, MERGER, ETC. Except as set forth in Section 8(c) hereof, and without limiting any provision of Section 6.2 hereof, in the event of a merger, reorganization, recapitalization or similar event of or with respect to the Corporation (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Corporation's equity securities upon such Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any Affiliate thereof), the Series D Preferred Stock shall be assumed by the acquiring entity and thereafter the Series D Preferred Stock shall be convertible into such class and type of securities as the holder of shares of Series D Preferred Stock would have received had such holder converted the Series D Preferred Stock immediately prior to such Corporate Change. Section 10. REDEMPTION. (a) OPTIONAL REDEMPTION. Subject to earlier conversion, commencing on May 17, 2002 and continuing through the Mandatory Redemption Date (as defined below), the Corporation shall have the right, exercisable at any time and from time to time, to redeem shares of Series D Preferred Stock at the following prices plus the payment of all accrued and unpaid dividends: YEAR REDEEMED PRICE ------------- ----- 2002 104% of Liquidation Value 2003 102% of Liquidation Value If less than all of the outstanding shares of Series D Preferred Stock are called for redemption pursuant to this SECTION 10(A), shares of Series D Preferred Stock shall be redeemed on a pro rata basis among the holders thereof. Each holder of Series D Preferred Stock will be given notice of such redemption pursuant to Section 10(c) and will have the right to 16 71 convert the Series D Preferred Stock into shares of Common Stock prior to the redemption date specified in such notice. (b) MANDATORY REDEMPTION. (i) The Corporation will be required to redeem the outstanding shares of Series D Preferred Stock on May 17, 2004 (the "Mandatory Redemption Date"), at a redemption price per share equal to the Liquidation Value plus accrued and unpaid dividends. (ii) If at any time, (A) the Corporation shall breach the terms and conditions contained in this certificate of designation, (B) the Corporation shall breach any representation, warranty, or covenant contained in that certain Series D Convertible Stock and Warrant Purchase Agreement, dated May __, 2000, between the Corporation and the initial Holders or any subsequent Series D Stock Purchase Agreement with like terms, or (C) the Corporation shall fail to make a dividend payment on a Dividend Payment Date (each a "Breach"), prompt notice of such Breach shall be given to each Holder by the Corporation at such time as the Corporation becomes aware of such Breach and (without limiting any rights of Holder) prompt notice of such Breach shall be given to the Corporation by each Holder at such time such Holder becomes aware of such Breach, and any Holder shall give written notice to the Corporation of its desire to have the Corporation redeem its shares of Series D Preferred Stock, such shares shall be redeemed by the Corporation at a redemption price per share equal to the greater of the amounts that would at that time be payable under Section 10(a) hereof had the Corporation exercised its right to redeem the shares of Series B Preferred Stock thereunder or the Liquidation Value plus accrued and unpaid dividends; PROVIDED, HOWEVER, no Holder shall have the right to request a redemption of its shares of Series D Preferred Stock pursuant to this SECTION 10(B)(II) unless and until the Corporation shall have failed to cure any such Breach within a period of ten (10) days after having received written notice thereof from the Holder. (c) MECHANICS OF REDEMPTION. Notice of redemption of the Series D Preferred Stock, specifying the redemption date and place of redemption, shall be given by first class mail to each holder of record of the shares to be redeemed, at his address of record, not less than 30 nor more than 60 calendar days prior to the date upon which the Corporation shall redeem the Series D Preferred Stock (the "Redemption Date"). Each such notice shall also specify the redemption price applicable to the shares to be redeemed. If less than all the shares owned by such holder are then to be redeemed, the notice shall also specify the number of shares thereof which are to be redeemed and the fact that a new certificate or certificates representing any unredeemed shares shall be issued without cost to such holder. (i) Notice of redemption of shares of the Series D Preferred Stock having been given as provided in SECTION 10(C), then unless the Corporation shall have defaulted in the payment of the redemption price and all accrued and unpaid dividends (whether or not declared), all rights of the holders thereof (except the right to receive the redemption price and all accrued and unpaid dividends, whether or not declared) shall cease with respect to such shares on the Redemption Date and such shares shall not, after the Redemption Date, be deemed 17 72 to be outstanding and shall not have the status of Series D Preferred Stock. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. (ii) Shares of the Series D Preferred Stock are not subject or entitled to the benefit of a sinking fund. (iii) Notwithstanding the foregoing, if notice of redemption shall have been given pursuant to this SECTION 10 and any holder of the Series D Preferred Stock shall, prior to the close of business on the date three business days next preceding the Redemption Date, give written notice to the Corporation pursuant to SECTION 5 hereof of the conversion of any or all of the shares held by the holder (accompanied by a certificate or certificates for such shares, duly endorsed or assigned to the Corporation), then the redemption shall not become effective as to such shares and the conversion shall become effective as provided in SECTION 5. (iv) If on the Mandatory Redemption Date funds legally available to the Corporation for redemption of all outstanding shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are insufficient to redeem all such shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, such available funds shall be used by the Corporation to redeem shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock from all holders ratably in proportion to the full number of shares they would otherwise be entitled to have redeemed. In the event that less than all outstanding shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are redeemed on the Mandatory Redemption Date, the Corporation will continue to redeem shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock from time to time as soon as practicable after funds become legally available therefor (ratably if the funds legally available remain insufficient to redeem all shares required to be redeemed) until all shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock required to be redeemed shall have been redeemed. Until actually redeemed, each share of Series D Preferred Stock will continue to enjoy all rights and benefits hereof, including the right to convert into shares of Common Stock. (d) CONVERSION PRICE ADJUSTMENT FOR FAILURE TO REDEEM. If the Corporation fails to redeem all outstanding shares of Series D Preferred Stock on the Mandatory Redemption Date, then, without any action by the holders of shares of Series D Preferred Stock, the then current Conversion Price respecting any shares of Series D Preferred Stock not redeemed by the Corporation shall be reduced (but shall not be increased) to the greater of: (i) fifty percent (50%) of the then current Conversion Price, and (ii) the closing price of the Common Stock as reported by Nasdaq (or such principal national exchange on which the Common Stock is then listed) on the Mandatory Redemption Date. Section 11. AMENDMENT. The Articles of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or 18 73 special rights of the Series D Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series D Preferred Stock, voting together as a single class. Section 12. NOTICES. Written notice of each meeting of the shareholders of the Corporation shall be given by first-class mail not less than ten (10) days prior to such meeting to each holder of record of the Series D Preferred Stock to the address of such record holder shown on the Corporation's records. 19 74 IN WITNESS WHEREOF, this Certificate of Designation has been executed on behalf of the Corporation by its Chief Executive Officer this 1st day of May, 2000. MANSUR INDUSTRIES INC. By: /S/ PAUL I. MANSUR ---------------------- Paul I. Mansur Chief Executive Officer 20 75 EXHIBIT A NOTICE OF CONVERSION (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT THE SERIES D PREFERRED STOCK) The undersigned hereby irrevocably elects to convert ______ shares of Series D Preferred Stock, represented by stock certificate No(s). ________________ (the "Series D Preferred Stock Certificates") into shares of common stock, par value $.001 per share ("Common Stock"), or other securities, of Mansur Industries Inc., (the "Corporation") according to the conditions of the Certificate of Designation of Series D Preferred Stock, as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock or other securities issuable to the undersigned upon conversion of the Series D Preferred Stock shall be made pursuant to registration of such shares of Common Stock under the Securities Act of 1933, as amended, or pursuant to an exemption from registration under such Act. Conversion Calculations: ------------------------------------ Date of Conversion ------------------------------------ Applicable Conversion Price ------------------------------------ Signature ------------------------------------ Name Address: ------------------------------------ ------------------------------------ *No shares of Common Stock or other securities will be issued until the original Series D Preferred Stock Certificate(s) to be converted and the Notice of Conversion are received by the Corporation or its designated Transfer Agent. The original Stock Certificate(s) representing the Series D Preferred Stock to be converted and the Notice of Conversion must be received by the Corporation or its designated Transfer Agent by the second business day following the Date of Conversion, or the Notice of Conversion, at the Corporation's option, may be declared null and void. 76 EXHIBIT B NOTICE OF EARLY CONVERSION EVENT Mansur Industries Inc. (the "Corporation ") hereby notifies ____________________, the holder of ___________ shares (the "Shares") of the Corporation 's Series D Preferred Stock (the "Series D Preferred Stock"), that an Early Conversion Event occurred on __________, and as such, you are hereby directed to surrender the Shares as $______ of the aggregate Liquidation Value of such Shares has been automatically converted into shares of the Corporation 's common stock, par value $.001 per share (the "Conversion Shares"), in accordance with the terms of the Certificate of Designation respecting the Series D Preferred Stock. Unless otherwise instructed, the Corporation shall issue the Conversion Shares and a new certificate representing the Shares not converted in the name of the holder of the Shares and deliver same as soon as practicable and in accordance with the provisions of the Certificate of Designation to the address set forth in the Corporation's register respecting the Series D Preferred Stock. Date: --------------------------- MANSUR INDUSTRIES INC. By: --------------------------- Name: ---------------------- Title: --------------------- 77 ARTICLES OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MANSUR INDUSTRIES INC. Pursuant to the provisions of Section 607.1006 of the Florida Business Corporation Act (the "Act"), the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the Corporation is Mansur Industries Inc (the "Corporation"), Charter #S12439. 2. The following Amendment to the Amended and Restated Articles of Incorporation was adopted by the Board of Directors of the Corporation on April 27, 2000 and by the Shareholders of the Corporation, the number of votes cast being sufficient for approval, on June 29, 2000 in the manner prescribed by Section 607.1003 of the Act. 3. Article I of the Corporation's Amended and Restated Articles of Incorporation is hereby deleted and replaced by a new Article I, as follows: "ARTICLE I The name of the corporation is SystemOne Technologies Inc." 4. Except as hereby amended, the Amended and Restated Articles of Incorporation of the Corporation shall remain the same. 5. The effective date of this amendment shall be upon the filing of these Articles of Amendment. IN WITNESS WHEREOF, the undersigned has executed these Articles of Amendment to the Amended and Restated Articles of Incorporation of Mansur Industries Inc. on the 10th day of July, 2000. MANSUR INDUSTRIES INC., a Florida corporation By: /s/ PAUL I. MANSUR ---------------------- Print Name: Paul I. Mansur Title: Chief Executive Officer EX-4.1 3 ex4-1.txt FORM OF WARRANT 1 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. August 7, 2000 SYSTEMONE TECHNOLOGIES INC. (Incorporated under the laws of the State of Florida) WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK No. WRT-__ FOR VALUE RECEIVED, SYSTEMONE TECHNOLOGIES INC., a Florida corporation (the "Company"), hereby certifies that ______________________ or assigns (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, up to _______________________ fully paid and non-assessable shares of Common Stock at a price of $3.50 per share (the "Exercise Price"). The term "Common Stock" means the Common Stock, par value $.001 per share, of the Company as constituted on the date of issuance of this Warrant (the "Base Date"). The number of shares of Common Stock to be received upon the exercise of this Warrant may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as "Warrant Stock." The term "Other Securities" means any other equity or debt securities that may be issued by the Company in addition thereto or in substitution for the Warrant Stock in accordance with the terms hereof. The term "Company" means and includes the corporation named above as well as (i) any immediate or more remote successor corporation resulting from the merger or consolidation of such corporation (or any immediate or more remote successor corporation of such corporation) with another corporation, or (ii) any corporation to which such corporation (or any immediate or more remote successor corporation of such corporation) has transferred its property or assets as an entirety or substantially as an entirety. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall 2 execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held subject to, all of the conditions, limitations and provisions set forth herein. 1. EXERCISE OF WARRANT. 1.1 CASH EXERCISE. This Warrant may be exercised, in whole or in part, at any time, or from time to time during the period commencing on the date hereof and expiring 5:00 p.m. Eastern Time on the fifth anniversary of the Base Date (the "Expiration Date"), by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Warrant Exercise Form attached hereto duly executed and accompanied by payment (either in cash or by certified or official bank check, payable to the order of the Company) of the Exercise Price for the number of shares specified in such form and instruments of transfer, if appropriate, duly executed by the Holder or his or her duly authorized attorney; provided, however, that, prior to the date which falls nine months after the Base Date, this Warrant may not be exercised with respect to in excess of 50% of the maximum amount of Warrant Stock issuable under this Warrant and, prior to the first anniversary of the Base Date, this Warrant may not be exercised with respect to in excess of 75% of the maximum amount of Warrant Stock issuable under this Warrant; and, provided, further, that, in the event the entire Loan (as hereinafter defined), and all interest thereon, advanced by the original Holder of this Warrant pursuant to the Loan Agreement dated as of the date of this Warrant (the "Loan Agreement") is satisfied on or prior to the date which falls nine months after the Base Date, this Warrant may not thereafter be exercised with respect to in excess of 50% of the maximum amount of Warrant Stock issuable under this Warrant and, in the event that the entire Loan, and all interest thereon, advanced by the original Holder of this Warrant pursuant to the Loan Agreement is satisfied on or prior to the date which falls on the first anniversary of the Base Date, this Warrant may not thereafter be exercised with respect to in excess of 75% of the maximum amount of Warrant Stock issuable under this Warrant. For purposes hereof, the "Loan" shall have the meaning set forth in the Loan Agreement. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant, together with the Exercise Price, at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exercise of this Warrant. 1.2 CASHLESS EXERCISE. This Warrant may be exchanged, in whole or in part (subject to the limitations on exercise hereinabove set forth in Section 1.1) (a "Warrant Exchange"), at any time, or from time to time, during -2- 3 the period commencing on the date hereof and ending on the Expiration Date, into the number of shares of Common Stock determined in accordance with this Section 1.2, by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, accompanied by a notice (a "Notice of Exchange") stating that this Warrant is being exchanged and the number of shares of Common Stock to be exchanged. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of shares of Common Stock (rounded to the nearest whole number) equal to (i) the number of shares specified by the Holder in its Notice of Exchange (the "Total Number") less the number of shares equal to the quotient obtained by dividing (A) the product of the Total Number and the then applicable Exercise Price by (B) the then fair market value (determined in accordance with Section 3 below) per share of Common Stock. If this Warrant should be exchanged in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant, together with a duly executed Notice of Exchange, at its office, or by the stock transfer agent of the Company at its office, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exchange, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exchange of this Warrant. 2. RESERVATION OF SHARES. The Company will at all times reserve for issuance and delivery upon exercise of this Warrant all shares of Common Stock or other shares of capital stock of the Company (and Other Securities) from time to time receivable upon exercise of this Warrant. All such shares (and Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights. 3. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but the Company shall pay the Holder an amount equal to the fair market value of such fractional share of Common Stock in lieu of each fraction of a share otherwise called for upon any exercise of this Warrant. For purposes of this Warrant, the fair market value of a share of Common Stock shall be determined as follows: (a) If the Common Stock is listed on a National Securities Exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ system, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange or system; or (b) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean of the -3- 4 last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or (c) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined by the Board of Directors of the Company in good faith. 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations, entitling the Holder or Holders thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, subject to the provisions of Section 7 hereof, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. 6. ANTI-DILUTION PROVISIONS. 6.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any time subdivide its outstanding shares of Common Stock (or Other Securities at the time receivable upon the exercise of the Warrant) by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its shareholders, the number of shares of Common Stock subject to this Warrant immediately prior to such subdivision shall be proportionately increased and the Exercise Price shall be proportionately decreased, and if the Company shall at any time combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock or Other Securities subject to this Warrant immediately prior to such combination shall be proportionately decreased and the Exercise Price shall be proportionately increased. Any such adjustments pursuant to this Section 6.1 shall be effective at the close of business on the effective date of such subdivision or combination or if any adjustment is the result of a stock dividend or distribution then the effective date for such adjustment based thereon shall be the record date therefor. 6.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of any reorganization of the Company (or any other entity, the securities of which are at the time receivable on the exercise of this Warrant) -4- 5 after the Base Date or in case after such date the Company (or any such other entity) shall consolidate with or merge into another entity or convey all or substantially all of its assets to another entity, then, and in each such case, the Holder of this Warrant upon the exercise thereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the securities and property receivable upon the exercise of this Warrant prior to such consummation, the securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto; in each such case, the terms of this Warrant shall be applicable to the securities or property receivable upon the exercise of this Warrant after such consummation. 6.3 NO DILUTION. (a) From the date of issuance of this Warrant until the later of (1) the first anniversary date of such issuance and (2) the date on which the Company first consummates a sale of shares of its equity securities (within the meaning of Section 3(a)(11) of the Securities Exchange Act of 1934, as amended) or debt securities convertible into equity securities for gross cash proceeds to the Company of more than $2.0 million (such period through such later date, hereinafter referred to as the "Reset Period") other than Excluded Shares (as hereinafter defined), if the Company shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share (the "Issuance Price") less than the Exercise Price per share in effect immediately prior to such issuance, the Exercise Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the Issuance Price. For purposes hereof, the term "Excluded Shares" shall mean (1) any shares of Common Stock issued in a transaction described in Sections 6.1 and 6.2 of this Warrant; (2) issuances of shares of Common Stock from time to time pursuant to employment agreements, stock option or bonus plans authorized by the Board of Directors of the Corporation as of the date hereof, (3) issuances of Common Stock, or options to acquire shares of Common Stock, or securities convertible into or exchangeable for Common Stock pursuant to the terms of any acquisition by the Company of all or substantially all of the operating assets, or more than fifty percent (50%) of the voting capital stock or other controlling interest of any business entity in a transaction negotiated on an arms-length basis and expressly approved in advance by the Board of Directors of the Company; (4) issuances of shares of Common Stock from time to time upon the exercise, exchange or conversion of warrants, options, convertible securities, the Company's outstanding 8 1/4% Subordinated Convertible Notes Due 2003 or other securities outstanding as of the date hereof and pursuant to the written terms of such securities as they exist as of the date hereof, and (5) issuances of shares of Common Stock from time to time pursuant to the anti-dilution provisions of other securities of the Company, including shares of the Company's outstanding Series B, Series C and Series D Convertible Preferred Stock. For purposes hereof, "voting capital stock" shall be deemed to be capital stock of any class or classes, however designated having ordinary voting power for the election of members of the board of directors or other governing body and "controlling" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a party, whether through the ownership of voting capital stock, by contract or otherwise. -5- 6 (b) If, at any time from the date of issuance of this Warrant, the Company shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share lower than the market price per share in effect immediately prior to such issuance, the Exercise Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the price (calculated to the nearest cent) determined by multiplying the Exercise Price in effect immediately prior to such issuance by the factor determined by dividing (1) an amount equal to the sum of (A) the number of shares of Common Stock outstanding on a fully diluted basis immediately prior to such issuance multiplied by the market price per share in effect immediately prior to such issuance and (B) the consideration, if any, received by the Company upon such issuance by (2) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such issuance multiplied by the market price per share in effect immediately prior to such issuance; provided, however, no adjustment shall be made to the Exercise Price if (1) such issuance is in connection with a firm commitment underwritten public offering or (2) the consideration per share is equal to or greater than 85% of the market price per share in effect immediately prior to such issuance. For purposes hereof, the "market price" as of any measurement date shall be the average of the closing prices of the Common Stock for each of the 10 consecutive trading days immediately preceding such measurement date. (c) The Company will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against dilution or other impairment. (d) For further clarity, any change to the exercise price or other terms of the 8-1/4% Subordinated Convertible Notes Due 2003 shall not count to determining the Reset Period, but shall be taken into account in determining whether any adjustment to the Exercise Price is due under this Section 6.3. (e) The Exercise Price shall be subject to adjustment from time to time as previously provided in this section 6.3. Upon each adjustment of the Exercise Price, the holder of the Warrant evidenced hereby shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share pursuant to Section 3) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product by the Exercise Price resulting from such adjustment. 6.4 CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment in the number of shares of Warrant Stock or Other Securities receivable on the exercise of this Warrant, or the Exercise Price, the Company at its expense will promptly compute such adjustment in accordance with the -6- 7 terms of this Warrant and prepare a certificate executed by an executive officer of the Company setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company will forthwith mail a copy of each such certificate to the Holder. 6.5 NOTICES OF RECORD DATE, ETC. In case: (a) the Company shall take a record of the holders of its Common Stock (or Other Securities at the time receivable upon the exercise of the Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend at the same rate as the rate of the last cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, or to receive any other right; or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another entity, or any conveyance of all or substantially all of the assets of the Company to another entity; or (c) of any voluntary or involuntary dissolution, liquidation, partial liquidation or winding up of the Company, or (d) any event resulting in the expiration of the Reset Period, then, and in each such case, the Company shall mail or cause to be mailed to each Holder of the Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, and the time, if any, to be fixed, as to which the holders of record of Common Stock (or such other securities at the time receivable upon the exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such other securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be mailed at least 20 days prior to the date therein specified. 7. TRANSFER TO COMPLY WITH THE SECURITIES ACT. Notwithstanding any other provision contained herein, this Warrant and any Warrant Stock or Other Securities may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock or Other Securities may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees. -7- 8 8. LEGEND. Unless the shares of Warrant Stock or Other Securities have been registered under the Securities Act, upon exercise of any of the Warrants and the issuance of any of the shares of Warrant Stock or Other Securities, all certificates representing such securities shall bear on the face thereof substantially the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of, unless registered pursuant to the provisions of that Act or unless an opinion of counsel is obtained stating that such disposition is in compliance with an available exemption from such registration. 9. NOTICES. All notices required hereunder shall be in writing and shall be deemed given when telegraphed, delivered personally or within two days after mailing when mailed by certified or registered mail, return receipt requested, to the Company at its principal office, or to the Holder at the address set forth on the record books of the Company, or at such other address of which the Company or the Holder has been advised by notice hereunder. 10. APPLICABLE LAW. The Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Florida, without giving effect to the choice of law rules thereof. IN WITNESS HEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written. SYSTEMONE TECHNOLOGIES INC. By: /s/ Paul Mansur --------------------------------- Name: Paul Mansur Title: Chief Executive Officer -8- 9 WARRANT EXERCISE FORM The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ____________ shares of Common Stock of SystemOne Technologies Inc., a Florida corporation, and hereby makes payment of $____________ in payment therefor. ---------------------------------------- Signature ---------------------------------------- Signature, if jointly held ---------------------------------------- Date INSTRUCTIONS FOR ISSUANCE OF STOCK (if other than to the registered holder of the within Warrant) Name ---------------------------------------------------------------------------- (Please typewrite or print in block letters) Address ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Social Security or Taxpayer Identification Number ------------------------------------------------- -9- 10 ASSIGNMENT FORM FOR VALUE RECEIVED, ------------------------------------------------------------ hereby sells, assigns and transfers unto Name ---------------------------------------------------------------------------- (Please typewrite or print in block letters) the right to purchase Common Stock of SystemOne Technologies Inc., a Florida corporation, represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ___________________________________________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. DATED: ____________, 200_. -------------------------------- Signature -------------------------------- Signature, if jointly held -10- EX-4.2 4 ex4-2.txt FIRST AMEND TO REGISTRATION RIGHTS AGREEMENT 1 FIRST AMENDMENT TO RIGHTS AGREEMENT THIS FIRST AMENDMENT TO RIGHTS AGREEMENT (this "Amendment") is made as of the 2nd day of May, 2000, by and between MANSUR INDUSTRIES INC., a Florida corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY (the "Rights Agent"). RECITALS WHEREAS, on October 1, 1998, the Board of Directors of the Company authorized and declared a dividend distribution of one Right for each share of common stock, $.001 par value, of the Company outstanding at the close of business on October 8, 1998; and WHEREAS, the Company and the Rights Agent entered into a certain Rights Agreement, dated as of October 1, 1998 (the "Rights Agreement"), providing, among other things, for the issuance of the Rights (all capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to such terms in the Rights Agreement); and WHEREAS, the Board of Directors of the Company has approved the amendment of the Rights Agreement as hereinafter set forth, pursuant to a unanimous written consent dated as of May 2, 2000; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Section 1 of the Rights Agreement is hereby amended by deleting the definition of "Acquiring Person" set forth in subsection (a) thereof in its entirety and substituting therefor a new definition of "Acquiring Person" to read as follows: "'Acquiring Person' shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of fifteen percent (15%) or more of the shares of Common Stock the outstanding. Notwithstanding the foregoing, the term "Acquiring Person" shall not include (i) the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, (ii) Pierre G. Mansur, unless such individual shall be the beneficial owner of fifty percent (50%) or more of the share of Common Stock then outstanding, (iii) Hanseatic Americas LDC, unless it shall be the beneficial owner of thirty-three percent (33%) or more of the shares of Common Stock then outstanding, (iv) Environmental Opportunities Fund II (Institutional), L.P., Environmental Opportunities Fund II, L.P., Environmental 2 Opportunities Fund, L.P., or Environmental Opportunities Fund II (Cayman), L.P., unless such Persons shall be the Beneficial Owners, individually or in the aggregate, of twenty-eight percent (28%) or more of the shares of Common Stock then outstanding, or (v) any Person who or which, together with all Affiliates and Associates of such Person, would be an Acquiring Person solely by reason of a reduction in the number of issued and outstanding shares of Common Stock of the Company pursuant to a transaction or series of related transactions approved by a majority of the Independent Directors, if any, then in office and approved by a Supermajority Vote; provided, further, however, that in the event that such Person described in the foregoing clause (v) does not become an Acquiring Person by reason of the foregoing clause (v), such Person shall nonetheless become an Acquiring Person in the event such Person thereafter acquires Beneficial Ownership of an additional one percent (1%) of the Common Stock of the Company, unless such additional Common Stock ownership results solely from a subsequent reduction in the number of issued and outstanding shares of Common Stock of the Company." 2. Except as specifically amended hereby, the Rights Agreement is and remains unmodified and in full force and effect and is hereby ratified and confirmed. 3. This Amendment shall be deemed a contract made under the laws of the State of Florida and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. 4. This Amendment may be executed in counterparts and both of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. 2 3 MANSUR INDUSTRIES INC. By: /s/ PAUL MANSUR ------------------- CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: /s/ ROGER BERNHAMMER ---------------------- 3 EX-4.3 5 ex4-3.txt SECOND AMEND TO REGISTRATION RIGHTS AGREEMENT 1 SECOND AMENDMENT TO RIGHTS AGREEMENT THIS SECOND AMENDMENT TO RIGHTS AGREEMENT (this "Amendment") is made as of the 7th day of August, 2000, by and between SYSTEMONE INDUSTRIES INC., a Florida corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY (the "Rights Agent"). RECITALS WHEREAS, on October 1, 1998, the Board of Directors of the Company authorized and declared a dividend distribution of one Right for each share of common stock, $.001 par value, of the Company outstanding at the close of business on October 8, 1998; and WHEREAS, the Company and the Rights Agent entered into a certain Rights Agreement, dated as of October 1, 1998 (the "Rights Agreement"), providing, among other things, for the issuance of the Rights (all capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to such terms in the Rights Agreement); and WHEREAS, the Company and the Rights Agent amended the Rights Agreement pursuant to the First Amendment to Rights Agreement, dated as of May 24, 2000; and WHEREAS, the Board of Directors of the Company has approved a second amendment to the Rights Agreement as hereinafter set forth, pursuant to a unanimous written consent dated as of August 7, 2000; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Section 1 of the Rights Agreement is hereby amended by deleting the definition of "Acquiring Person" set forth in subsection (a) thereof in its entirety and substituting therefor a new definition of "Acquiring Person" to read as follows: "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of fifteen percent (15%) or more of the shares of Common Stock outstanding. Notwithstanding the foregoing, the term "Acquiring Person" shall not include (i) the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, (ii) Pierre G. Mansur, unless such individual shall be the beneficial owner of fifty percent (50%) or more of the shares of Common Stock then outstanding, (iii) 2 Hanseatic Americas LDC, unless it shall be the beneficial owner of forty-five percent (45%) or more of the shares of Common Stock then outstanding, (iv) Environmental Opportunities Fund II (Institutional), L.P., Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund, L.P., or Environmental Opportunities Fund II (Cayman), L.P., unless such Persons shall be the Beneficial Owners, individually or in the aggregate, of thirty-five percent (35%) or more of the shares of Common Stock then outstanding, or (v) any Person who or which, together with all Affiliates and Associates of such Person, would be an Acquiring Person solely by reason of a reduction in the number of issued and outstanding shares of Common Stock of the Company pursuant to a transaction or series of related transactions approved by a majority of the Independent Directors, if any, then in office and approved by a Supermajority Vote; provided, further, however, that in the event that such Person described in the foregoing clause (v) does not become an Acquiring Person by reason of the foregoing clause (v), such Person shall nonetheless become an Acquiring Person in the event such Person thereafter acquires Beneficial Ownership of an additional one percent (1%) of the Common Stock of the Company, unless such additional Common Stock ownership results solely from a subsequent reduction in the number of issued and outstanding shares of Common Stock of the Company. 2. Except as specifically amended hereby, the Rights Agreement is and remains unmodified and in full force and effect and is hereby ratified and confirmed. 3. This Amendment shall be deemed a contract made under the laws of the State of Florida and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. 4. This Amendment may be executed in counterparts, each of which shall for all purposes be deemed to be an original, and shall constitute but one and the same instrument. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SYSTEMONE INDUSTRIES INC. By: /s/ PAUL MANSUR ------------------- CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: /s/ ROGER BERNHAMMER --------------------- 3 EX-10.1 6 ex10-1.txt LOAN AGREEMENT DATED 8/7/00 1 ================================================================================ LOAN AGREEMENT By and Among SYSTEMONE TECHNOLOGIES INC., as Borrower and HANSEATIC AMERICAS LDC, ENVIRONMENTAL OPPORTUNITIES FUND II, L.P. and ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL), L.P. as Lenders Dated: As of August 7, 2000 ================================================================================ 2 TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS...............................................1 Section 1.1 Definitions...................................1 ARTICLE II LOAN............................................................7 Section 2.1 Loan..........................................7 Section 2.2 Notes.........................................7 Section 2.3 Interest......................................8 Section 2.4 Repayment of Principal........................8 Section 2.5 Late Charges..................................8 Section 2.6 Optional and Mandatory Prepayment.............8 Section 2.7 Security......................................9 Section 2.8 Replacement of Any Notes......................9 Section 2.9 Payments and Computations.....................9 Section 2.10 Warrants....................................10 ARTICLE III CONDITIONS PRECEDENT OF LENDING................................10 Section 3.1 Borrowing....................................10 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BORROWER..........................................12 Section 4.1 Incorporation...............................12 Section 4.2 Authorization...............................12 Section 4.3 Conflicts...................................12 Section 4.4 Capitalization..............................13 Section 4.5 Subsidiaries................................14 Section 4.6 SEC Documents; Financial Statements.........14 Section 4.7 Taxes.......................................15 Section 4.8 Title; Credit Arrangements; Defaults........15 Section 4.9 Employee Benefit Plans......................16 Section 4.10 Disputes and Litigation.....................17 Section 4.11 Compliance With Law; Licenses; Franchises; Environmental Laws.........17 Section 4.12 Use of Proceeds.............................18 Section 4.13 Principal Exchange/Market...................18 Section 4.14 No Material Adverse Change..................18 Section 4.15 No Undisclosed Liabilities..................18 Section 4.16 No Undisclosed Events or Circumstances..........................18 ii 3 Section 4.17 Brokers.....................................19 Section 4.18 Private Placement...........................19 Section 4.19 Disclosure..................................19 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE LENDERS ..........................................19 Section 5.1 Formation...................................19 Section 5.2 Authorization...............................19 Section 5.3 Conflicts...................................20 Section 5.4 Private Placement...........................20 iii 4 ARTICLE VI CERTAIN COVENANTS............................................. 21 Section 6.1 General Covenants........................... 21 Section 6.2 Financial and Other Information............. 22 ARTICLE VII EVENTS OF DEFAULT............................................. 23 Section 7.1 Events of Default........................... 23 Section 7.2 Enforcement................................. 25 Section 7.3 Waiver Of Jury Trial........................ 25 ARTICLE VIII REGISTRATION................................................. 26 Section 8.1 Registration and Listing................... 26 Section 8.2 Registration Requirements.................. 26 Section 8.3 Expenses of Registration................... 29 Section 8.4 Registration Period........................ 29 Section 8.5 Indemnification............................ 30 Section 8.6 Contribution............................... 32 ARTICLE IX MISCELLANEOUS................................................. 33 Section 9.1 Modification of Agreement................... 33 Section 9.2 Remedies Cumulative, etc.................... 33 Section 9.3 No Waiver, etc.............................. 33 Section 9.4 Notices..................................... 34 Section 9.5 Survival of Representations................. 34 Section 9.6 Entire Agreement............................ 34 Section 9.7 Expenses.................................... 34 Section 9.8 Benefit of Agreement........................ 35 Section 9.9 Governing Law............................... 35 Section 9.10 Captions................................... 35 Section 9.11 Severability............................... 35 Section 9.12 SUBORDINATION.............................. 35 Section 9.13 Counterparts............................... 35 Annex 1 - Lenders Exhibit A - Form of Notes Exhibit B - Form of Warrant Certificate Exhibit C - Form of Security Agreement Exhibit D - Form of Legal Opinion Schedule 4.3 - Consents Schedule 4.7 - Taxes Schedule 4.8 - Credit Arrangements Schedule 4.12 - Use of Proceeds iv 5 LOAN AGREEMENT LOAN AGREEMENT dated as of the 7th day of August, 2000 by and among SYSTEMONE TECHNOLOGIES INC., a corporation duly organized and validly existing under the laws of the State of Florida (hereinafter referred to as the "Borrower"), and the undersigned ENVIRONMENTAL OPPORTUNITIES FUND II, L.P., ENVIRONMENTAL OPPORTUNITIES II (INSTITUTIONAL), L.P., and HANSEATIC AMERICAS LDC (hereinafter referred to, collectively, as the "Lenders" and, individually, as a "Lender"). W I T N E S S E T H: WHEREAS, the Borrower is primarily engaged in the business of manufacturing industrial parts washers that incorporate the Borrower's proprietary waste minimization technologies (such activities being hereinafter referred to, collectively, as the "Business"); and WHEREAS, in order to provide funds for the operation and expansion of the Business, the Borrower has requested that the Lenders loan an aggregate amount of $2,500,000 (hereinafter referred to as the "Loan") to the Borrower; and WHEREAS, the Lenders have each agreed to loan their respective Proportionate Share (as hereinafter defined) of the Loan to the Borrower, subject to the terms and conditions hereinafter set forth; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 DEFINITIONS. As used in this Agreement, the following additional terms shall have the following meanings, unless the context indicates otherwise: (i) The term "ADDITIONAL WARRANTS" shall have the meaning ascribed and assigned to such term in Section 2.10 of this Agreement. (ii) The term "ADDITIONAL WARRANT CERTIFICATES" shall have the meaning ascribed and assigned to such term under Section 2.10 of this Agreement. (iii) The term "ADDITIONAL WARRANT SHARES" shall have the meaning ascribed and assigned to such term under Section 2.10 of this Agreement. 6 (iv) The term "AFFILIATE" shall mean any person who is a director or officer of the subject referenced or is a Person which, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with such Person; and, for purposes of this Agreement, the term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. (v) The term "BENEFIT PLANS" shall mean all pension, profit-sharing, bonus, incentive, welfare or other employee benefit plans within the meaning of Section 3(3) of ERISA, and related trusts, insurance and annuity contracts, funding media and related agreements and arrangements, other than Multiemployer Plans. (vi) The term "BORROWER" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Agreement. (vii) The term "BUSINESS" shall have the meaning ascribed and assigned to such term in the preamble of this Agreement. (viii) The term "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or any other day on which commercial banks in New York, New York are required or permitted by law to close. (ix) The term "CAPITAL INDEBTEDNESS" shall mean indebtedness of the Borrower with respect to money borrowed pursuant to the Loan and Security Agreement dated May 17, 1999 (as amended December 21, 1999) between the Borrower and Capital Business Credit, a division of Capital Factors, Inc. (x) The term "CLOSING DATE" shall mean the date upon which the conditions set forth in Section 3.1 of this Agreement shall have been completed and fulfilled to the satisfaction of the Lenders. (xi) The term "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. (xii) The term "COMMISSION" shall mean the United States Securities and Exchange Commission. (xiii) The term "COMMON STOCK" shall mean the Borrower's common stock, par value $.001. (xiv) The term "DEFAULT PERIOD" shall have the meaning assigned and ascribed to such term under Section 8.2 of this Agreement. (xv) The term "DEFINED BENEFIT PLAN" shall mean any Benefit Plan which is a "defined benefit plan" within the meaning of Section 3(35) of ERISA. -2- 7 (xvi) The term "EFFECTIVENESS PERIOD" shall have the meaning assigned and ascribed to such term under Section 8.4 of this Agreement. (xvii) The term "ENVIRONMENTAL LAWS" shall mean any and all federal, national, state or local laws, statutes, ordinances, rules, regulations, orders or determinations of any federal, national, state or local governmental authority pertaining to health or the environment. (xviii) The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute of similar import, together with the regulations promulgated thereunder by the United States Treasury Department, the United States Department of Labor and/or the PBGC. (xvix) The term "EVENT OF DEFAULT" or "Events of Default" shall have the meaning set forth in Section 7.1 of this Agreement. (xx) The term "EXCHANGE ACT" shall mean the U.S. Securities Exchange Act of 1934, as amended from time to time, and any successor statute of similar import, together with the regulations promulgated thereunder by the Commission. (xxi) The term "FINANCING STATEMENTS" shall mean the Uniform Commercial Code UCC-1 financing statements to be filed with the applicable Governmental Authorities of each relevant jurisdiction pursuant to which the Lenders shall perfect their security interest under the Security Agreement. (xxii) The term "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean generally accepted principles and practices as developed and modified by the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and industry practices and custom, applied on a consistent basis. (xxiii) The term "GOVERNMENTAL AUTHORITY" shall mean any federal, state, county or municipal, or foreign, governmental agency, board, commission, officer, official or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government whose consent or approval is required as a prerequisite to (i) the continued uninterrupted operation of the Business, or (ii) the performance of any act or obligation or the observance of any agreement or condition of the Borrower under this Agreement or the other Loan Documents. (xxiv) The term "HOLDER" shall have the meaning assigned and ascribed -3- 8 to such term under Section 8.2 of this Agreement. (xxv) The term "INDEMNIFIED PARTY" shall have the meaning assigned and ascribed to such term under Section 8.5(c) of this Agreement. (xxvi) The term "INDEMNIFYING PARTY" shall have the meaning assigned and ascribed to such term under Section 8.5(c) of this Agreement. (xxvii) The term "INITIAL WARRANTS" shall mean warrants to purchase an aggregate of 714,285 shares of the Common Stock (allocated among the Lenders as set forth on Annex 1). (xxviii) The term "INITIAL WARRANT CERTIFICATE" shall mean the form of warrant certificate attached hereto as Exhibit B. (xxix) The Term "INITIAL WARRANT SHARES" shall mean the shares of Common Stock issuable upon exercise of the Warrants. (xxx) The term "LENDERS" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Agreement. (xxxi) The term "LIEN" shall mean any mortgage, deed of trust, security interest, pledge, lien, or other charge or encumbrance of any nature except Permitted Encumbrances. (xxxii) The term "LIQUIDATED DAMAGES" shall have the meaning assigned and ascribed to such term under Section 8.2 of this Agreement. (xxxiii) The term "LOAN" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Agreement. (xxxiv) The term "LOAN DOCUMENTS" shall mean any and all agreements, documents, certificates and instruments executed by the Borrower, and/or any other Person and delivered by the Borrower, and/or any other Person to the Lenders, or any of them, pursuant to and in connection with the Loan and this Agreement, including, without limitation, the Notes, the Warrant Certificates, the Security Agreement, and the Financing Statements, in each case as amended, supplemented, restated or otherwise modified from time to time in accordance with the provisions thereof. (xxxv) The term "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on: (x) the business, properties, operations, income, assets or condition, financial or otherwise, of the Borrower, or (y) the ability of the Borrower to perform, or the Lenders to enforce, any obligation or liability under the Loan Documents, or any of them. -4- 9 (xxxvi) The term "MATURITY DATE" shall mean February 7, 2002. (xxxvii) The term "MULTIEMPLOYER PLAN" shall mean any "multiemployer plan" within the meaning of Section 3(37) of ERISA. (xxxviii) The term "NOTES" shall mean those notes, each in the form attached hereto as Exhibit A dated the Closing Date, executed by the Borrower, as the maker, and delivered to each Lender, as payee, in the aggregate principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000), which Notes, collectively, evidence the Loan under this Agreement. (xxxix) The term "OBLIGATIONS" shall mean all obligations and liabilities of the Borrower, or any successor(s) thereof, owed to the Lenders, or any of them, in connection with the Loan, whether direct or indirect, absolute or contingent, joint or several, now or hereafter existing, due or to become due to or held by the Lenders, or any of them. (xxxx) The term "PBGC" shall mean the Pension Benefit Guaranty Corporation and any Person succeeding to any or all of its functions and duties under ERISA. (xxxxi) The term "PERMITTED ENCUMBRANCES" shall mean (a) Liens in favor of the Lenders; (b) Liens for taxes, assessments or other governmental charges not delinquent or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by the Borrower; (c) Liens disclosed in the financial statements referred to in Section 4.6 of this Agreement (including, without limitation, the Lien securing the Capital Indebtedness); (d) deposits or pledges of cash to secure obligations under worker's compensation, social security or similar laws, or under unemployment insurance; (e) deposits or pledges of cash to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds, utility deposits and other obligations of like nature arising in the ordinary course of such Borrower's business; (f) judgment Liens that have been stayed or bonded and mechanics, workers', landlord's, materialmen's or other like Liens arising in the ordinary course of such Borrower's business with respect to obligations which are not due or which are being contested in good faith by such Borrower; and (g) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided that (x) any such lien shall not encumber any other property of such Borrower and (y) the aggregate amount of Indebtedness secured by such Liens incurred as a result of such purchases during any fiscal year shall not exceed $5,000,000. (xxxxi) The term "PERSON" shall mean an individual, a partnership, a corporation, a trust, an unincorporated association, and a government or any -5- 10 department, agency or political subdivision thereof. (xxxxii) The term "PROPORTIONATE SHARE" with respect to any Lender shall, at and prior to Closing, mean the percentage set forth opposite the name of such Lender on Annex 1 and, thereafter at any time, shall mean the percentage of the aggregate principal amount then outstanding of all Notes represented by the Note or Notes held by such Lender. (xxxxiii) The term "REGISTRABLE SECURITIES" shall mean the Warrant Shares, which in any case (i) have not been resold pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act and (ii) may not be resold pursuant to Rule 144 under the Securities Act. For purposes of this Agreement, securities will be considered ineligible for resale pursuant to Rule 144 under the Securities Act unless the Borrower's transfer agent has accepted an instruction from the Borrower specifying that such securities are eligible for sale pursuant to Rule 144. The term "holder of Registrable Securities" includes any person who holds securities which are convertible into or exercisable for Registrable Securities. The terms "register", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. (xxxxiv) The term "REGISTRATION EXPENSES" shall mean all expenses to be incurred by the Borrower in connection with the Lenders' registration rights under Article VIII of this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Borrower and its independent certified public accountants, blue sky fees and expenses, reasonable fees and disbursements of counsel for the Lenders for a "due diligence" examination of the Borrower and review of the Registration Statement and related documents, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Borrower, which shall be paid in any event by the Borrower). (xxxxv) The term "REGISTRATION STATEMENT" shall have the meaning assigned and ascribed to such term under Section 8.2 of this Agreement. (xxxxvi) The term "REQUIRED LENDERS" shall mean those Lenders with a Proportionate Share in the aggregate exceeding 66-2/3%. (xxxxvii) The term "SEC DOCUMENTS" shall have the meaning ascribed and assigned to such term under Section 4.6 of this Agreement. -6- 11 (xxxxviii) The term "SECURITY AGREEMENT" shall mean that certain Security Agreement in the form attached hereto as Exhibit C, dated the Closing Date, whereby the Borrower has pledged, assigned, hypothecated, conveyed, transferred, given and granted to the Lenders, and each of them, a continuing pledge, of and security interest in all of the security described therein. (xxxxix) The term "SECURITIES ACT" shall mean the U.S. Securities Act of 1933, as amended from time to time, and any successor statute of similar import, together with the regulations promulgated thereunder by the Commission. (l) The term "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel for the Lenders, and each of them, not included within "Registration Expenses". (li) The term "SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement dated May 2, 2000 of the Borrower, as in effect on the date hereof. (lii) The term "SUBORDINATED NOTES" shall mean the Borrower's 8.25% Subordinated Convertible Notes due February 23, 2003 in the aggregate original principal amount of $17,000,000. (liii) The term "SUBORDINATION AGREEMENTS" shall mean the Subordination Agreements, dated the date hereof, executed by the Lenders, respectively, with respect to the Capital Indebtedness. (liv) The term "SUBSIDIARY" shall mean (i) any present or future corporation at least a majority of the outstanding voting stock, of which shall, at the time, be owned by the Borrower, by the Borrower and one or more Subsidiaries of the Borrower or by one or more Subsidiaries of the Borrower, or (ii) any other Person which is otherwise controlled by the Borrower and one or more Subsidiaries of the Borrower, directly or indirectly. For purposes hereof, outstanding voting stock shall be deemed to be capital stock of any class or classes, however designated, having ordinary voting power for the election of the members of the board of directors or other governing body of such corporation. (lv) The term "WARRANTS" shall mean the Initial Warrants and the Additional Warrants. (lvi) The term "WARRANT CERTIFICATES" shall mean the Initial Warrant Certificates and the Additional Warrant Certificates. (lvii) The term "WARRANT SHARES" shall mean the Initial Warrant Shares -7- 12 and the Additional Warrant Shares. ARTICLE II LOAN Section 2.1 LOAN. Subject to the satisfaction of the conditions precedent set forth in Section 3.1 hereof, each of the Lenders hereby agrees to make a loan to the Borrower in the amount of its Proportionate Share of the Loan. Any amounts repaid or prepaid hereunder or under the Notes may not be reborrowed by the Borrower. Section 2.2 NOTES. The obligation of the Borrower to repay all monies advanced by the Lenders, and each of them, to the Borrower in connection with the Loan shall be evidenced by the Notes, each in the form of Exhibit A annexed hereto, which the Borrower shall have duly executed and delivered to each Lender on the Closing Date. Each such Note shall (i) be dated the Closing Date, (ii) be registered in the name of the Lender to whom issued, (iii) have a principal sum equal to the amount advanced by such Lender to the Borrower, which shall be payable in the amounts and on the dates as provided for in Section 2.4 hereof and (iv) bear interest at such rates payable on the dates and in the manner provided for in Section 2.3 hereof. Section 2.3 INTEREST. Each Note shall bear interest computed daily until final repayment in full of said Note in accordance with Section 2.4 of this Agreement. Each Note shall bear an initial interest rate of twelve percent per annum (12%) for the period from and after the Closing Date through the six-month anniversary of the Closing Date, which shall increase to fourteen percent per annum (14%) for the period from and after the six-month anniversary of the Closing Date through the nine-month anniversary of the Closing Date, and shall thereafter increase by an additional two percent (2%) per annum at the end of each successive 90-day period (commencing on the nine-month anniversary of the Closing Date) until final repayment in full of said Note. Any such change in the interest rate charged on the Loan shall not affect or alter the terms and conditions of this Agreement and the Notes, all of which shall remain in full force and effect; provided, however, that in no event shall the interest charged on the Loan and the Notes ever exceed the lesser of (x) sixteen percent per annum (16%) or (y) that permitted by applicable usury law. Interest on the Loan and the Notes shall be due and payable on the Maturity Date and continuing thereafter until the Loan and the Notes are repaid in full. Section 2.4 REPAYMENT OF PRINCIPAL. Unless the Required Lenders have previously demanded payment therefor after the occurrence of an Event of Default in accordance with this Agreement and the Notes, the Loan shall be due and payable in full to the Lenders, and each of them, on the Maturity Date. -8- 13 Section 2.5 LATE CHARGES. In the event that any payment, including, without limitation, interest and/or principal, required to be made by the Borrower under this Agreement or the Notes shall not be received by any Lender within ten days after the same shall become due and payable, such Lender may charge, and if so charged, the Borrower shall pay, a late charge equal to five cents for each dollar of such delinquent payment for the purpose of defraying the expense incident to the handling of such delinquent payment. Section 2.6 OPTIONAL AND MANDATORY PREPAYMENT. (a) The Borrower shall have the right at any time to prepay the whole, or any part, of the unpaid principal amount of the Loan, without premium or penalty, upon the terms hereinafter set forth, and provided that interest on the principal amount thereof to be so prepaid accrued to the date of such prepayment shall be paid concurrently therewith; provided, however, that the Borrower shall not prepay the Loan, or any part thereof, unless such prepayment upon all the Notes is contemporaneously made, pro rata based upon the outstanding principal amount of the Notes, respectively. (b) Upon the consummation from time to time by the Borrower of any sale for cash of any debt or equity securities, or of any other financing transaction for borrowed money (other than capital leasing transactions or purchase money financings), and subject to the Subordination Agreements, the net proceeds thereof shall in each case forthwith be applied by the Borrower to the prepayment of the Loan, without premium or penalty, but together with all interest on the principal amount thereof to be so prepaid accrued to the date of such prepayment; it being understood and agreed that any prepayment made by the Borrower pursuant to this paragraph (b) shall be made upon all Notes contemporaneously, pro rata based upon the outstanding principal amount of the Notes, respectively. (c) Notices of prepayment shall be given by the Borrower to the Lenders, respectively, not less than five days prior to the date specified therein for prepayment. Upon giving of notice of prepayment as aforesaid, the Loan or portion thereof so specified for prepayment shall on the prepayment date specified in such notice become due and payable, and from and after the prepayment date so specified (unless the Borrower shall default in making such prepayment) interest on the principal of the Loan or portion thereof so specified for prepayment shall cease to accrue, and the principal of the Loan or portion thereof so specified for prepayment shall be paid by the Borrower as aforesaid. Section 2.7 SECURITY. As security for the due and punctual payment and performance of the obligations of the Borrower under the Notes, this Agreement and the other Loan Documents, the Borrower shall have duly executed and -9- 14 delivered to the Lenders a Security Agreement, in the form of Exhibit C annexed hereto, dated the Closing Date, and such other customary security related documents. Section 2.8 REPLACEMENT OF ANY NOTES. Upon receipt by the Borrower of evidence satisfactory to it of the loss, theft, destruction or mutilation of any Note, and (in case of loss, theft or destruction) of indemnity reasonably satisfactory to it, and upon surrender and cancellation of any of the Notes, if mutilated, the Borrower, upon reimbursement to it of all reasonable expenses incidental thereto, shall make and deliver to any Lender a new Note, of like tenor, in lieu of such Note. Any Note made and delivered in accordance with the provisions of this Section 2.8 shall be dated as of the Closing Date. Section 2.9 PAYMENTS AND COMPUTATIONS. All computations of interest under this Agreement and the Notes shall be made on the basis of a year of 360 days consisting of twelve months of 30 days each, in each case for the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable. Whenever any payment under the Notes shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest. All payments received by the Lenders, or any of them, shall be applied, first, to the payment of interest, fees and expenses, with any balance to the payment and reduction of principal. All payments made by the Borrower under the Notes shall be made irrespective of, and without any reduction for, any set-off or counterclaims. Notwithstanding any other provision contained in this Agreement, the Borrower shall not make any payment on account of principal of or interest on any Note unless payment is contemporaneously made on account of all Notes pro rata on the basis of the respective Proportionate Shares of the Lenders. Section 2.10 WARRANTS. In connection with the facilities provided hereunder, the Borrower shall, on the Closing Date, issue and deliver to each of the Lenders the number of Initial Warrants set forth opposite the name of such lender on Annex 1 (hereinafter with respect to all Lenders referred to as the "Initial Warrant Shares"). In addition, in the event the Borrower does not punctually satisfy any Note on or prior to the Maturity Date, the Borrower shall forthwith issue and deliver to the original holders thereof a number of additional warrants (hereinafter, with respect to all Lenders, referred to as the "Additional Warrants") to purchase shares of Common Stock (hereinafter with respect to all Lenders referred to as the "Additional Warrant Shares") equal to the number of Initial Warrants issued on the Closing Date to such original -10- 15 holder, such Additional Warrants to be evidenced by warrant certificates (hereinafter referred to, collectively, as the "Additional Warrant Certificates"), each registered in the name of such original holder and dated the Maturity Date, in the form of the Warrant Certificate (except that all such Additional Warrants shall be immediately exercisable, and provided that the terms of the Additional Warrants as aforesaid shall, for purposes of issuance thereof and without limiting the operation thereof, be subject to adjustment pursuant to Section 6 of the form of Warrant Certificate as if in effect from and after the Closing Date). ARTICLE III CONDITIONS PRECEDENT OF LENDING Section 3.1 BORROWING. The obligation of each of the Lenders to fund its Proportionate Share of the Loan shall be subject to the following conditions precedent, any and all of which may be waived by the Required Lenders, in their sole discretion, and each of which the Borrower hereby agrees to use its best efforts to satisfy: (i) the Notes, each dated the Closing Date, shall have been duly executed and delivered by the Borrower to the Lenders, respectively; (ii) an Initial Warrant Certificate, registered in the name of each Lender and representing the number of Initial Warrants set forth opposite the name of such Lender on Annex 1, dated the Closing Date, shall have been issued by the Borrower and delivered to such Lender; (iii) the Security Agreement, dated the Closing Date, and a sufficient number of the related Financing Statements, shall have been duly executed and delivered by the Borrower to the Lenders; (iv) each of the Lenders shall have received a certificate of the Secretary or an Assistant Secretary of the Borrower stating: (a) that attached thereto is a true and complete copy of the certificate of incorporation and by-laws of the Borrower, as well as the text of the corporate resolutions adopted by the Board of Directors of the Borrower authorizing the transactions contemplated by this Agreement and designating the officers who are authorized to execute this Agreement, the Notes and the Warrants; (b) that none of the same has been modified and all are in full force and effect; (c) that the individual signing this Agreement is a duly elected officer of the Borrower; and (d) that set forth thereon is a true specimen of the signature of each officer of the Borrower who is authorized to execute the Notes and the Warrant Certificates; and containing a certification by another officer of the Borrower as to the incumbency and signature of the Secretary or Assistant Secretary executing such certificate; (v) the representations and warranties of the Borrower contained under Article IV hereof shall be true and correct in all material respects at and as of the Closing Date with the same effect as though all such -11- 16 representations and warranties were made at and as of the time of the Closing Date (except for representations and warranties which are of a specific date or which relate to a specific period other than or not including the time of the Closing Date, as the case may be, and except for changes therein contemplated or permitted by this Agreement) and the Borrower shall have complied with all of its covenants contained in this Agreement; and there shall not exist any fact or circumstance which constitutes, or, with notice or passage of time or otherwise would constitute, an Event of Default; (vi) each of the Lenders shall have received an opinion of Greenberg Traurig, P.A., counsel to the Borrower, dated the Closing Date, in form satisfactory to the Required Lenders and to their respective counsel, in the form of Exhibit D annexed hereto; (vii) all consents, acknowledgements, approvals, permits and orders with respect to the transactions contemplated by the Loan Documents shall have been obtained; (viii) the Borrower shall have paid to Sanders Morris Harris all amounts then due under the financial advisory agreement dated May 2, 2000 between the Borrower and said firm, as confirmed pursuant to the letter of even date herewith; (ix) all dividends on the Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock accrued through and including June 30, 2000 shall have been paid in full; and any and all adjustments to the Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock and the Borrower's warrants issued in connection with the Series D Convertible Preferred Stock, and each of them, arising from events and circumstances through and including the Closing Date (including, without limitation, the transactions contemplated in this Agreement) shall have been effectuated and noticed to the holders of such securities; and (x) the Lenders shall have received such additional documents, instruments, certificates and searches, in form and substance satisfactory to the Lenders and counsel to the Lenders, as the Lenders may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BORROWER The Borrower hereby represents, warrants and covenants to each Lender that: Section 4.1 INCORPORATION. The Borrower is duly organized, validly -12- 17 existing and in good standing under the laws of the State of Florida and has full corporate power and authority to own or hold under lease the assets and properties material to the operation of the Business which it owns or holds under lease and to perform all of its obligations under the agreements material to the operation of the Business to which it is a party, including, without limitation, this Agreement, the Notes, the Warrant Certificates and the Security Agreement. The Borrower is in good standing in each other jurisdiction wherein the failure so to qualify would have a Material Adverse Effect. The copies of the certificate of incorporation and by-laws of the Borrower which have been delivered to the Lenders by the Borrower are complete and correct. Section 4.2 AUTHORIZATION. The execution and delivery by the Borrower of the Loan Documents to which it is a party, and each of them, the performance by the Borrower of its covenants and agreements under the Loan Documents to which it is a party, and each of them, and the consummation by the Borrower of the transactions contemplated by the Loan Documents to which it is a party, and each of them, have been duly authorized by all necessary corporate action. When executed and delivered by the Borrower, the Loan Documents, and each of them, shall constitute the valid and legally binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by bankruptcy, insolvency or other laws affecting generally the enforceability of creditors' rights and by limitations on the availability of equitable remedies. Section 4.3 CONFLICTS. Neither the execution and delivery of the Loan Documents, nor any of them, nor the consummation by the Borrower of the transactions contemplated in the Loan Documents, nor any of them, will violate any provision of the certificate of incorporation or by-laws of the Borrower or any law, rule, regulation, writ, judgment, injunction, decree, determination, award or other order of any court, government, or governmental agency or instrumentality, domestic or foreign, binding upon the Borrower, or except as set forth under Schedule 4.3 annexed hereto, conflict with or result in any breach of or event of termination under any of the terms of, or the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature pursuant to, the terms of any contract (except for the liens created by the Security Agreement) or agreement to which the Borrower is a party or by which the Borrower or any of its properties or assets is bound which in any case would cause a Material Adverse Effect. Without limiting the generality of the foregoing, the consummation by the Borrower of the transactions contemplated by this Agreement will not result in violation by the Borrower of any covenant contained in the Subordinated Notes, and the Subordinated Notes and the amounts payable thereunder, including principal, premium, if any, and accrued interest shall be subordinate and junior to the Loan, and all interest thereon, and all other amounts due under this Agreement. -13- 18 None of the transactions contemplated in this Agreement (including, without limitation, the use of the proceeds of the Loan) violates, shall violate or shall result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System. Section 4.4 CAPITALIZATION. (a) The authorized capital stock of the Borrower consists of (i) 25,000,000 shares of Common Stock and (ii) 1,500,000 shares of preferred stock, of which (A) 150,000 shares have been designated Series B Convertible Preferred Stock, (B) 150,000 shares have been designated Series C Convertible Preferred Stock and (C) 150,000 shares have been designated Series D Convertible Preferred Stock. As of the date hereof and at the Closing Date (but excluding the effect of issuance of dividends on Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock as of June 30, 2000), 4,742,923 shares of Common Stock are and will be issued and outstanding, 53,122 shares of Series B Convertible Preferred Stock are and will be issued and outstanding, 70,947 shares of Series C Convertible Preferred Stock are and will be issued and outstanding and 20,000 shares of Series D Convertible Preferred Stock will be issued and outstanding, respectively. All of the outstanding shares of the capital stock of the Borrower are validly issued, fully paid and non-assessable. As of the date hereof and at the Closing Date, the following additional securities are and will be issued and outstanding: (i) options to purchase an aggregate of 627,335 shares of Common Stock, (ii) warrants to purchase 1,202,922 shares of Common Stock, including the Initial Warrants issued pursuant to the terms of this Agreement (but excluding the effect of anti-dilution adjustments in the warrants issued in connection with the Series D Preferred Stock arising from consummation of the transactions hereunder) and (iii) subordinated debentures convertible into an aggregate of 1,085,094 shares of Common Stock. There are no other scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights exchangeable or convertible into, any shares of capital stock of the Borrower, or contracts, commitments, understandings or arrangements by which the Borrower is or may become bound to issue additional shares of capital stock of the Borrower or options, warrants, scrip, rights to subscribe to, or commitments to purchase or acquire, any shares, or securities or rights convertible into shares, of capital stock of the Borrower (except as contemplated by this Agreement). No event has occurred prior to the date hereof which, subsequent to the date hereof, will cause any adjustment in any conversion or exercise price or ratio with respect to any such securities pursuant to any anti-dilution provisions thereunder, nor as a result of any such event, will the number of -14- 19 shares of capital stock issuable upon such conversion or such exercise, as the case may be, be subject to adjustment. No such conversion or exercise price or ratio will be subject to adjustment as a consequence of the consummation of the transactions contemplated by this Agreement, nor, as a consequence of such consummation, will the numbers of shares of capital stock issuable upon such conversion or such exercise, as the case may be, be subject to adjustment, except that as a consequence of consummation of the transaction hereunder the Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock, and the warrants issued in connection with the Series D Preferred Stock, will be adjusted as herein set forth. (b) The issuance of the Warrants has been duly authorized and, upon issuance the Warrants shall be validly issued, fully-paid and non-assessable and entitled to the rights set forth in the Warrant Certificates. The Warrant Shares have been duly authorized and reserved for issuance and upon exercise of the Warrants, will be validly issued, fully-paid and non-assessable, free and clear of any Liens created by the Borrower and not subject to any preemptive rights or adverse claims, and the holders thereof shall be entitled to all rights and preferences accorded to a holder of Common Stock. Section 4.5 SUBSIDIARIES. The Borrower does not, directly or indirectly, beneficially or legally own or hold any capital stock or other proprietary interest in any corporation, partnership, joint venture, business trust or other legal entity. Section 4.6 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Borrower has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in addition to one or more registration statements and amendments thereto heretofore filed by the Borrower with the Commission (all of the foregoing including filings incorporated by reference therein being referred to herein as the "SEC Documents"). The Borrower has delivered or made available to the Lenders true and complete copies of all SEC Documents (including, without limitation, proxy information and solicitation materials and registration statements) filed with the Commission since September 27, 1996 and all annual SEC Documents filed with the Commission since September 27, 1996. Without limiting any other representation or warranty herein, the Borrower has not provided the Lenders with any information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Borrower but which has not been so disclosed. As of their respective dates, the SEC Documents (as amended by any amendments filed prior to the Closing Date and provided to the Lenders) complied in all material respects with the requirements of the Securities Act and the Exchange Act, and other federal, state and local laws, rules and regulations applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the -15- 20 statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Borrower included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with Generally Accepted Accounting Principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Borrower as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Section 4.7 TAXES. Except as set forth on Schedule 4.7 annexed hereto, the Borrower has filed or caused to be filed all federal, state, municipal, foreign and other tax returns, reports and declarations, or extensions therefor, required to be filed by it, so as to prevent any valid lien, charge or encumbrance of any nature on its assets or properties and, except as set forth on Schedule 4.7 annexed hereto, has paid or shall pay all taxes which have been or shall become due with respect to the periods covered by said returns or pursuant to any assessment received by it in connection therewith, which lien, charge, encumbrance or failure to pay would, individually, or in the aggregate, have a Material Adverse Effect. Except as set forth on Schedule 4.7 annexed hereto, all assessments and charges (including penalties and interest, if any) related to periods ended on or before December 31, 1999 have been or will be paid by the Borrower, including any necessary adjustments with state and local tax authorities, the failure to pay which would, individually, or in the aggregate, have a Material Adverse Effect, and except as set forth on Schedule 4.7 annexed hereto, no material deficiency in payment of any taxes for any period has been asserted by any taxing authority which remains unsettled at the date hereof. Section 4.8 TITLE; CREDIT ARRANGEMENTS; DEFAULTS. The Borrower has good, valid, and marketable title to all assets and properties owned by it and material to its business, in each case free and clear of all Liens other than (i) Liens created pursuant to the Capital Indebtedness, (ii) Liens in favor of the Lenders, and (iii) Liens specifically permitted by the Lenders in writing, and, without limiting the foregoing, the assets and properties owned by the Borrower and shown on the consolidated balance sheet as of and at March 31, 2000 included in the SEC Documents which are, individually, or in the aggregate, material to the Borrower's business or condition, are owned by the Borrower, in each case free and clear of all Liens other than (i) Liens created pursuant to the Capital Indebtedness, (ii) Liens in favor of the Lenders, and (iii) Liens specifically permitted by the Lenders in writing. The Borrower leases or owns all material properties and assets necessary for the operation of its business as currently conducted. Set forth on Schedule 4.8 attached hereto is a list of all contracts, agreements, mortgages, arrangements (written or oral), and other -16- 21 documents to which the Borrower is a party or by which the Borrower or any of its assets or properties is or may be bound, with respect to obligations of the Borrower for borrowed money or guaranties therefor, or any restriction on the repayment of indebtedness incurred or on the payment of dividends on any securities of any such entity. No event has occurred, or, is alleged to have occurred, which constitutes or with lapse of time or giving of notice or both, would constitute a default or a basis for a claim of FORCE MAJEURE or other claim of excusable delay or non-performance under any of the foregoing; and no such event has occurred, or is alleged to have occurred, under any other contract, agreement, license, lease, or other document to which the Borrower is a party, which would, individually or in the aggregate, have a Material Adverse Effect. Section 4.9 EMPLOYEE BENEFIT PLANS. All Benefit Plans and all Multiemployer Plans in which the employees of the Borrower participate comply in all material respects with all requirements of the Department of Labor and the Internal Revenue Service promulgated under ERISA and with all other applicable law. The Borrower does not have any employees covered by any Multiemployer Plan. The Borrower has not taken or failed to take any action with respect to the Benefit Plans which might create any liability on the part of the Borrower which, individually, or in the aggregate, would have a Material Adverse Effect. Each "fiduciary" (within the meaning of section 3(21)(A) of ERISA) as to each Benefit Plan and, to the best of the knowledge of the Borrower, as to each Multiemployer Plan, has complied in all material respects with the requirements of ERISA and all other applicable law in respect of each such Plan. In addition, as of the date hereof: (i) No Defined Benefit Plan or, to the best of the knowledge of the Borrower, any Multiemployer Plan, has incurred an "accumulated funding deficiency" (within the meaning of section 412(a) of the Code), whether or not waived; (ii) No "reportable event" (within the meaning of section 4043 of ERISA) has occurred with respect to any Benefit Plan or, to the best of the knowledge of the Borrower, any Multiemployer Plan; there have been no terminations of any Defined Benefit Plan or, to the best of the knowledge of the Borrower, any Multiemployer Plan, or any related trust; and no such termination of any of the foregoing reasonably can be expected to occur; (iii) No "prohibited transaction" (within the meaning of section 406 of ERISA or section 4975(c) of the Code) has occurred with respect -17- 22 to any Benefit Plan, or to the best of the knowledge of the Borrower, any Multiemployer Plan; (iv) The aggregate present value of accrued benefits of the Defined Benefit Plans is not more than the aggregate value of the assets of such plans; there has been no withdrawal liability incurred by the Borrower with respect to any Multiemployer Plans; and the Borrower has not withdrawn (partially or totally within the meaning of ERISA) from any Multiemployer Plan; and (v) Other than claims in the ordinary course for benefits with respect to any Benefit Plan, or, to the best of the knowledge of the Borrower, any Multiemployer Plan, there are no actions, suits, or claims pending with respect to any Plan or any circumstances known to the Borrower which might give rise to any such action, suit, or claims, which, individually, or in the aggregate, would have a Material Adverse Effect. Section 4.10 DISPUTES AND LITIGATION. There is no action, suit, proceeding, or claim, pending or, to the knowledge of the Borrower, threatened, and no investigation by any court or government or governmental agency or instrumentality, domestic or foreign, pending or, to the best of the knowledge of the Borrower, threatened, against the Borrower before any court, government or governmental agency or instrumentality, domestic or foreign, nor is there any outstanding order, writ, judgment, stipulation, injunction, decree, determination, award, or other order of any court or government or governmental agency or instrumentality, domestic or foreign, against the Borrower, in each case which would have, individually or in the aggregate, a Material Adverse Effect. Without limiting any other representation or warranty herein, all claims, actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against the Borrower before any court, governmental agency or instrumentality, domestic or foreign, are covered by, and within the limits of coverage of, insurance maintained by the Borrower. The use by the Borrower of its assets and the conduct of its business does not, to its knowledge, involve infringement or claimed infringement of any patent, trademark, servicemark, tradename, copyright, license or similar right. Section 4.11 COMPLIANCE WITH LAW; LICENSES; FRANCHISES; ENVIRONMENTAL LAWS. (a) The Borrower is not, and is not directly or indirectly controlled by or acting on behalf of any party which is, an "investment company" within the meaning of the U.S. Investment Company Act of 1940, as amended. (b) The Borrower has (or has made timely application for) all franchises, licenses, permits and other governmental and non-governmental -18- 23 approvals necessary to enable it to carry on its business and operations as currently conducted, the failure to have which would, individually or in the aggregate, have a Material Adverse Effect. All such franchises, licenses, permits, and governmental and other approvals are in full force and effect, there has been no material default or breach thereunder, and there is no pending or, to the best of the knowledge of the Borrower, threatened proceeding under which any may be revoked, terminated or suspended. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, will not conflict with, contravene or terminate any such franchises, licenses, permits or governmental or other approvals. The Borrower has not violated, nor is alleged to have violated, any law, rule, regulation, judgment, stipulation, injunction, decree, determination, award or other order of any government, or governmental agency or instrumentality, domestic or foreign, binding upon the Borrower which violation, individually or in aggregate, might have a Material Adverse Effect. (c) Neither the consummation of the transactions contemplated by this Agreement nor, to the knowledge of the Borrower, any real property utilized by the Borrower nor, to the knowledge of the Borrower, any condition thereon violates any Environmental Laws, other than any such violations which would not have a Material Adverse Effect, and no provisions of any Environmental Laws or regulations in any way affect the consummation of the transactions contemplated by this Agreement. Section 4.12 USE OF PROCEEDS. The Borrower shall apply the proceeds of the Loan solely in accordance with Schedule 4.12 annexed hereto. Section 4.13 PRINCIPAL EXCHANGE/MARKET. The principal market on which the Common Stock is currently traded is Nasdaq. Section 4.14 NO MATERIAL ADVERSE CHANGE. Since March 31, 2000, the date through which the most recent quarterly report of the Borrower on Form 10-QSB has been prepared and filed with the Commission, a copy of which is included in the SEC Documents, no event which had or is likely to have a Material Adverse Effect has occurred or exists with respect to the Borrower. Section 4.15 NO UNDISCLOSED LIABILITIES. The Borrower does not have any liabilities or obligations not disclosed in the SEC Documents other than those liabilities incurred in the ordinary course of their respective businesses since March 31, 2000 or liabilities or obligations, individually or in the aggregate, which do not or would not have a Material Adverse Effect on the Borrower. Section 4.16 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or -19- 24 circumstances has occurred or events with respect to the Borrower, or its business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement of the Borrower which has not been publicly announced or disclosed. Section 4.17 BROKERS. The Borrower has taken no action which would give rise to any claim by any Person (other than Sanders Morris Harris) for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. Section 4.18 PRIVATE PLACEMENT. The Borrower has heretofore given each Lender access to all information which it has requested regarding the business and affairs of the Borrower. Neither the Borrower nor anyone acting on its behalf has directly or indirectly offered any shares of Common Stock or any other securities for sale to, or solicited any offer to buy any of the same from, anyone so as to bring the offer, sale, issuance and/or delivery of the Notes, the Warrants or the Warrant Shares, or any of them, within the registration requirements of the Securities Act of 1933, as amended or any applicable state securities laws. Neither the offer, sale, issuance and/or delivery of the Notes, the Warrant or the Warrant Shares, nor any of them, in accordance with the terms of this Agreement will result in any contravention of any applicable federal or state securities laws, and will not require any approval or consent of any governmental authority, commission or agency. Section 4.19 DISCLOSURE. No representation or warranty made under any provisions of the Loan Documents, or any of them, and none of the information furnished by the Borrower set forth herein, in the exhibits or schedules hereto or in any document specifically referenced in this Agreement and delivered to any of the Lenders, or any authorized representative of any of the Lenders, pursuant to this Agreement, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE LENDERS Each of the Lenders, severally, represents, warrants and covenants to the Borrower that: Section 5.1 FORMATION. Such Lender is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, and has full power and authority to acquire its Proportionate Share of the Loan, the Warrants, and the Warrant Shares, and to perform its obligations under the Loan Documents, and each of them. -20- 25 Section 5.2 AUTHORIZATION. The execution and delivery of the Loan Documents, and each of them, by such Lender, the performance by such Lender of its covenants and agreements under the Loan Documents, and each of them, and the consummation by such Lender of the transactions contemplated by the Loan Documents, and each of them, have been duly authorized by all necessary action. When executed and delivered by such Lender, the Loan Documents, and each of them, will constitute the valid and legally binding obligations of such Lender enforceable against such Lender in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, or other laws affecting generally the enforceability of creditors' rights and by limitations on the availability of equitable remedies. Section 5.3 CONFLICTS. Neither the execution and delivery of the Loan Documents, nor any of them, nor the consummation of the transactions contemplated in the Loan Documents, nor any of them: will violate any provision of the organizational documents of such Lender or any law, rule, regulation, writ, judgment, injunction, decree, determination, award, or other order of any court, government or governmental agency or instrumentality, domestic or foreign, binding upon such Lender; or conflict with or result in any breach of any of the terms of, or constitute a default under or result in the termination of or the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature pursuant to, the terms of any contract or agreement to which such Lender is a party or by which such Lender or any of its assets and properties is bound, which breach, default, termination, creation, imposition, or other charge or encumbrance would, individually or in the aggregate, have a material adverse impact on the ability of such Lender to consummate the transactions contemplated by the Loan Documents. Section 5.4 PRIVATE PLACEMENT. (a) Without limiting the scope of the representations and warranties of the Borrower set forth in Article IV of this Agreement, such Lender acknowledges that, at its request, it has received certain information from the Borrower and that it has had the opportunity to ask representatives of the Borrower questions and receive answers in connection with the transactions contemplated hereby, and so as to verify the accuracy of the information so received. Each Lender acknowledges that an investment in the Borrower involves a high degree of risk. Such Lender is an "accredited investor" as defined under Regulation D promulgated by the Commission. (b) Each Lender is acquiring the Warrants for its own account and not with a view to distribution in violation of any securities laws. Each Lender does not have any present intention to sell the Warrants or the Warrant -21- 26 Shares and does not have any present arrangement (whether or not legally binding) to sell the Warrants to or through any person or entity; provided, however, that by its representations and warranties herein, each Lender does not agree to hold the Warrants or the Warrant Shares for any minimum or other specific term and reserves the right to dispose of the Warrants or the Warrant Shares at any time in accordance with federal and state securities laws applicable to such disposition. ARTICLE VI CERTAIN COVENANTS Section 6.1 GENERAL COVENANTS. The Borrower covenants and agrees with the Lenders, and each of them, that, until the Maturity Date and thereafter for as long as any portion of the Loan shall remain outstanding and until the full and final payment of the Loan: (a) The Borrower shall punctually pay or cause to be paid the principal of and interest on the Loan according to the terms hereof and of the Notes. (b) The Borrower shall comply with and perform each and every covenant contained in the Security Agreement. (c) Contemporaneously with the formation or acquisition of any Subsidiary, the Borrower shall cause such Subsidiary to guarantee the Loan, and to join in the Security Agreement in order to secure such guaranty, in each case in form and substance in all respects satisfactory to the Required Lenders. (d) From and after the satisfaction or discharge of the Capital Indebtedness, the Borrower shall, at the request of the Required Lenders, enter into an amendment to the Security Agreement in form and substance satisfactory to the Required Lenders, to add to the Collateral thereunder all goodwill, know-how, technology, trade secrets, computer programs, customer lists, tradenames, tradename rights, trademarks, trademark rights, trademark applications, service marks, patents, patent rights, patent applications, copyrights and copyright applications, and all licenses and products in connection with any of the foregoing, all licenses, permits, agreements of any kind providing for the use, possession or authority to use or possess property of others or providing for others to use or possess or have authority to use or possess property of the Borrower, and all recorded data of any kind or nature regardless of the medium of recording, including, without limitation, all software, writings, plans, drawings, blueprints, specifications and schematics, all equipment, and all fixtures. (e) Except for the consolidation of a Subsidiary with, or merger of a Subsidiary into, another Subsidiary or the Borrower, the Borrower shall and shall cause each Subsidiary to do or cause to be done all things necessary or appropriate to preserve and keep in full force and effect its -22- 27 corporate existence, rights and material franchises, and use its best efforts to qualify as a foreign corporation entitled to do business in every jurisdiction in which the failure so to qualify would, individually or in the aggregate, have a Material Adverse Effect. (f) The Borrower shall not, nor permit any Subsidiary to, enter into any transaction described under clauses (i) through (iv), inclusive, of Section 2.3(b) of the Shareholders Agreement, without the prior written consent of the Required Lenders (which shall not unreasonably be withheld). (g) The Borrower shall not modify, amend, increase or extend the Capital Indebtedness nor the documents in evidence thereof, without the prior written consent of the Required Lenders (which shall not be unreasonably withheld). Section 6.2 FINANCIAL AND OTHER INFORMATION. The Borrower covenants and agrees with each Lender that, until the Maturity Date and thereafter for as long as any portion of the Loan shall remain outstanding and until the full and final payment of the Loan, the Borrower shall furnish to each Lender: (a) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, unaudited balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and unaudited statements of operations and cash flows for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter (all in reasonable detail and with all notes and supporting schedules), certified by the chief financial officer of the Borrower as presenting fairly the financial condition of the Borrower and the Subsidiaries as of the dates and for the periods indicated and as having been prepared in accordance with Generally Accepted Accounting Principles consistently applied, except as may be otherwise disclosed in such financial statements or the notes thereto; provided that the delivery within the time periods specified above of the Borrower's Quarterly Report on either Form 10-QSB or 10-Q prepared in compliance with the requirements therefor and filed with the Commission shall be deemed to satisfy the requirements of this Section 6.2(a); (b) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, audited consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such year and audited consolidated statements of operations, cash flows and changes in stockholders' equity for such year (all in reasonable detail and with all notes -23- 28 and supporting schedules), certified without qualification by KPMG Peat Marwick LLP or such other independent public accountants satisfactory to the Required Lenders, as presenting fairly the financial condition of the Borrower and the Subsidiaries as of the dates and for the periods indicated and as having been prepared in accordance with Generally Accepted Accounting Principles consistently applied, except as may be otherwise disclosed in such financial statements or the notes thereto; provided that the delivery within the time period specified above of the Borrower's Annual Report on either Form 10-KSB or 10-K prepared in compliance with the requests therefor and filed with the Commission shall be deemed to satisfy the requirements of this Section 6.2(b); (c) concurrently with the financial statements furnished pursuant to clauses (a) and (b) of this Section 6.2, a certificate of the chief executive officer or the chief financial officer of the Borrower stating that no Event of Default hereunder and no event or act which, with the giving of notice or the passage or lapse of time, or both, would constitute such an Event of Default or other event shall exist, specifying all such events, and the circumstances thereof, and the steps if any being taken to remedy the same; (d) promptly upon their becoming available, copies of all financial statements, reports, notices, proxy statements and other communications sent by the Borrower to stockholders or to creditors generally, and copies of each regular or periodic report and any registration statements, prospectuses or written communication (other than transmittal letters) filed by the Borrower with the Commission or any successor agency; and with such other information relevant to the financial condition, properties and operations of the Borrower or any of the Subsidiaries as any Lenders may from time to time reasonably request; and (e) prompt written notice after any officer of the Borrower knows or has reason to know that: (i) a default or an Event of Default hereunder, or any condition, event or act which with the giving of notice or the passage or lapse of time, or both, would constitute such an Event of Default, has occurred and is continuing, together with a specification of the same and the steps if any being taken to remedy the same; or (ii) any other circumstances or event has or is reasonably likely to have a Material Adverse Effect. ARTICLE VII EVENTS OF DEFAULT Section 7.1 EVENTS OF DEFAULT. The entire unpaid principal amount of the Loan, together with all accrued interest thereon, at the option of the Required Lenders exercised by notice to the Borrower, shall forthwith become and be due and payable if any one or more of the following events (herein called "Events of Default") shall have occurred (for any reason whatsoever and whether -24- 29 such happening shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) and be continuing at the time of such notice, that is to say: (a) if default shall be made in the due and punctual payment of the principal of or interest on the Loan when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, and such default shall have continued for a period of ten days; (b) if any representation or warranty made by the Borrower in any of the Loan Documents shall prove to have been false, incorrect or misleading in any material respect on the date as of which is made; (c) if default shall be made in the performance or observance of any of the other covenants, agreements or conditions of the Borrower contained in this Agreement, the Notes or in any other Loan Document, and such default shall have continued for a period of 30 days after notice thereof by the Required Lenders to the Borrower; (d) if this Agreement, the Notes or any other Loan Document shall cease to be enforceable in accordance with its terms against the Borrower; (e) if (i) the Borrower or any Subsidiary shall default beyond any period of grace provided with respect thereto in the payment of principal of, premium, if any, or interest on any obligation in an amount in excess of $250,000 in respect of borrowed money when due, whether by acceleration or otherwise (including, without limitation, in connection with the Capital Indebtedness or the Subordinated Notes); or (ii) the Borrower or any Subsidiary shall default in the performance or observance of any other agreement, term or condition contained in such obligation or in any agreement under which any such obligation is created, if the effect of any such default is to cause or permit the holder or holders of such obligations (or a trustee on behalf of such holder or holders) to cause such obligation to become due prior to the date of its stated maturity, unless, in the case of each of (i) and (ii), such holder or holders or trustee shall have waived such default after its occurrence or unless such holder or holders or trustee shall have failed to give any notice, or take any other action, required to create an event of default thereunder; (f) if final judgment for the payment of money in excess of $250,000 shall be rendered by a court of record against the Borrower or any Subsidiary and not be covered by insurance maintained by the Borrower or such -25- 30 Subsidiary, and the Borrower or such Subsidiary, respectively, shall not discharge the same or provide for its discharge in accordance with its terms, or shall not procure a stay of execution thereon within 30 days from the date of entry thereof and, within the period during which execution of such judgment shall have been stayed, appeal therefrom, and cause the execution thereof to be stayed during such appeal; (g) if the Borrower or any Subsidiary shall: (i) admit in writing its inability to pay its debts generally as they become due; (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency act; (iii) make an assignment for the benefit of creditors; (iv) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property; or (v) file a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State, district or territory thereof; (h) if a court of competent jurisdiction shall enter, except at the direct or indirect request of the Lenders, an order, judgment, or decree appointing, without the consent of the Borrower or any Subsidiary, a receiver of the Borrower or any Subsidiary, respectively, or of the whole or any substantial part of its property, or approving a petition filed against it seeking reorganization or arrangement of the Borrower or any Subsidiary under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State, district or territory thereof, or any other jurisdiction, and such order, judgment or decree shall not be vacated or set aside or stayed within 60 days from the date of entry thereof; or (i) if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Borrower or any Subsidiary or of the whole or any substantial part of its property and such custody or control shall not be terminated or stayed within 60 days from the date of assumption of such custody or control. Section 7.2. ENFORCEMENT. In the case any one or more of the Events of Default specified in Section 7.1 hereof shall have occurred and be continuing, the Lenders, or any of them, may proceed to protect and enforce their respective -26- 31 rights either by suit in equity and/or by action at law, whether for the specific performance of any covenant or agreement contained in this Agreement, its Note or its rights under any other Loan Document, or the Required Lenders may proceed to enforce the payment of all Obligations or to enforce any other legal or equitable right of the Lenders. The Borrower hereby expressly waives presentment, demand or notice of any kind in connection with the exercise by the Lenders, or any of them, of their respective rights hereunder, except as explicitly provided herein. In the event an Event of Default shall have occurred and any holder of a Note shall employ attorneys, or incur other costs and expenses for the collection of payments due or to become due, or for the enforcement or performance or observance of any obligation or agreement of the Borrower, the Borrower agrees that it will pay to such holder, on demand, the reasonable fees of such attorney together with all other costs and expenses incurred by such holder. Section 7.3 WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES ANY AND ALL RIGHTS THAT IT MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE OR OTHER JURISDICTION, TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN THE BORROWER, THE LENDERS OR THEIR SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. IT IS INTENDED THAT SAID WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR PROCEEDING. -27- 32 ARTICLE VIII REGISTRATION Section 8.1 REGISTRATION AND LISTING. Until the earlier of (i) such time as the Lenders or their respective assigns no longer own Registrable Securities or (ii) the expiration of the Effectiveness Period, the Borrower will cause the Common Stock to continue to be registered under Section 12(g) of the Exchange Act, will comply in all respects, with its reporting and filing obligations under the Exchange Act, and will not take any action or file any document (whether or not permitted by the Exchange Act or the rules thereunder) to terminate or suspend such reporting and filing obligations. The Borrower shall take further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities, the Borrower shall deliver to such holder a written statement as to whether it has complied with such information and requirements. Until the earlier of (i) such time as the Lenders or their respective assigns no longer own Registrable Securities or (ii) the expiration of the Effectiveness Period, the Borrower shall use its reasonable business efforts to continue the listing or trading of the Common Stock on Nasdaq, the Nasdaq National Market or a principal exchange and comply in all respects with the Borrower's reporting, filing and other obligations under the bylaws or rules of Nasdaq and any exchange or market on which shares of the Common Stock are then traded. Section 8.2 REGISTRATION REQUIREMENTS. The Borrower shall use its reasonable business efforts to effect the registration of the Registrable Securities (including without limitation the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as would permit or facilitate the resale or distribution of all the Registrable Securities in the manner (including manner of sale) and in all states reasonably requested by the holder thereof (each a "Holder"). Such reasonable business efforts by the Borrower shall include the following: (a) the Borrower shall, as expeditiously as reasonably possible after the Closing Date: (i) Prepare and file a registration statement with the Commission pursuant to Rule 415 under the Securities Act on such appropriate registration form of the Commission as shall be reasonably selected by the Borrower covering the Registrable Securities -28- 33 (hereinafter referred to as a "Registration Statement") within 45 days following the Closing Date. Thereafter, the Borrower shall use its reasonable business efforts to cause such Registration Statement to be declared effective by the Commission within 90 days following the Closing Date. In the event that such Registration Statement is not declared effective within 90 days following the Closing Date, there shall be a 30 day grace period. The Borrower shall use its reasonable best efforts to cause the Registration Statement to become effective during this 30 day grace period, if applicable. In the event that such Registration Statement has not been declared effective within 120 days from the Closing Date, then the Borrower shall, until the Registration Statement is declared effective, pay in cash to the Lenders, and each of them, an amount equal to 2% of the Loan then outstanding (hereinafter referred to as the "Liquidated Damages") advanced by such Lender for each 30 day period, or part thereof, beginning on the 121st day following the Closing Date (hereinafter referred to as the "Default Period") that the Registration Statement has not been declared effective; provided, however, that the Default Period shall terminate and Liquidated Damages shall cease to accrue on the date upon which all such Registrable Securities may be immediately sold under Rule 144 in the reasonable opinion of counsel to the Borrower (provided that the Borrower's transfer agent has accepted an instruction from the Borrower to such effect). If any applicable Default Period is less than 30 days such cash payment shall be on a pro rata basis. Such cash payment shall be calculated by the Borrower on the earlier of (i) the effective date of such Registration Statement or (ii) the last day of each Default Period, and a check in lawful money of the United States of America shall be sent within three business days of such calculation to each of the Lenders. Following the initial effective date of such Registration Statement, Liquidated Damages shall also be payable to each of the Lenders by the Borrower for periods (in excess of the time period in which the Borrower is required to file a Current Report on Form 8-K) during which the Registration Statement does not remain effective; provided, however, that such Liquidated Damages shall not be payable by the Borrower in the event that all such Registrable Securities may be immediately sold by the Lenders pursuant to Rule 144. Notwithstanding -29- 34 the foregoing, if the Default Period commences from the failure of the Borrower to cause to become effective the Registration Statement solely by reason of the failure of any Lender to provide such information as (i) the Borrower may reasonably request from such Lender to be included in the Registration Statement or (ii) the Commission or Nasdaq may request in connection with such Registration Statement, the Borrower shall not be required to pay such Liquidated Damages to such Lender during the period of delay attributable to such Lender's failure. The Borrower and the Lenders hereby acknowledge and agree that it may be difficult, if not impossible, to determine with any reasonable accuracy the actual damages arising from the failure to secure effectiveness of the Registration Statement by the time hereinbefore specified, or to maintain the Registration Statement thereafter, and that the amount of the Liquidated Damages is a reasonable estimate thereof, provided that payment thereof shall in no manner be construed as impairing the right of the Lenders, and each of them, to require specific performance of this Agreement. (ii) Prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement and notify each of the Lenders of the filing and effectiveness of such Registration Statement and any amendments or supplements. (iii) Furnish to each of the Lenders such number of copies of a current prospectus conforming with the requirements of the Securities Act, copies of the Registration Statement, any amendment or supplement thereto and any documents incorporated by reference therein and such other documents as each of the Lenders may reasonably require in order to facilitate the disposition of Registrable Securities owned by each of the Lenders. (iv) Use its best efforts to register and qualify the securities covered by such Registration Statement under such other securities or "Blue Sky" laws of such jurisdictions as shall be reasonably requested by each of the Lenders; provided that the Borrower shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (v) Notify each of the Lenders immediately of the happening of any event as a result of which the prospectus (including any supplement thereto or thereof) included in such Registration Statement, as then in effect, includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and use its best efforts to promptly update and/or correct such prospectus. (vi) Notify each of the Lenders immediately of the issuance by the Commission or any state securities commission or agency of any stop order suspending the effectiveness of the Registration -30- 35 Statement or the initiation of any proceedings for that purpose. The Borrower shall use its reasonable best efforts to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time. (vii) Permit a single firm of counsel, designated by the Lenders, to review the Registration Statement and all amendments and supplements thereto within a reasonable period of time prior to each filing, and shall not file any document in a form to which such counsel reasonably objects. (viii) Use its reasonable business efforts to list the Registrable Securities covered by such Registration Statement with all securities exchange(s) and/or markets on which the Common Stock is then listed, and prepare and file any required filings with the National Association of Securities Dealers, Inc. or any exchange or market where the Common Stock is traded. (ix) Otherwise use its reasonable business efforts to comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable, earnings statements covering a period of twelve months beginning with three months after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. (b) The Borrower shall make available for inspection by the Lenders and their representative(s), any underwriter participating in any disposition pursuant to a Registration Statement, and any attorney or accountant retained by the Lenders or underwriter, all financial and other records customary for purposes of the Lender's due diligence examination of the Borrower and all SEC Documents filed subsequent to the Closing Date, pertinent corporate documents and properties of the Borrower, and cause the Borrower's officers, directors and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with such Registration Statement, provided that such parties agree to keep such information confidential. Section 8.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance with registration pursuant to this Article VIII shall be borne by the Borrower, and all Selling Expenses of any Lender shall be borne by such Lender. Section 8.4 REGISTRATION PERIOD. In the case of the registration effected by the Borrower pursuant to this Article VIII, the Borrower will use its reasonable business efforts to keep such registration effective (hereinafter -31- 36 referred to as the "Effectiveness Period") until the earliest to occur of (a) two years from the date of exercise of the last Warrant to be exercised prior to the expiration thereof, provided that, without limiting any provision of Section 8.2(a)(i), the Borrower may suspend the effectiveness of the Registration Statement if its Board of Directors determines, upon advice of counsel, that in order to maintain effectiveness of the Registration Statement, the Borrower would be required to disclose a significant corporate development which disclosure would have a material effect on the Borrower; PROVIDED, HOWEVER, that the period of time which such Registration Statement is required to be effective shall be increased by the number of days that the Registration Statement's effectiveness was suspended, if any, (b) the date on which the Lenders have completed the sale or distribution described in the Registration Statement relating thereto, or (c) the date on which such Registrable Securities may be sold under Rule 144(k) in the reasonable opinion of counsel to the Borrower (provided that the Borrower's transfer agent has accepted an instruction from the Borrower to such effect). Section 8.5 INDEMNIFICATION. (a) The Borrower will indemnify each holder of Registrable Securities, each of its officers, directors and partners, and each person controlling such holder of Registrable Securities, within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls, within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Borrower of the Securities Act or any state securities law or in either case, any rule or regulation thereunder applicable to the Borrower and relating to action or inaction required of the Borrower in connection with any such registration, qualification or compliance, and will reimburse each holder of Registrable Securities, each of its officers, directors and partners, and each person controlling such holder of Registrable Securities, each such underwriter -32- 37 and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Borrower will not be liable in any such case to a holder of Registrable Securities to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information relating to such holder or underwriter and furnished to the Borrower by such holder or the underwriter (if any) therefor and stated to be specifically for use therein. The indemnity agreement contained in this Section 8.5(a)shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Borrower(which consent will not be unreasonably withheld). (b) Each holder of Registrable Securities will, severally and not jointly, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Borrower, each of its directors, officers, partners, and each underwriter, if any, of the Borrower's securities covered by such a registration statement, each person who controls the Borrower or such underwriter within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, each other holder of Registrable Securities (if any), and each of their directors, officers and partners, and each person controlling such other holder(s) of Registrable Securities against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, in each case only insofar as such untrue statement or alleged untrue statement or omission relates to such holder of Registrable Securities, and will reimburse the Borrower and such other holder(s) of Registrable Securities and their directors, officers and partners, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Borrower by such holder of Registrable Securities and stated to be specifically for use therein, and provided that the maximum amount for which such holder of Registrable Securities shall be liable under this indemnity shall not exceed the net proceeds received by such holder of Registrable Securities from the sale of the Registrable Securities. The indemnity agreement contained in this Section 8.5(b) shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities if such settlement is effected without the consent of such holder of Registrable Securities (which consent shall not be unreasonably withheld). -33- 38 (c) Each party entitled to indemnification under this Article (hereinafter referred to as the "Indemnified Party") shall give notice to the party required to provide indemnification (hereinafter referred to as the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim in any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Article VIII except to the extent that the Indemnifying Party is materially and adversely affected by such failure to provide notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. Section 8.6 CONTRIBUTION. If the indemnification provided for in this Article VIII herein is unavailable to the Indemnified Parties in respect of any losses, claims, damages or liabilities referred to herein (other than by reason of the exceptions provided therein), then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities as between the Borrower on the one hand and any holder of Registrable Securities on the other, in such proportion as is appropriate to reflect the relative fault of the Borrower and of such holder of Registrable Securities in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Borrower on the one hand and of any holder of Registrable Securities on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Borrower or by such holder. In no event shall the obligation of any Indemnifying Party to contribute under this Section 8.6 exceed the amount that such Indemnifying Party would have been obligated to pay by way of indemnification if the -34- 39 indemnification provided for under Section 8.5(a) or 8.5(b) hereof had been available under the circumstances. The Borrower and the Lenders agree that it would not be just and equitable if contribution pursuant to this Section 8.6 were determined by pro rata allocation (even if the holders or the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraphs. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraphs shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this section, no holder of Registrable Securities or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any holder, the net proceeds received by such holder from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such holder or underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement, omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. ARTICLE IX MISCELLANEOUS Section 9.1 MODIFICATION OF AGREEMENT. No modification, amendment or waiver of any provision of, nor any consent required by, this Agreement, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders and then such modification, amendment, waiver or consent shall be effective only in the specific instance and for the purpose which given; provided, however, that, without the written consent of the affected Lender, no such action shall: reduce the amount of principal or required principal payments due to such Lender; reduce the rate of interest payable to such Lender; postpone any date fixed for payment of principal or interest to such Lender; or amend the definition of "Required Lenders". No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in the same, similar or other circumstances. Section 9.2 REMEDIES CUMULATIVE, ETC. No right, power or remedy herein conferred upon or reserved to the Lenders is intended to be exclusive of any other right, power or remedy or remedies, and each and every right, power and -35- 40 remedy of the Lenders, or any of them, pursuant to this Agreement, or the other Loan Documents, now or hereafter existing at law or in equity or by statute or otherwise shall, to the extent permitted by law, be cumulative and concurrent and shall be in addition to every other right, power or remedy pursuant to this Agreement, or the other Loan Documents, or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Lenders, or any of them, of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Lenders of any or all such other rights, powers or remedies. Section 9.3 NO WAIVER, ETC. To the fullest extent permitted by law, no failure or delay by the Lenders, or any of them, to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or the other Loan Documents, or to exercise any right, power or remedy hereunder or thereunder or consequent upon a breach hereof or thereof, shall constitute a waiver of any such term, condition covenant, agreement, right, power or remedy or of any such breach, or preclude the Lenders, or any of them, from exercising any such right, power or remedy at any later time or times. Section 9.4 NOTICES. All notices, requests or instructions hereunder shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by telecopy (or like transmission) as follows: (1) if to the Borrower: 8305 N.W. 27th Street Suite 107 Miami, Florida 33122 Attention: Paul I. Mansur, Chief Executive Officer with a copy to: Gary M. Epstein, Esq. Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 -36- 41 (2) if to the Lenders, at the addresses set forth on Annex 1, with a copy to: Howard Kailes, Esq. Krugman & Kailes LLP Park 80 West - Plaza Two Saddle Brook, New Jersey 07663 Any notice so addressed and mailed shall be deemed to be given when so mailed. Any notices addressed and otherwise delivered shall be deemed to be given when actually received by the addressee. Any of the above addresses or telecopy numbers may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. Section 9.5 SURVIVAL OF REPRESENTATIONS. Each representation, warranty, covenant and agreement of the parties hereto herein contained shall survive the Closing Date, notwithstanding any investigation at any time made by or on behalf of any party hereto. Section 9.6 ENTIRE AGREEMENT. This Agreement and the other Loan Documents referred to herein contain the entire agreement between the parties hereto with respect to the transactions contemplated hereby, and supersede all prior understandings, arrangements and agreements with respect to the subject matter hereof. Section 9.7 EXPENSES. The Borrower shall promptly pay, or reimburse the Lenders, and each of them, on demand for, all out-of-pocket fees and expenses incurred by it, including, without limitation, the reasonable fees and expenses of counsel to the Lenders, in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents and any other instruments and documents required hereunder and thereunder (whether or not the transactions contemplated hereby shall be consummated). The Borrower shall also reimburse the Lenders, for all out-of-pocket fees and expenses incurred by it, including without limitation the reasonable fees and expenses of counsel, in the enforcement of this Loan Agreement or the other Loan Documents. Section 9.8 BENEFIT OF AGREEMENT. This Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrower may not assign any of its rights or obligations under this Agreement or the other Loan Documents without the prior written consent of the Lenders. Without limiting the generality of the foregoing and notwithstanding any other provision contained in this Agreement or the other Loan Documents, the Lenders, or any of them, may, at any time, sell or otherwise assign all or any part of their respective Notes and any related rights hereunder and under any of the Loan Documents to their -37- 42 respective Affiliates and, with the prior written consent of the Borrower (which shall not be unreasonably withheld or delayed) to any non-Affiliate. The foregoing shall not in any manner restrict the grant of any participating interest therein and in any related rights hereunder and under any of the Loan Documents, nor the assignment or transfer of any rights under any Warrant Certificate or under Article VIII hereunder. Section 9.9 GOVERNING LAW. This Loan Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable in the case of agreements made and to be performed entirely within such state. Section 9.10 CAPTIONS. The captions appearing herein are for the convenience of the parties only and shall not be construed to affect the meaning of the provisions of this Agreement. Section 9.11 SEVERABILITY. In the event that one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision and never been contained herein. SECTION 9.12 SUBORDINATION. THE RIGHTS AND REMEDIES OF THE LENDERS HEREUNDER ARE SUBJECT TO AND SUBORDINATED TO THE TERMS AND PROVISIONS OF THOSE CERTAIN SUBORDINATION AGREEMENTS, EACH DATED THE DATE HEREOF, ENTERED INTO BY THE LENDERS, RESPECTIVELY, WITH CAPITAL BUSINESS CREDIT, A DIVISION OF CAPITAL FACTORS, INC. Section 9.13 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Loan Agreement has duly executed by the parties hereto as of the date first-above written. SYSTEMONE TECHNOLOGIES INC. By /s/ PAUL MANSUR -------------------------------- HANSEATIC AMERICAS LDC By: Hansabel Partners LLC By: Hanseatic Corporation By /s/ PAUL A. BIDDELMAN -------------------------------- Paul A. Biddelman President -38- 43 ENVIRONMENTAL OPPORTUNITIES FUND II, L.P. By: Fund II Mgt. Co., LLC General Partner By /s/ BRUCE R. MCMAKEN -------------------------------- Bruce R. McMaken Manager ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL), L.P. By: Fund II Mgt. Co., LLC General Partner By /s/ BRUCE R. MCMAKEN -------------------------------- Bruce R. McMaken Manager -39- EX-10.2 7 ex10-2.txt PROMMISORY NOTE 1 SYSTEMONE TECHNOLOGIES INC. PROMISSORY NOTE $__________________ August 7, 2000 New York, New York SECTION 1. GENERAL. SYSTEMONE TECHNOLOGIES INC., a Florida corporation (hereinafter referred to as the "Borrower"), with offices at 8305 N.W. 27th Street, Miami, Florida 33122, for value received, hereby promises to pay to _________________, or order, the principal amount of $______________, on the Maturity Date (as defined in the Loan Agreement hereinafter described), in such coin or currency of the United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts and to pay interest on such principal amount at the rates and on the dates described in Section 2.3 of the Loan Agreement hereinafter described. The Borrower further agrees to pay interest at such rates described in Section 2.5 of the Loan Agreement hereinafter described on any overdue principal and (to the extent permitted by law) on any overdue interest, from the due date thereof until the obligation of the Borrower with respect to the payment thereof shall be discharged; all payments and prepayments of principal of this Note and all payments of the interest on this Note to be made at ____________, or such other location as shall be specified in writing by the holder of this Note to the Borrower. SECTION 2. GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state. SECTION 3. RELATED AGREEMENTS. This Note is issued pursuant to, and is one of the Notes referred to in, the Loan Agreement dated as of August 7, 2000 (herein referred to as the "Loan Agreement") among the Borrower, Hanseatic Americas LDC, Environmental Opportunities Fund II, L.P. and Environmental Opportunities Fund II (Institutional), L.P., and is entitled to the benefits and is subject to the provisions thereof( including, without limitation, those providing for the optional and mandatory prepayment of this Note and the acceleration of the maturity hereof), and to the benefits of the Security Agreement, dated the date hereof, among the Borrower, Hanseatic Americas LDC, Environmental Opportunities Fund II, L.P. and Environmental Opportunities Fund II (Institutional), L.P. Copies of such agreements may be obtained by any holder of this Note at the principal executive offices of the Borrower. 2 SECTION 4. SUBORDINATION. THE RIGHTS AND REMEDIES OF THE HOLDER HEREOF ARE SUBJECT TO AND SUBORDINATED TO THE TERMS AND PROVISIONS OF A SUBORDINATION AGREEMENT, DATED OF EVEN DATE HEREOF, ENTERED INTO WITH CAPITAL BUSINESS CREDIT, A DIVISION OF CAPITAL FACTORS, INC. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first-above written. ATTEST: SYSTEMONE TECHNOLOGIES INC. By - ------------------------- --------------------------------- 2 EX-10.3 8 ex10-3.txt LETTER AGREEMENT TO LOAN AGREEMENT 1 August 7, 2000 Hanseatic Americas LDC 450 Park Avenue New York, New York 10022 Environmental Opportunities Fund II LP Environmental Opportunities Fund II (Institutional) LP c/o Sanders Morris Harris 3100 Chase Tower 600 Travis Street Houston, Texas 77002 Dear Sirs: Reference is hereby made to the Loan Agreement dated this date (the "Loan Agreement") proposed to be entered into among us, pursuant to Section 2.10 of which the Borrower is obligated to issue certain Additional Warrants in the event the Notes are not satisfied on or prior to the Maturity Date. Capitalized terms utilized herein and not otherwise defined herein shall have the meanings assigned to them in the Loan Agreement. To the extent that any provisions hereof are inconsistent with the Loan Agreement, the provisions hereof shall amend and supersede the Loan Agreement as applicable. Each of you, together with the undersigned concurring shareholders, holding in excess of a majority of the voting power of all securities of the Borrower entitled to vote thereon, hereby agree, forthwith upon request of the Borrower or any Lender, to approve and consent to in all respects the issuance by the Borrower of the Additional Warrants in accordance with the provisions of the Loan Agreement. Each of you, and such concurring shareholders, agree to take such further action in evidence of such approval and consent reasonably requested by the Borrower or any Lender, including, without limitation, exercising the voting and/or consensual rights attendant to any and all securities of the Borrower, at any meeting of the shareholders of the Borrower or in any written consent of shareholders of the Borrower, in favor of such approval and consent. Without limiting the foregoing, each of you acknowledges that the issuance of the Additional Warrants shall be subject to such shareholder approvals applicable thereto as may be required by the rules (the "Rules") of the National Association of Securities Dealers Inc. governing The Nasdaq Stock Market. 2 The Borrower agrees forthwith, in accordance with the Rules: (i) to confirm in form satisfactory to each of you that, based on the provisions of this letter, no further approvals are required under the Rules in connection with the issuance of the Additional Warrants, or (ii) apply under the Rules for, and obtain, an appropriate exemption from any additional approvals, or (iii) in the absence of receipt of such exemption the Borrower shall use its best efforts forthwith to obtain such approvals in accordance with applicable law and the Rules. Very truly yours, SYSTEMONE TECHNOLOGIES, INC. By /s/ PAUL MANSUR -------------------------- AGREED: HANSEATIC AMERICAS LDC By: Hansabel Partners LLC By: Hanseatic Corporation By /s/ PAUL A. BIDDELMAN --------------------------------- ENVIRONMENTAL OPPORTUNITIES FUND II LP By: Fund II Mgt. Co., LLC, General Partner By /s/ BRUCE R. MCMAKEN --------------------------------- ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL) LP By: Fund II Mgt. Co., LLC, General Partner By /s/ BRUCE R. MCMAKEN --------------------------------- The undersigned concurring shareholders agree to approve and consent to the matters set forth under the second paragraph above, and to take the actions specified under such paragraph, as if this letter had been addressed to them, respectively. /s/ PIERRE MANSUR --------------------------------- Pierre Mansur -2- 3 /s/ PAUL MANSUR --------------------------------- Paul Mansur ENVIRONMENTAL OPPORTUNITIES FUND (CAYMAN) LP /s/ BRUCE R. MCMAKEN --------------------------------- ENVIRONMENTAL OPPORTUNITIES FUND LP /s/ BRUCE R. MCMAKEN --------------------------------- -3- EX-10.4 9 ex10-4.txt SECURITY AGREEMENT 1 SECURITY AGREEMENT AGREEMENT dated as of August 7, 2000, by and among SYSTEMONE TECHNOLOGIES INC., a corporation duly organized and validly existing under the laws of the State of Florida (hereinafter referred to as the "Borrower"), and the undersigned ENVIRONMENTAL OPPORTUNITIES FUND II, L.P., ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL), L.P., and HANSEATIC AMERICAS LDC (hereinafter referred to, collectively, as the "Lenders" and, individually, as a "Lender"). W I T N E S S E T H: WHEREAS, under the terms and conditions of a Loan Agreement dated as of August 7, 2000 (hereinafter referred to as the "Loan Agreement") among the Borrower and the Lenders, the Lenders have agreed to advance to the Borrower the aggregate principal amount of $2,500,000 (hereinafter referred to as the "Loan"), which Loan is to be evidenced by certain Notes dated the date hereof (hereinafter referred to, collectively, as the "Notes"), with payment of the Notes and any other obligations of the Borrower to the Lender to be secured as provided for in the Loan Agreement; WHEREAS, pursuant to the Loan Agreement, the Borrower has agreed to execute and deliver to the Lenders this Security Agreement granting the Lenders, and each of them, a lien on and security interest in the Collateral herein described to secure the Borrower's payment and discharge of all of its obligations under the Loan Agreement and the Notes; NOW, THEREFORE, in consideration of the premises and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the term "Collateral" shall mean: all of the Borrower's accounts, contract rights, chattel paper, deposit accounts, general intangibles, goods, choses in action, documents and instruments; all obligations owing to the Borrower; all tax refunds to which the Borrower may be or become entitled; all of the Borrower's books of account of every kind and nature, including, without limitation, all electronically recorded data relating to the Borrower or its business; all inventory, including raw materials, work in process and other tangible personal property held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in the Borrower's business, wherever located, whether now existing or hereafter arising, now or hereafter received by or belonging to the Borrower; and the proceeds of, products of, repossessions and returns of, additions and accessions to, and replacements for, all of the foregoing, including all rights 2 to insurance and the proceeds thereof concerning any of the foregoing; provided, however, that general intangibles as aforesaid shall not include goodwill, patents, trade names, trademarks, blue prints, drawings and infringement claims. The security interest hereby claimed relates to all of the foregoing types of Collateral, whether now owned or hereafter acquired or arising. The claim of proceeds shall not be construed to be a consent to the disposition of any of the foregoing Collateral. Non-capitalized terms used herein to describe the Collateral shall have the definitions used in the Uniform Commercial Code as enacted in the State of Florida. 2. CREATION OF SECURITY INTEREST. As an inducement to the Lenders, and each of them, to enter into the Loan Agreement, to make the Loan, and to secure prompt payment, performance and discharge in full of all the Borrower's obligations (hereinafter referred to as the "Obligations") on the part of the Borrower to be performed under the Loan Agreement and the Notes, the Borrower hereby unconditionally and irrevocably grants to the Lenders, and each of them, a continuing security interest in, a lien upon and a right of set-off against all of the Collateral, which shall be senior and first-in-right with respect to all other security interests and liens other than the interest of Capital Business Credit, a division of Capital Factors, Inc. (hereinafter referred to as "Capital") pursuant to that certain Loan and Security Agreement dated May 17, 1999, as amended December 21, 1999 (hereinafter referred to as the "Senior Credit Agreement") between the Borrower and Capital and other Permitted Encumbrances (as defined in the Loan Agreement). Upon the payment, performance and discharge in full of all Obligations, the security interest granted herein shall expire. 3. FINANCING STATEMENTS. The right is expressly granted to the Lenders, or any of them, in their respective sole discretion, to file one or more financing statements without the signature of the Borrower under the Uniform Commercial Code, as enacted in any jurisdiction in which perfection of the security interest granted to the Lenders hereunder is required, naming the Borrower as debtor under Section 2 hereof and the Lenders as secured parties and indicating therein the items to be secured, or any of them, herein specified, and such other documentation shall be reasonably required by the Lenders, or any of them, so as to perfect the security interest granted to the Lenders, and each of them, hereunder pursuant to the laws of any jurisdiction in which such perfection is required. The Borrower will, upon request by the Lenders, execute such financing statements and other notices, affidavits or other documents as the Lenders, or any of them, may deem necessary to protect its security interest -2- 3 granted under Section 2 hereof. Without the prior written consent of the Required Lenders (as hereinafter defined), the Borrower will not file or authorize or permit to be filed in any jurisdiction any such financing or like statement, with respect to the Collateral in which the Lenders, and each of them, are not named as the secured parties or grant or permit the placing upon the Collateral of any lien other than that granted hereby except as expressly provided in this Agreement or in the Senior Credit Agreement. All filing costs under this Section 3 shall be borne by the Borrower. For purposes hereof, the term "Required Lenders" shall mean, at any time, those Lenders holding Notes, evidencing two-thirds or more of the aggregate principal amount then outstanding and evidenced by all Notes. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower hereby represents and warrants to, and covenants with, the Lenders that: (a) The Borrower (i) has, and shall have at all times hereafter until all of the Obligations shall have been paid in full, good and marketable title to the Collateral and (ii) owns, and shall own at all times hereafter until all of the obligations shall have been paid in full, the Collateral and each such item free and clear of all liens, charges, encumbrances, taxes and assessments of any kind or nature whatsoever subject only to the Permitted Encumbrances and except as permitted under the Loan Agreement and hereunder. Without limiting the generality of the foregoing, the Factoring Agreement, License Agreement and Security Agreement Supplement, each dated November 26, 1997, between Capital Factors, Inc. and the Borrower are no longer in effect and any and all security interests granted to Capital Factors, Inc. thereunder have been or will be discharged (and the Borrower has taken or will take all actions necessary to discharge such security interests, including but not limited to filing one or more termination statements under the Uniform Commercial Code, as enacted in any jurisdiction where such security interest has been perfected). The Borrower shall preserve the Collateral and abstain from and not permit the commission of waste with regard thereto; and shall not sell, lease or otherwise transfer or dispose of any of the Collateral except sales of inventory or dispositions of obsolete assets, each in the ordinary course of business and except as permitted by Section 5. The Borrower shall at all times maintain the liens and security interests provided for hereunder as valid and perfected liens and security interests in the Collateral, and each item thereof, hereby granted to the Lenders, senior and first-in-right with respect to all other security interests and liens other than the interest of Capital under the Senior Loan Agreement and the other Permitted Encumbrances, and shall safeguard and protect the Collateral, and all items thereof, for the account of the Lenders, and each of them. (b) The Borrower shall comply in all material respects with all applicable national, federal, county, municipal and other laws, ordinances, rules, and regulations now in force or hereafter enacted with respect to the ownership or use of the Collateral. -3- 4 (c) Each account included in the Collateral shall be evidenced by such invoices, shipping documents, or other instruments ordinarily used in the trade as shall be reasonably satisfactory to the Required Lenders; each such item shall be a valid and legally binding obligation of the account debtor, not subject to credit, allowance, offset, defense, counterclaim or adjustment by the account debtor, except discounts allowed for prompt payment or credits or allowances in the ordinary course of business; and all representations made by the Borrower to the Lenders with reference to the description, content or valuation of any or all such items shall be true and correct. (d) The Borrower shall from time to time execute and deliver to the Lenders, and each of them, in such form and manner required by the Required Lenders, such confirmatory schedules of accounts included in the Collateral, and other appropriate reports designating, identifying and describing the Collateral. The Borrower shall furnish the Lenders, and each of them, with schedules of agings of such accounts in such form and at such intervals as the Required Lenders may from time to time specify. The foregoing provisions of this paragraph (d) may be satisfied by delivery to the Lenders all such information and reports as are delivered to Capital under the Senior Credit Agreement with respect to accounts receivable, contemporaneously with delivery thereunder. In addition, the Borrower shall provide to the Lenders, and each of them, copies of agreements with, or purchase orders from the Borrower's customers and copies of invoices to customers, proof of shipment or delivery and such other documentation and information relating to the accounts as the Required Lenders may require. (e) The Borrower shall defend the Collateral against all claims and demands of all other persons at any time claiming the same or an interest therein and shall pay promptly when due all taxes and assessments upon the Collateral. At their option in their reasonable discretion, the Required Lenders may discharge any or all taxes, liens or other encumbrances at any time levied against or placed on the Collateral, all of which amounts shall become part of the Obligations. The Borrower shall not, except in the ordinary course of business, consistent with past practices, compromise, discharge, extend the time for payment or otherwise grant any indulgence or allowance with respect to any account included in the Collateral without the prior written consent of the Required Lenders, which consent shall not unreasonably be withheld. (f) The Borrower shall maintain insurance coverage in accordance with good business practice against loss or damage to the Collateral by fire and other hazards, with such insurance carriers as are reasonably satisfactory to the Required Lenders. In the event of loss or damage in any material respect to such Collateral as shall constitute tangible property, the Borrower shall give immediate written notice thereof to the Lenders, and each of -4- 5 them. In such events, the Borrower shall promptly adjust or compromise any loss claims under the insurance and replace such Collateral or apply the proceeds to the outstanding obligations to the Lenders, pro rata in accordance with the outstanding principal amount of the Notes held by the Lenders, respectively. If the Borrower fails to promptly adjust or compromise any loss claims under the insurance (other than for valid business purposes), the Required Lenders shall have the right at their reasonable election, to adjust or compromise any such loss claims under such insurance. (g) The Borrower shall at all times keep accurate and complete books and records of the Collateral in such detail, form and scope as the Required Lenders shall reasonably require, and shall maintain the same at its principal place of business. Such books and records shall be maintained in accordance with recognized, good accounting principles and practices and in a manner reasonably satisfactory to the Required Lenders. The Lenders, or any of them, or any of their respective agents shall have the right to call at the Borrower's place or places of business upon reasonable prior notice and at intervals to be determined by such Lender or Lenders, respectively, and without hindrance or delay, to inspect, audit, make verifications (including those with account debtors) and otherwise check and make extracts from such books and records (including, without limitation, orders, receipts, correspondence and other data) relating to the Collateral or to any other transactions among the parties hereto. If requested by the Required Lenders, the Borrower shall mark its records concerning accounts included in the Collateral in a manner satisfactory to the Required Lenders to show the security interest of the Lenders, and each of them, therein. (h) The Borrower's complete legal name is as first set forth above, and the Borrower does not utilize or do business under any tradename. The Borrower's principal place of business, and the location of its records of accounts, is as set forth hereinafter. The Borrower maintains such additional places of business as are listed in the attached Schedule A to this Agreement. The Borrower shall not without at least 30 days prior written notice to the Lenders, and each of them, change its principal place of business, change the location of its records of the Collateral, nor open any new places of business or close any existing places of business, or change its name or any tradename, in any such case which would require the filing of an additional financing statement or statements, or other documentation, then or at any time in the future required to preserve the security interest of the Lenders, and each of them, in any items of the Collateral. -5- 6 5. ESTABLISHMENT OF DEPOSIT ACCOUNT. (a) The Lenders, and each of them, hereby authorize the Borrower to collect all of its accounts; provided, however, that upon request by the Required Lenders (and provided that the obligations owing to Capital pursuant to the Senior Credit Agreement have been paid in full) at any time during the existence of an Event of Default under the Loan Agreement, all proceeds of the Collateral collected and received by the Borrower shall be held in trust for the Lenders, and each of them, and delivered by the Borrower as directed by the Required Lenders, within two business days of receipt, in exactly the form in which received (except for the addition thereto of the endorsement of the Borrower when and where necessary to permit collection thereof, which endorsement the Borrower agrees to make). Such proceeds so delivered shall be deposited in and credited to a special account (hereinafter referred to as the "Deposit Account") maintained by the Lenders in a bank located in New York City which is a member of the Federal Deposit Insurance Corporation, over which the Required Lenders alone (or their nominee) shall have the power of application and withdrawal. The Borrower shall not commingle any such proceeds with any of its other funds or property, and shall hold them separate and apart from any other funds or property in trust for the Lenders, and each of them, until deposit thereof is made in the Deposit Account. The Lenders shall promptly apply the collected proceeds of the Collateral on deposit in the Deposit Account to the payment in full or in part of the principal of and interest on any of the Obligations, in such order and in such manner as the Required Lenders shall determine consistent with Section 7(b)(vi) hereof. Any portion of such collected proceeds which the Required Lenders elect not to apply and which they deem not required as security shall be paid over from time to time by the Required Lenders to the Borrower. (b) The authority given to the Borrower in Paragraph (a) immediately preceding to collect its accounts shall (subject to the provisions of the Senior Credit Agreement) terminate upon the occurrence and during the continuation of an Event of Default (as hereinafter defined). Upon the occurrence and during the continuation of an Event of Default, if requested by the Required Lenders in writing, the Borrower shall forthwith notify all of its account debtors that its accounts have been assigned to and shall be payable as directed by the Required Lenders, and shall indicate on all billings therefor that all payments thereon shall be made as directed by the Required Lenders. The Required Lenders may, at any time upon the occurrence of an Event of Default and at any time thereafter during the continuation of an Event of Default, in the names of the Lenders: (i) notify any and all account debtors that the Borrower's -6- 7 accounts have been assigned to the Lenders and that any payment on account thereof shall be made as directed by the Required Lenders; (ii) collect, compromise, endorse, sell, assign, discharge, or extend the time for payment of, any such account; (iii) institute legal action for the collection of any such account, and (iv) do all acts and things incidental thereto, all of which are hereby approved by the Borrower. 6. ACTION OF THE REQUIRED LENDERS. Should any covenant, duty, or agreement of the Borrower fail to be performed in accordance with its terms hereunder, the Required Lenders may perform or attempt to perform such covenant, duty or agreement on behalf of the Borrower, and any amount expended by the Required Lenders in such performance or attempted performance together with interest thereon at the rate then provided for in the Loan Agreement, shall become a part of the Obligations secured by this Agreement, and, at the request of the Lenders, the Borrower covenants and agrees to promptly pay such amount to the Lenders; provided, that the Required Lenders, nor any of them, assume and shall never have any liability for the performance of any duties of the Borrower under or in connection with the Collateral, or any part thereof, or under any transaction, agreement, or contract out of which the Collateral, or any part thereof, may arise. If any account debtor of an account fails or refuses to make payment thereon when due, the Required Lenders are authorized, in their discretion, either in their own names or in the name of the Borrower, to take such action as the Required Lenders shall deem appropriate for the collection of any proceeds of the Collateral with respect to which a delinquency exists. Regardless of any other provision hereof, however, neither the Lenders, nor any of them, shall be liable for their failure to collect, or for their failure to exercise diligence in the collection of any proceeds of an account, nor shall they, or any of them, be under any duty whatsoever to anyone except to account for the funds that it shall actually receive hereunder. 7. EVENTS OF DEFAULT. (a) The following events shall be "Events of Default": (i) An Event of Default under the Loan Agreement; or (ii) Any representation, warranty, certification or statement made by the Borrower hereunder shall prove to have been incorrect in any material respect when made. (b) Upon occurrence of any of the above Events of Default and at any time thereafter during the continuation of an Event of Default the Required Lenders may accelerate all of the Obligations secured hereby and the Lenders (acting through the Required Lenders) shall have all the rights and remedies of secured parties under the Uniform Commercial Code as in effect in the State of Florida (whether or not in effect in the jurisdiction where the -7- 8 rights and remedies are asserted) and/or any other applicable law as to the Collateral, or any part thereof, of any other jurisdiction as to the Collateral, or any part thereof, therein located (whether or not such other law applies to the affected Collateral) and shall further have, in addition to all other rights and remedies provided herein, by the Loan Agreement or by law, the following rights and powers: (i) The Required Lenders are authorized to take possession of the Collateral, and any and all items thereof, and, for that purpose, may enter, with the aid and assistance of any person or persons, any premises where records related to the Collateral, or any part thereof, are, or may be, placed and remove the same; (ii) At the Required Lenders' request, the Borrower shall assemble the records related to the Collateral and make it available to the Required Lenders at places which the Required Lenders shall select, whether at the Borrower's premises or elsewhere; (iii) The Required Lenders' obligation, if any, to give additional credit of any kind to the Borrower shall immediately terminate. (iv) The Required Lenders shall have the right from time to time to (A) sell, resell, assign and deliver all or any part of the Collateral for cash, for credit or for other property, for immediate or future delivery, and for such price or prices as the Required Lenders shall reasonably determine, (B) adjourn any such sale or cause the same to be adjourned from time to time to a subsequent time and place announced at the time and place fixed for the sale, and (C) carry out any agreement to sell the Collateral, or any part thereof, in accordance with the terms of such agreement, notwithstanding the fact that after the Required Lenders shall have entered into such an agreement, the Notes and other Obligations due under the Loan Agreement may have been paid in full; (v) Upon each such sale, the Lenders, or any of them, may, unless prohibited by applicable statute which cannot be waived, bid for and purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of the Borrower, which are hereby waived and released; (vi) The proceeds of any such sale or other disposition of the Collateral, or any part thereof, shall be applied, first, to the expenses of retaking, holding, processing and preparing for sale, selling, and the like, and to the reasonable attorneys' fees and legal expenses incurred by the Lenders, and each of them, and then to satisfaction of the Obligations, pro rata on the basis of the respective amounts thereof held by each Lender, and to the payment of any other amounts required by applicable law, after which the Lenders shall account to the Borrower for any surplus proceeds. If, upon the sale or other -8- 9 disposition of the obligations, or any part thereof, the proceeds thereof are insufficient to pay all amounts to which the Lenders,and each of them, are legally entitled, the Borrower will be liable for the deficiency, together with interest thereon, at the rate prescribed in the Loan Agreement, and the reasonable fees of any attorneys employed by the Lenders, and each of them, to collect such deficiency. To the extent permitted by applicable law, the Borrower waives all claims, damages, and demands against the Lenders, and each of them, arising out of the repossession, removal, retention or sale of the Collateral, or any part thereof. 8. THE LENDERS AS ATTORNEYS-IN-FACT. The Borrower hereby constitutes and appoints the Lenders, and each of them, and their respective successors and assigns, the true and lawful attorney or attorneys of the Borrower, with full power of substitution, for it and in its name and stead or otherwise during the existence of an Event of Default: (a) to institute and prosecute from time to time, any proceedings at law, in equity or otherwise, that the Required Lenders, their respective successors or assigns, may deem proper in order to assert or enforce any claim, right or title of any kind in and to the Collateral, or any part thereof, and to defend and compromise any and all actions, suits or proceedings in respect of the Collateral, or any part thereof; (b) to receive, take, endorse, sign, assign and deliver any and all checks, notes, drafts, and other documents or instruments relating to the Collateral, or any part thereof; (c) to transmit to account debtors notice of the interest of the Lenders, and each of them, therein and to request from such customers at any time, in the name of the Lenders or of the Borrower, information concerning the Collateral, or any part thereof, and the amounts owing thereon; (d) to notify account debtors to make payment as directed by the Required Lenders; and (e) generally to do any and all such acts and things in relation to the Collateral as the Required Lenders, their respective successors or assigns, shall deem advisable, including, but not limited, to, the execution of any and all financing statements and instruments contemplated under Section 2 hereof. The Borrower declares that the appointment hereby made and the power hereby granted are coupled with an interest and shall be irrevocable by the Borrower. -9- 10 9. TERM OF AGREEMENT. This Agreement shall terminate when all payments under the Notes, and each of them, have been made in full and all other Obligations have been paid or discharged. Upon such termination, the Lenders, and each of them, at the request of the Borrower, will join in executing any termination statement with respect to any financing statement executed and filed pursuant to Section 2 of this Agreement. 10. MODIFICATION OF AGREEMENT. No modification, amendment or waiver of any provision of, nor any consent required by, this Agreement, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders and then such modification, amendment, waiver or consent shall be effective only in the specific instance and for the purpose which given; provided, however, that, without the written consent of the affected Lender, no such action shall: reduce the amount of principal or required principal payments due to such Lender; reduce the rate of interest payable to such Lender; postpone any date fixed for payment of principal or interest to such Lender; or amend the definition of "Required Lenders". No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in the same, similar or other circumstances. 11. REMEDIES CUMULATIVE, ETC. No right, power or remedy herein conferred upon or reserved to the Lenders, or any of them, are intended to be exclusive of any other right, power or remedy or remedies, and each and every right, power and remedy of the Lenders, or any of them, pursuant to this Agreement, the Loan Agreement, or the Notes or now or hereafter existing at law or in equity or by statute or otherwise shall, to the extent permitted by law, be cumulative and concurrent and shall be in addition to every other right, power or remedy pursuant to this Agreement, or the Notes or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Lenders, or any of them, of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Lenders, or any of them, of any or all such other rights, powers or remedies. 12. NO WAIVER, ETC. To the fullest extent permitted by law, no failure or delay by the Lenders, or any of them, to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement, the Loan Agreement, or of the Notes or to exercise any right, power or remedy hereunder or thereunder or consequent upon a breach hereof or thereof, shall constitute a -10- 11 waiver of any such term, condition covenant, agreement, right, power or remedy or of any such breach, or preclude the Lenders, or any of them, from exercising any such right, power or remedy at any later time or times. 13. NOTICES. All notices, requests or instructions hereunder shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by telecopy (or like transmission), as follows: -11- 12 (1) if to the Borrower: 8305 NW 27th Street, Suite 107 Miami, Florida 33122 Attention: Paul I. Mansur Chief Executive Officer Telecopy Number: (305) 593-8016 with a copy to: Gary Epstein, Esq. Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 Telecopy Number: (305) 579-0717 (2) if to the Lenders, at their respective addresses set forth in the Loan Agreement, with a copy to: Howard Kailes, Esq. Krugman & Kailes LLP Park 80 West - Plaza Two Saddle Brook, New Jersey 07663 Telecopy Number: (201) 845-9627 Any notice so addressed and mailed shall be deemed to be given when so mailed. Any notices addressed and otherwise delivered shall be deemed to be given when actually received by the addressee. Any of the above addresses and telecopy numbers may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. 14. SURVIVAL OF AGREEMENT. Each representation, warranty, covenant and agreement of the herein contained, shall survive the making by the Lenders of all loans and advances under the Loan Agreement and the execution and delivery to the Lenders of the Notes, notwithstanding any investigation at any time made by or on behalf of any party, and shall continue in full force and effect so long as any obligation is outstanding and unpaid. 15. ENTIRE AGREEMENT. This Agreement contains the entire agreement with respect to the transactions contemplated hereby, and supersedes all prior understandings, arrangements and agreements with respect to the subject matter hereof. -12- 13 16. BENEFIT OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and may be assigned, without limitation, to the Lenders' respective affiliates. Assignments of this Agreement to any non-affiliate of the Lenders, respectively, shall not be made without the prior written consent of the Borrower (which shall not be unreasonably withheld or delayed). The foregoing shall not in any manner restrict the grant of participation rights by the Lenders, respectively, with respect to the Loan and any and all rights hereunder. 17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida applicable in the case of agreements made and to be performed entirely within such state. 18. CAPTIONS. The captions appearing herein are for the convenience of the parties only and shall not be construed to affect the meaning of the provisions of this Agreement. 19. SEVERABILITY. In the event that one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision and never been contained herein. 20. SUBORDINATION. THE RIGHTS AND REMEDIES OF THE LENDERS HEREUNDER ARE SUBJECT TO AND SUBORDINATED TO THE TERMS AND PROVISIONS OF THOSE CERTAIN SUBORDINATION AGREEMENTS, EACH DATED THE DATE HEREOF, ENTERED INTO BY THE LENDERS, RESPECTIVELY, WITH CAPITAL BUSINESS CREDIT, A DIVISION OF CAPITAL FACTORS, INC. 21. COUNTERPARTS. This Agreement may be signed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one agreement. -13- 14 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. SYSTEMONE TECHNOLOGIES INC. By /s/ PAUL MANSUR ----------------------------- Paul Mansur, Chief Executive Officer HANSEATIC AMERICAS LDC By: Hansabel Partners LLC By: Hanseatic Corporation By /s/ PAUL A. BIDDELMAN ----------------------------- Paul A. Biddelman, President ENVIRONMENTAL OPPORTUNITIES FUND II, L.P. By: Fund II Mgt. Co., LLC General Partner By /s/ BRUCE R. MCMAKEN ----------------------------- Bruce R. McMaken Manager ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL), L.P. By: Fund II Mgt. Co., LLC General Partner By /s/ BRUCE R. MCMAKEN ----------------------------- Bruce R. McMaken Manager -14- EX-27.1 10 ex27-1.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 13 0 1,921 115 4,087 9,862 2,904 251 9,862 6,051 18,291 0 149 5 (15,233) 9,862 9,296 9,296 3,792 14,883 0 0 1,043 (7,164) 0 (7,164) 0 0 0 (7,164) (1.51) (1.51)
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