EXHIBIT 3
SERIES A PREFERRED STOCK
AND WARRANT
PURCHASE AGREEMENT
by and among
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO
and
HELISYS, INC.
Dated as of September 14, 1998
TABLE OF CONTENTS
PAGE NO.
SECTION 1 Authorization, Purchase and Sale of Shares and Warrants .........1
1.1 Authorization of the Shares and Warrants ...........................1
1.2 Sale and Purchase of the Shares and Warrants .......................1
1.3 Certain Defined Terms ..............................................1
SECTION 2 Closing, Payment and Delivery ...................................2
2.1 Closing ............................................................2
2.2 Sale of Additional Shares and Warrants .............................2
SECTION 3 Representations and Warranties of the Company ...................3
3.1 Organization and Standing; Articles and By-Laws.....................3
3.2 Corporate Power.....................................................4
3.3 Subsidiaries........................................................4
3.4 Capitalization......................................................4
3.5 Authorization.......................................................4
3.6 Financial Information...............................................5
3.7 Absence of Undisclosed Liabilities..................................5
3.8 Absence of Certain Changes..........................................5
3.9 Taxes...............................................................6
3.10 Litigation..........................................................7
3.11 Consents............................................................7
3.12 Title to Properties; Liens and Encumbrances.........................7
3.13 Franchises, Licenses, Trademarks, Patents and Other Rights..........8
3.14 Issuance Taxes......................................................9
3.15 Offering............................................................9
3.16 Compliance with Other Instruments...................................9
3.17 Employees...........................................................9
3.18 Business of the Company............................................11
3.19 Use of Proceeds....................................................11
3.20 Applicability of, and Compliance With, Other Laws..................11
3.21 Condition of Properties............................................13
3.22 Insurance Coverage.................................................13
3.23 Registration Rights................................................14
3.24 SEC Documents......................................................14
3.25 Disclosure.........................................................14
SECTION 4 Representations and Warranties of Purchaser.....................15
4.1 Experience.........................................................15
4.2 Investment.........................................................15
4.3 Rule 144...........................................................15
4.4 Access to Data.....................................................15
4.5 Accredited Investor................................................15
4.6 Restrictions Under Securities Laws.................................15
SECTION 5 Conditions to Closing of Purchaser..............................16
5.1 Representations and Warranties Correct.............................16
5.2 Performance........................................................16
5.3 Compliance Certificate.............................................16
5.4 Opinion of Company's Counsel.......................................16
5.5 Good Standing Certificates.........................................16
5.6 Legal Investment...................................................16
5.7 Qualifications.....................................................17
5.8 Amendment of Certificate and Filing of Certificate.................17
5.9 Proceedings and Documents..........................................17
5.10 Provisions of By-Laws..............................................17
5.11 Shareholders' Agreement............................................17
5.12 Key Person Life Insurance..........................................17
SECTION 6 Conditions to Closing of Company................................17
6.1 Representations....................................................17
6.2 Legal Investment...................................................18
SECTION 7 Covenants of the Company........................................18
7.1 Basic Financial Information........................................18
7.2 Additional Information and Rights..................................19
7.3 Prompt Payment of Taxes, etc.......................................21
7.4 Maintenance of Properties and Leases...............................21
7.5 Insurance..........................................................21
7.6 Key Person Life Insurance..........................................21
7.7 Accounts and Records...............................................22
7.8 Compliance with Requirements of Governmental Authorities...........22
7.9 Maintenance of Corporate Existence, etc............................22
7.10 Availability of Common Stock for Conversion and Warrant Exercise ..23
7.11 Invention and Secrecy Agreement....................................23
7.12 Use of Proceeds....................................................23
7.13 Compliance by Subsidiaries.........................................23
7.14 Expenses of Board Members..........................................23
7.15 Securities Law Filings.............................................23
7.16 Pro-Forma Financial Statements.....................................24
7.17 Exchange Note......................................................24
7.18 Line of Credit.....................................................25
SECTION 8 Negative Covenants..............................................25
8.1 Sale/Purchase of Assets; Merger....................................25
8.2 Future Registration Rights.........................................26
8.3 Private Offerings..................................................26
8.4 Changes in Type of Business........................................26
8.5 Loans, Guarantees..................................................26
8.6 Issuance of Equity Securities......................................26
8.7 Purchase of Equity Securities......................................27
8.8 Conflicting Agreements.............................................27
8.9 Amendment of Charter Documents.....................................27
8.10 Related Party Transactions.........................................28
8.11 Subsidiaries.......................................................28
8.12 Business Plan......................................................28
8.13 Amendment of Other Agreements......................................28
8.14 Employee Stock Plans...............................................28
8.15 Liens..............................................................28
8.16 Executive Compensation.............................................28
8.17 Investments........................................................29
8.18 Purchases and Sales................................................29
8.19 Leases.............................................................29
8.20 Indebtedness.......................................................29
8.21 Compliance by Subsidiaries.........................................29
SECTION 9 Restrictions on Transferability of Securities; Compliance
with Securities Act.............................................30
9.1 Restrictions on Transferability....................................30
9.2 Certain Definitions................................................30
9.3 Restrictive Legend.................................................31
9.4 Notice of Proposed Transfers and Securities Act Compliance.........31
9.5 Requested Registration.............................................32
9.6 Company Registration...............................................34
9.7 Registration on Form S-2 or Form S-3...............................35
9.8 Expenses of Registration...........................................36
9.9 Registration Procedures............................................36
9.10 Indemnification and Contribution...................................37
9.11 Information by Holder..............................................39
9.12 Limitations on Registration of Issues of Securities................39
9.13 Rule 144 Reporting.................................................39
9.14 Transfer of Registration Rights....................................40
SECTION 10 Definitions....................................................40
SECTION 11 Miscellaneous..................................................44
11.1 Governing Law.....................................................44
11.2 Survival..........................................................44
11.3 Successors and Assigns............................................44
11.4 Entire Agreement..................................................45
11.5 Notices, etc......................................................45
11.6 Delays or Omissions...............................................45
11.7 Rights; Separability..............................................46
11.8 Agent's Fees and Services.........................................46
11.9 Legal Fees and Expenses...........................................46
11.10 Titles and Subtitles..............................................46
11.11 Counterparts......................................................46
SCHEDULES AND EXHIBITS
Schedule 1 - Schedule of Purchasers
Schedule 2 - Schedule of Exceptions
Exhibit A - Restated Certificate of Designation of Rights, Preferences &
Privileges of Series A Preferred Stock
Exhibit B - Form of Warrant
Exhibit C - Form of Invention and Secrecy Agreement
Exhibit D - Form of Opinion of Counsel
Exhibit E - Shareholders' Agreement
SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement") is made and entered into as of the 14th day of September,
1998, by and among HELISYS, INC. (the "Company"), a Delaware corporation
having offices at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and each
of the parties listed on Schedule 1 hereto (the "Schedule of Purchasers").
The parties listed on the Schedule of Purchasers are hereinafter referred
to collectively as the "Purchasers").
WHEREAS, the Company desires to issue and sell, and the Purchasers desire
to purchase, certain securities of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein contained, the Company and the Purchasers, severally
and not jointly, hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of Shares and Warrants
1.1 Authorization of the Shares and Warrants. The Company has, or before
the Closing (as defined in Section 2.1 hereof) will have, authorized the
issuance and sale of (i) up to sixty-four thousand (64,000) shares (the
"Shares") of Series A Preferred Stock, par value $.001 per share (the "Series A
Preferred"), having the rights, restrictions, privileges and preferences as set
forth in the Restated Certificate of Designation of Rights, Preferences &
Privileges of Series A Preferred Stock of the Company (the "Certificate"), the
form of which is attached to this Agreement as Exhibit A, and (ii) Common Stock
Subscription Warrants (each a "Warrant" and, collectively the "Warrants"),
substantially in the form of Exhibit B hereto, to purchase up to an aggregate of
eight hundred thousand (800,000) shares of Common Stock, par value $.001 per
share, subject to adjustment as provided herein and in the Warrants.
1.2 Sale and Purchase of the Shares and Warrants. Upon and subject to the
terms and conditions of this Agreement and in reliance upon the representations,
warranties and agreements contained herein, at the Closing the Company will
issue and sell to the Purchasers, and each Purchaser will purchase from the
Company at the Closing, (i) that number of Shares set forth opposite its name on
the Schedule of Purchasers, and (ii) Warrants to purchase the number of Warrant
Shares set forth opposite its name on the Schedule of Purchasers.
1.3 Certain Defined Terms. Certain capitalized terms used in this
Agreement shall have the respective meanings ascribed to them in Section 10
hereof.
SECTION 2
Closing, Payment and Delivery
2.1 Closing
(a) Closing Date and Place of Closing. The closing (the "Closing")
of the purchase and sale of the Shares and the Warrants shall be held on
the date (the "Closing Date") of, and immediately following, the final
execution and delivery of at least one counterpart of this Agreement by the
Company and the Purchasers, or such other date as shall have been agreed to
by the Company and the Purchasers. The place of the Closing (including the
place of delivery to the Purchasers by the Company of the certificates
evidencing all Shares being purchased and the Warrants and the place of
payment to the Company by the Purchasers of the purchase price therefore)
shall be at the offices of Day, ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ I, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, or such other
place as shall have been agreed to by the Company and the Purchasers.
(b) Closing Payment and Delivery. At the Closing, each Purchaser
will pay to the Company the amount set forth opposite its name on the
Schedule of Purchasers, by check or wire transfer, at the Company's option,
and, in the case of Telantis Venture Partners V, Inc., for a portion of its
payment, by the surrender of promissory notes of the Company held by such
investor in principal amount of $200,000, and the Company will deliver to
each Purchaser a certificate or certificates for the number of shares and a
Warrant for the number of Warrant Shares, in each case set forth opposite
its name on the Schedule of Purchasers registered in each Purchaser's name
(or in such name or names as otherwise designated by such Purchaser).
2.2 Sale of Additional Shares and Warrants. The Purchasers hereby agree
that the Company may sell up to ninety-six thousand (96,000) shares of a new
class of Preferred Stock which new class of Preferred Stock shall be identical
in all respects to the Series A Preferred Stock and pari passu therewith in all
respects, except that each share of such new class of Preferred Stock shall be
convertible into Common Stock based upon an initial Conversion Price of $.50 per
share of Common Stock (the "Additional Shares") and Common Stock Subscription
Warrants to purchase up to an aggregate of six hundred thousand (600,000) shares
of Common Stock at a price of $.65 per share (the "Additional Warrants"), to one
or more purchasers (herein called the "Additional Purchasers") at a purchase
price per unit of $6.25 for each Additional Share, provided that (i) the closing
of such sale is consummated no later than November 30, 1998, (ii) such sale is
made pursuant to this Agreement as supplemented by an agreement supplemental
hereto which is executed by the Company and each Additional Purchaser, wherein
it is stated that the Additional Shares and Additional Warrants are being sold
pursuant to the terms of this Agreement as supplemented thereby, that the
Additional Purchaser is deemed to be a Purchaser hereunder, that the Additional
Shares and Additional Warrants are deemed to be Shares and Warrants,
respectively for all purposes hereunder, and that the rights and privileges of
the Additional Shares shall be set forth in a Certificate of Designation setting
forth the rights of the new class of Preferred Stock, (iii) the Additional
Purchaser becomes a party to the Shareholder's Agreement (as hereinafter
defined), (iv) the Additional Purchaser and each agreement supplemental to this
Agreement shall be approved by a majority of the entire Board of Directors of
the Company; and (v) the Purchasers are granted preemptive rights to purchase
the Additional Shares and Additional Warrants. Upon the issuance of Additional
Shares, references to Series A Preferred Stock herein shall be deemed to refer
to Series A Preferred Stock and such class of stock as shall have been issued
as the Additional Shares, collectively.
SECTION 3
Representations and Warranties of the Company
Except as expressly set forth (with reference to a paragraph in this
Section 3) on Schedule 2 (the "Schedule of Exceptions") hereto, the Company
hereby represents and warrants to the Purchasers as follows:
3.1 Organization and Standing; Articles and By-Laws.
(a) The Company and each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its state of
organization and is qualified, licensed or domesticated as a foreign corporation
in each jurisdiction wherein the nature of its activities or properties owned or
leased by it makes such qualification, licensing or domestication necessary,
except where the failure to be so qualified, licensed or domesticated would not
have a material adverse effect on the Company. The Schedule of Exceptions sets
forth the jurisdictions in which the Company or any Subsidiary is qualified,
licensed or domesticated as a foreign corporation. The Company and each
Subsidiary has all requisite power, governmental licenses, authorization
consents and approvals to own the properties owned by it and to conduct the
business as it is being conducted by it and as contemplated by the Confidential
Information Memorandum dated May 1998 (the "Confidential Information
Memorandum"), a true and correct copy of which has been given to the Purchasers
and special counsel for the Purchasers. The Schedule of Exceptions sets forth
all jurisdictions in which the Company or any Subsidiary owns or leases property
or engages in any activity.
(b) The Company has furnished special counsel for the Purchasers with
true, correct and complete copies of the Company's and each Subsidiary's
Certificate of Incorporation and By-Laws, and all amendments thereto through and
including the Closing Date and each Additional Closing Date as applicable, and
copies of the minutes of all Board of Directors, Committees of the Board of
Directors and stockholders meetings of the Company or such Subsidiary. Prior to
the Closing, the Company shall have properly filed and recorded the Certificate
with the Secretary of the State of Delaware. The Company and each Subsidiary is
not in breach of any of the provisions of its Certificate of Incorporation and
is not in breach of any of the provisions of its By-Laws in any material
respect.
3.2 Corporate Power. The Company and each Subsidiary, as applicable, has
all requisite corporate power to enter into this Agreement and each of the
Financing Documents and will have on the Closing Date all requisite corporate
power to sell the Shares and to carry out and perform its obligations under the
terms of this Agreement and each of the Financing Documents.
3.3 Subsidiaries. Except as set forth in the Schedule of Exceptions, the
Company has no Subsidiaries and does not own of record or beneficially any
capital stock or equity interest or investment in any corporation, partnership,
association or business entity. The Company is the sole owner of the securities
of each of the Subsidiaries.
3.4 Capitalization. The Schedule of Exceptions contains a true and
correct list of all securities of the Company and each Subsidiary (including the
amounts thereof) outstanding immediately prior to the Closing, and the holders
of any interest in such securities. Immediately prior to the Closing, the
Company's authorized capital stock will consist of twenty-five million
(25,000,000) shares, consisting of (a) twenty million (20,000,000) shares of
Common Stock, par value $.001 per share ("Common Stock") of which four million
thirty nine thousand seven hundred sixty-two (4,039,762) shares will be issued
and outstanding on the Closing Date, and (b) five million (5,000,000) shares of
Preferred Stock, one hundred forty-four thousand (144,000) shares of which have
been designated as Series A Preferred, 80,000 of which will be issued and
outstanding prior to the Closing. Upon consummation of the Closing, all issued
and outstanding shares of capital stock of the Company will have been duly
authorized and validly issued, will be fully paid and nonassessable, and will
have been offered issued, sold and delivered by the Company in compliance with
applicable federal and state securities laws. Except as set forth in the
Schedule of Exceptions and the Shareholders' Agreement, there are no outstanding
preemptive or other preferential rights, conversion rights or other rights,
options, warrants or agreements granted or issued by or binding upon the Company
for the purchase or acquisition of any shares of its capital stock. The Company
holds no shares of its capital stock in its treasury.
3.5 Authorization. All action on the part of the Company, the
Subsidiaries, their directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company and the Subsidiaries, as
applicable, of this Agreement and each of the Financing Documents and for the
consummation of the transactions contemplated herein and therein, and for the
authorization, issuance and delivery of the Shares and of the Conversion Shares
has been taken or will be taken prior to the Closing. This Agreement and each
of the Financing Documents is a valid and binding obligation of the Company and
the Subsidiaries parties hereto and thereto, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally. The execution and
delivery by the Company and the Subsidiaries, as applicable, of this Agreement
and each of the Financing Documents, and compliance herewith and therewith, and
the issuance and sale of the Shares and the Conversion Shares will not, with or
without notice or the passage of time or both, result in any material violation
of and will not conflict with, or result in a breach of any of the terms of, or
constitute a default under any provision of, any state or federal law to which
the Company or any Subsidiary is subject, the Certificate or By-Laws, as
amended, the Certificate of Incorporation or By-Laws of the Company or any
Subsidiary or any mortgage, indenture, material agreement, instrument, judgment,
decree, order, rule or regulation or other restriction to which the Company or
any Subsidiary is a party or by which it or any of its property is bound, or may
be affected, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or any
Subsidiary pursuant to any such term or give any other person or entity the
right to accelerate the time for performance of any obligation of the Company or
any Subsidiary. Except as set forth in the Shareholders' Agreement, no
shareholder has any preemptive rights or rights of first refusal by reason of or
in connection with the issuance of the Shares. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will be free of any liens or encumbrances. The
Conversion Shares have been duly and validly reserved (and are in addition to
any other shares reserved for any other purpose) and are not subject to any
preemptive rights or rights of first refusal and, upon such issuance, will be
validly issued, fully paid and nonassessable.
3.6 Financial Information. Copies of (i) the audited balance sheet of the
Company dated July 31, 1997 (the "Balance Sheet") and the related statements of
operations and accumulated deficit and cash flows for the year then ended,
accompanied by a report thereon containing an opinion without qualification of
the Company's independent certified public accountants, and (ii) the unaudited
balance sheet of the Company as of April 30, 1998 and the related statements of
income for the nine months then ended (collectively, the "Financial Statements")
and Financial Statements for each Subsidiary have been delivered to the
Purchasers and special counsel for the Purchasers, present fairly the financial
position of the Company or such Subsidiary as of such date, have been prepared
in accordance with generally accepted accounting principles, consistently
applied, except for those changes promulgated and required by accounting
authority, and show all material liabilities, absolute or contingent, of the
Company or such Subsidiary required to be recorded thereon in accordance with
generally accepted accounting principles as of the date thereof.
3.7 Absence of Undisclosed Liabilities. The Company and each Subsidiary
does not have, and does not know of, any liabilities (fixed or contingent,
including without limitation any tax liabilities due or to become due), which,
either individually or in the aggregate, are material and not disclosed on the
Balance Sheet.
3.8 Absence of Certain Changes. Since the date of the Balance Sheet,
there has not been:
(a) Any change in the condition, assets, liabilities, prospects or
business of the Company or any Subsidiary from that shown on the Balance Sheet
or as described in the Plan which, either individually or in the aggregate, has
been or is reasonably likely to be materially adverse;
(b) Any damage to, or destruction or loss of, any of the properties
or assets of the Company or any Subsidiary (whether or not covered by insurance)
materially adversely affecting the business or plans of the Company or any
Subsidiary or the Technology;
(c) Any declaration, setting aside or payment or other distribution
in respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock (or any warrant,
option or other right with respect to such stock) by the Company or any
Subsidiary or any repayment of Company or any Subsidiary debt held by any
Related Party or by an Affiliate;
(d) Any organizational activity, collective bargaining activity,
labor dispute or labor trouble;
(e) Any event or condition of any character, which, either
individually or in the aggregate, materially adversely affects the business,
operations or plans of the Company or any Subsidiary;
(f) Any action taken or entered into by the Company or any Subsidiary
involving any transaction other than in the usual and ordinary course of
business, except this Agreement;
(g) Any wage or salary increase made or granted, or entered into by
the Company or any Subsidiary involving any employment agreement other than any
agreement set forth in the Schedule of Exceptions;
(h) Any disclosure to any person of any material trade secrets,
except for disclosures made to persons subject to valid and enforceable
confidentiality agreements; or
(i) Any disposition of assets other than the sale of the Company's
products in the ordinary course of business.
3.9 Taxes. The Company and each Subsidiary has filed or will file within
the time prescribed by law (including extensions of time approved by any
appropriate taxing authority) all tax returns and reports required to be filed
with the United States Internal Revenue Service and with the States of
California and Michigan and any other state in which such a filing is required,
and (except to the extent that the failure to file would not have a material
adverse effect on the condition or operations of the Company or such Subsidiary)
with all other jurisdictions where such filing is required by law; and the
Company and each Subsidiary has paid, or made adequate provision in the Balance
Sheet for the payment of, all taxes, interest, penalties, assessments or
deficiencies due in connection therewith. The Company and each Subsidiary has
never had any tax deficiency proposed or assessed against it and the Company and
each Subsidiary has executed no waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's or any Subsidiary's federal income tax returns nor any state income,
sales or franchise tax returns has ever been audited by governmental
authorities. No tax audit, action, suit, proceeding, investigation or claim is
now pending nor, to the best of the Company's knowledge after reasonable
inquiry, threatened against the Company or any Subsidiary, and to the Company's
knowledge, no issue or question has been raised (and is currently pending) by
any taxing authority in connection with any of the Company's or any Subsidiary's
tax returns or reports.
The Company and each Subsidiary has withheld or collected from each payment
made to each of their employees, the amount of all taxes (including, but not
limited to, federal income taxes, Federal Insurance Contribution Act taxes and
Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
3.10 Litigation. There is neither pending nor threatened any action,
suit, proceeding or claim, whether or not purportedly on behalf of the Company,
or any Subsidiary, to which the Company, or any Subsidiary or any employee of
the Company or any Subsidiary is or may be named as a party or to which the
Company's, any Subsidiary's or any such person's property is or may be subject.
To the best of the Company's knowledge and belief, there is no basis for any
such action, suit, proceeding or claim, in which an unfavorable outcome, ruling
or finding in any such matter or for all such matters, taken as a whole, might
have a material adverse effect on the condition, financial or otherwise,
operations or prospects of the Company or any Subsidiary or on the Technology.
The Company and the Founders have no knowledge of any unasserted claim, the
assertion of which is likely and which, if asserted, will seek damages, an
injunction or other legal, equitable, monetary or nonmonetary relief which if
granted would have a material adverse effect on the condition, financial or
otherwise, operations or prospects of the Company or any Subsidiary.
3.11 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of the
Company or any Subsidiary, including and subject to the Company's reliance
on the accuracy of the representations of the Purchasers in Section 4 hereof,
qualification under applicable state securities laws of the offer and sale of
the Shares and of the issuance of the Conversion Shares, is required in
connection with the valid execution and delivery of this Agreement, the offer,
sale or issuance of the Shares, the conversion of the Series A Preferred into
Common Stock or the issuance of the Conversion Shares, or the consummation of
any other transaction contemplated on the Closing Date by this Agreement or any
of the Financing Documents, except the filing of the Certificate with the
Secretary of the State of Delaware, which filing has been made and is effective
as of the date hereof.
3.12 Title to Properties; Liens and Encumbrances. The Company and each
Subsidiary has good and marketable title to all its properties and assets, free
from all mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges, except as set forth on the Schedule of
Exceptions.
3.13 Franchises, Licenses, Trademarks, Patents and Other Rights.
(a) All (i) franchises, permits, licenses and other similar
authority, (ii) patents, patent applications, patent rights, service marks,
trademarks, trademark applications, trademark rights, trade names, trade
name rights and copyrights (whether registered or not), and (iii) know-how,
technology and trade secrets, which, in any case, are owned, possessed or used
by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇ Pak and ▇▇▇▇▇ ▇▇▇ (the "Patent Holders"), or which any of the Patent
Holders has the right to own, possess or use, and which are or may be material
now or in the future for the conduct of the Company's and each Subsidiary's
business as now conducted or as planned to be conducted, have been duly and
validly transferred in full to the Company. The documents and instruments
evidencing such transfer are listed in the Schedule of Exceptions, and a copy
thereof has been delivered to special counsel for the Purchasers.
(b) The Company and each Subsidiary has all franchises, permits,
licenses and other similar authority, necessary for the conduct of its business
as now being conducted by it, except where the failure to have such franchises,
permits, licenses or other similar authority would not have a material adverse
effect on the Company or the Technology, and believes it can obtain any similar
authority necessary for the conduct of its business as planned to be conducted,
and it is not in violation, nor will the transactions contemplated by this
Agreement cause a violation of any material term or provision of any such
franchise, permit, license or other similar authority.
(c) The Schedule of Exceptions lists all patents, patent
applications, patent rights, trademarks, trademark applications, trademark
rights, trade names, trade name rights, service marks and copyrights (whether
registered or not) owned or possessed by the Company and each Subsidiary
(collectively, the "Listed Rights"). The Listed Rights comprise all the
patents, patent applications, patent rights, trademarks, trademark applications,
trademark rights, trade names, trade name rights, service marks and copyrights
(whether registered or not) necessary to the conduct of the Company's and each
Subsidiary's business as now being conducted, and the Company believes that the
Company and each Subsidiary can obtain any such rights necessary for the conduct
of its business as planned to be conducted. The Company and each Subsidiary has
and possesses the know-how, technology and trade secrets not included in the
Listed Rights (such know-how, technology and trade secrets being collectively
called the "Intellectual Property") which they believe to be necessary (i) to
conduct the Company's and each Subsidiary's business as now being conducted, and
(ii) with additional know-how, technology and trade secrets which the Company
and the Subsidiaries plan to develop, for the conduct of their business as
planned to be conducted. (The Listed Rights and the Intellectual Property
collectively constitute the "Technology"). There is neither pending, nor, to
the best of the Company's knowledge and belief, threatened, any claim or
litigation against the Company or any Subsidiary contesting the validity or
right to use any of the Listed Rights or any of the Intellectual Property, nor
is the Company or any Founder or any Subsidiary aware of any basis therefor, and
neither the Company nor any Subsidiary has received any notice of infringement
upon or conflict with any asserted right of others. To the best of the
Company's knowledge and belief, no person, corporation or other entity is
infringing or violating the Listed Rights or any of the Intellectual Property.
Except as described in the Schedule of Exceptions, the Company has no obligation
to compensate others for the use of any Listed Right or any Intellectual
Property, nor has the Company or any Subsidiary granted any license or other
right to use, in any manner, any of the Listed Rights or Intellectual Property,
whether or not requiring the payment of royalties. The Company has no
knowledge of any current or anticipated narrowing of the claims under any
of its patents.
3.14 Issuance Taxes. All taxes imposed by any state in connection with
the issuance, sale and delivery of the Shares shall have been fully paid, and
all laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
3.15 Offering. Within the past six (6) months, the Company has not,
either directly or through any agent, offered any of the Shares or the Warrants
or any security or securities similar to the Shares or the Warrants for sale
to, or solicited any offers to buy the Shares or the Warrants or any part
thereof or any such similar security or securities from, or otherwise approached
or negotiated in respect thereof with, any party or parties other than the
Purchasers or institutional or other sophisticated investors, each of which was
offered all or a portion of the Shares and Warrants at private sale for
investment.
Subject in part to the truth and accuracy of the Purchasers'
representations set forth in this Agreement, the offer, sale and issuance of the
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and all state securities laws, and neither the Company nor anyone acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
3.16 Compliance with Other Instruments. Neither the Company nor any
Subsidiary is in violation of any term of its Certificate of Incorporation or
By-Laws. Neither the Company, any Subsidiary or any of their property is in
violation of any term of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which the
Company, any subsidiary or any of such property is subject, a violation of which
would materially adversely affect the Company's condition, financial or
otherwise, or operations.
3.17 Employees.
(a) No employee of the Company or any Subsidiary and no Related
Party is, or is now expected to be, in violation of any term of any employment
contract, patent disclosure agreement, non-competition agreement, or any other
contract or agreement with any prior employer or any other person, corporation,
or other entity or any restrictive covenant in such an agreement, or any
obligation imposed by common law or otherwise, relating to the right of any such
employee or Related Party to be employed by the Company or companies similarly
situated because of the nature of the business conducted or to be conducted by
the Company, or any Subsidiary or companies similarly situated or relating to
the use of trade secrets or proprietary information of others, and the continued
employment of the Company's or any Subsidiary's employees and/or Related Parties
does not subject the Company, any Subsidiary or Purchaser to any liability for
any such violation.
(b) The Schedule of Exceptions sets forth a complete list of the
name and position of each person who has executed a Invention and Secrecy and
Agreement to the effect and in substantially the form set forth in Exhibit C
hereto. To the best of the Company's knowledge and belief, no employee or
former employee of the Company or any Subsidiary is, or to the best of the
Company's knowledge and belief now is expected to be, in violation of the terms
of the aforesaid agreement or of any other obligation relating to the use of
confidential or proprietary information of the Company or such Subsidiary. Each
of such Invention and Secrecy Agreements remains in full force and effect.
(c) The Schedule of Exceptions sets forth the current compensation
of each officer, director or employee of the Company and each Subsidiary being
paid (or to whom the Company or such Subsidiary has agreed to pay) compensation
at a rate of $50,000 per year or more.
(d) To the best knowledge of the Company, no officer or key employee
of the Company or any Subsidiary has any present intent of terminating such
officer's or key employee's employment with the Company or such Subsidiary.
(e) The Company and each Subsidiary is in full compliance with all
laws regarding employment, wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes. The Company and
each Subsidiary is in compliance with all applicable foreign, federal, state and
local laws and regulations regarding occupational safety and health standards
and has received no complaints from any foreign, federal, state or local agency
or regulatory body alleging violations of any such laws and regulations.
(f) Except as set forth on the Schedule of Exceptions hereto, the
employment of all persons and officers employed by the Company and each
Subsidiary is terminable at will without any penalty or severance obligation of
any kind on the part of the employer. All sums due for employee compensation
and benefits and all vacation time owing to any employees of the Company and
each Subsidiary have been duly and adequately accrued on the accounting records
of the Company. All employees of the Company and each Subsidiary are either
United States citizens or resident aliens specifically authorized to engage in
employment in the United States in accordance with all applicable laws.
(g) Neither the Company nor any Subsidiary has experienced, nor does
it know or have reasonable grounds to know of any basis for, any strike, labor
troubles or strife, work stoppages, slow downs, or other interference with or
impairment of its business. Neither the Company nor any Subsidiary has
experienced, nor does it know or have reasonable grounds to know of, any union
or collective bargaining organization efforts or negotiations, or requests for
negotiations, for any representation or any labor contract relating to any
employees of the Company or any Subsidiary.
3.18 Business of the Company. The Company has no knowledge or belief that
(i) there is pending or threatened any claim or litigation against or affecting
the Company or any Subsidiary contesting its right manufacture, sell or use any
product or service presently manufactured, sold or used or planned to be
manufactured, sold or used by the Company or any Subsidiary, (ii) there exists,
or there is pending or planned, any statute, rule, law, regulation, standard or
code which would materially adversely affect the condition, financial or
otherwise, the operations or the prospects of the Company or any Subsidiary, or
(iii) there is any other fact which in the future may materially adversely
affect the Company's or any Subsidiary's condition, financial or otherwise,
operations or prospects. The Company and each Subsidiary currently intends to
engage in the business of the general type described in the SEC Documents.
3.19 Use of Proceeds. The Company will use the proceeds of the offering
for general working capital purposes. The Company will not use the proceeds of
the offering for other business purposes. None of the transactions contemplated
in this Agreement (including, without limitation, the use of the proceeds from
the sale of the Shares) will violate or 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 and X of the
Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11. The
Company does not own or intend to carry or purchase any "margin security" within
the meaning of said Regulation G, including margin securities originally issued
by it. None of the proceeds from the sale of the Shares will be used to
purchase or carry (or refinance any borrowing the proceeds of which were used to
purchase or carry) any "security" within the meaning of the Securities Act.
3.20 Applicability of, and Compliance with, Other Laws.
(a) Neither the Company nor any Subsidiary has or makes
contributions to any pension plans, defined benefit plans or defined
contribution plans for its employees which are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), except as set
forth on the Schedule of Exceptions. With respect to such plans, if any, listed
on the Schedule of Exceptions, the Company and each Subsidiary is in compliance
with the applicable provisions of ERISA in all material respects. Neither
the Company nor any Subsidiary has incurred any unremedied accumulated funding
deficiency within the meaning of ERISA or any unsatisfied liability to the
Pension Benefit Guaranty Corporation established under ERISA in connection with
any employee pension plan established or maintained by the Company or such
Subsidiary under the jurisdiction of ERISA. No Reportable Event or Prohibited
Transaction (as defined in Section 4043 of ERISA) has occurred with respect to
any plan administered by the Company or any Subsidiary.
(b) The Company's and each Subsidiary's employment practices and
policies are in compliance with (i) all applicable laws of the United States and
each applicable jurisdiction relating to equal employment opportunity, and any
rules, regulations, administrative orders and Executive Orders relating thereto,
and (ii) the applicable terms, relating to equal opportunity, of any contract,
agreement or grant the Company and each Subsidiary has with, from or relating
(by way of subcontract or otherwise) to any other contract, agreement or grant
of, any federal or state governmental unit. Neither the Company nor any
Subsidiary has been the subject of any charge of unfair labor practices,
employment discrimination made against it by the National Labor Relations Board,
the United States Equal Employment Opportunity Commission or any other
governmental unit, or is presently subject to any formal or informal proceedings
before, or investigations by, such Commission or governmental unit. To the
Company's knowledge, neither the Company, nor any Subsidiary, nor any employees
of the Company or of Subsidiaries, nor any Related Parties are presently under
investigation by any commission or governmental agency for purposes of security
clearance or otherwise.
(c) Neither the Company nor any Subsidiary or any property owned or
occupied by the Company or such Subsidiary is in violation of any Federal or
State Environmental Law of any sort or in violation of any Federal or State
"OSHA" law, so-called. The Schedule of Exceptions contains a list of all
environmental permits held by the Company and each Subsidiary which are material
to the Company or such Subsidiary. Without limiting the foregoing:
(i) Environmental Permits. The Company and each Subsidiary has
obtained all environmental, health and safety permits and governmental
authorizations (collectively, the "Environmental Permits") necessary for the
construction of their facilities (for any facility constructed by or at the
direction of the Company) or the conduct of their operations, and all such
Environmental Permits are in good standing and the Company and each Subsidiary
is in material compliance with all terms and conditions of the Environmental
Permits. To the Company's knowledge, no notice to, approval of or authorization
or consent from any governmental or regulatory authority is necessary for the
transfer of or modification to any Environmental Permit and the consummation of
the transactions contemplated by this Agreement will not violate, alter, impair
or invalidate, in any respect, any Environmental Permit.
(ii) Environmental Claims. There is no Environmental Claim
pending, or to the Company's knowledge, threatened or reasonably likely to
be threatened (i) against the Company or any Subsidiary, (ii) against any
person or entity whose liability for any Environmental Claim the Company or
any Subsidiary has or may reasonably be expected to have retained or assumed
either contractually or by operation of law, or (iii) against any real or
personal property or operations which are now or have been previously owned,
leased, operated or managed, in whole or in part, by the Company or any
Subsidiary.
(iii) Releases. There have been no Releases of any Hazardous
Materials that would be likely to form the basis of any Environmental Claim
against the Company, any Subsidiary or against any person or entity whose
liability for any Environmental Claim the Company or any Subsidiary has or
may have retained or assumed either contractually or by operation of law.
(iv) Environmental Assessments. There are no environmental
reports, audits, investigations or assessments of the Company, any Subsidiary,
or any real or personal property or operations which are now or have been
previously owned, leased, operated or managed, in whole or in part, by the
Company or such Subsidiary.
(d) Neither the Company nor any Subsidiary has violated any law or
any governmental law, rule, order or regulation or requirement which violation
through the date hereof has had or would reasonably be expected to have a
material adverse effect upon the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries and neither
the Company nor any Subsidiary has received notice of any such violation.
3.21 Condition of Properties. All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Company and
each Subsidiary are in good operating condition and repair, ordinary wear and
tear excepted, are reasonably fit and usable for the purposes for which they are
being used, are adequate and sufficient for the Company's and each Subsidiary's
businesses and conform in all material respects with all applicable ordinances,
regulations and laws.
3.22 Insurance Coverage. Neither the Company nor any Subsidiary has been
refused any insurance coverage sought or applied for, and the Company has no
reason to believe that it will be unable to obtain one or more policies of
insurance issued by insurers of recognized responsibility, insuring the Company,
its Subsidiary and their properties and business against such losses and risks,
and in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or similar business and similarly situated. The
Schedule of Exceptions sets forth each insurance policy (specifying the insurer,
the amount of coverage and the type of insurance) maintained by the Company and
each Subsidiary relating to its respective properties, assets, business or
personnel, and each inspection report or recommendation, if any, during the last
three years as to the conditions of the properties and assets owned, leased,
occupied or operated by it or the conduct of its business. Neither the Company
nor any Subsidiary is in default with respect to any provision contained in any
insurance policy, and neither the Company nor any Subsidiary has failed to give
any notice or present any presently existing claims under any insurance policy
in due and timely fashion.
3.23 Registration Rights. Other than under this Agreement or as listed in
the Schedule of Exceptions, the Company has not agreed to register under the
Securities Act any of its authorized or outstanding securities.
3.24 SEC Documents. The Company has filed all required reports,
schedules, forms, statements and other documents with the Securities and
Exchange Commission (the "SEC") (any of the foregoing are referred to herein as
the "SEC Documents") since March 7, 1996. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder 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 statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any SEC Document has been revised or superseded by a later-filed
SEC Document, none of the SEC Documents contain any untrue statement of a
material fact if such statement were made as of the date hereof or omits to
state any material fact that would be required to be stated therein if filed as
of the date hereof, or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). All of the Company's SEC documents filed since March 7, 1996 have
been provided to the Purchasers.
3.25 Disclosure. Neither this Agreement, the Schedule of Exceptions, the
Balance Sheet, the Financial Statements nor the SEC Documents contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein or herein not misleading in
the light of the circumstances under which they were made. There is no fact
which the Company has not disclosed to the Purchasers in writing or in the SEC
Documents that materially adversely affects or, so far as the Company can now
foresee, will materially adversely affect the properties, business, prospects,
profits or condition (financial or otherwise) of the Company and the
Subsidiaries or the ability of the Company to perform this Agreement and the
Financing Documents or the other actions contemplated hereby. The forecasts,
projections, estimates and other forward-looking matters furnished to the
Purchasers were prepared in good faith on the basis of the Company's best
estimates. The Company does not have any reason to believe that any assumptions
or statements of opinion contained in such forecasts, projections, estimates or
other forward-looking matters are unreasonable or false.
SECTION 4
Representations and Warranties of Purchaser
Each of the Purchasers represents and warrants to the Company, as to itself
only, as follows:
4.1 Experience. It is experienced in evaluating and investing in
companies such as the Company.
4.2 Investment. It is acquiring the Shares and the Warrants for
investment for its own account and not with the view to, or for resale in
connection with, any distribution thereof. It understands that the Shares,
the Conversion Shares, the Warrants and the Warrant Shares have not been
registered under the Securities Act by reason of an exemption from the
registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of its investment intent as expressed
herein.
4.3 Rule 144. It acknowledges that the Shares, the Conversion Shares, the
Warrants and the Warrant Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act, which permits limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions (which conditions cannot presently be satisfied).
4.4 Access to Data. It has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management, and it
has been furnished with copies of documents which it has requested.
4.5 Accredited Investor. It is an Accredited Investor as defined in
Regulation D under the Securities Act.
4.6 Restrictions Under Securities Laws. It is aware (and its respective
employees, advisors, representatives and affiliates who are or who it currently
anticipates will be apprised of matters relating to this Agreement, or the
transactions contemplated hereby or thereby have been advised), that the United
States securities laws prohibit any person or entity who has material non-public
information about a company from purchasing or selling securities of such
company. It agrees that it shall not directly or indirectly, alone or with
others, in any manner acquire or attempt to acquire or dispose of or attempt to
dispose of any securities of the Company in violation of applicable securities
laws, and that it shall make best efforts to instruct its respective employees,
advisors, representatives and affiliates who are apprised of matters relating to
this Agreement, or the transactions contemplated hereby or thereby to comply
with such prohibitions.
SECTION 5
Conditions to Closing of Purchaser
The obligation of the Purchasers to purchase the Shares to be purchased by
them at the Closing is subject to the fulfillment to their satisfaction on or
prior to the Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all respects when made, and shall be true and correct in all respects on the
Closing Date and with respect thereto, after giving effect to the sale and
issuance of the Shares and the Warrants at the Closing.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement (including those in Section 2.1) to be performed or complied
with by the Company on or prior to the Closing Date shall have been so performed
or complied with in all material respects.
5.3 Compliance Certificate. The Company shall have executed and delivered
to the Purchasers a certificate of the President of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement and such other matters as the
Purchasers may reasonably request.
5.4 Opinion of Company's Counsel. The Purchasers shall have received (a)
an opinion of counsel from ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ counsel to the
Company, addressed to them, dated the Closing Date, to the effect and in
substantially the form set forth in Exhibit D. and (b) an opinion of patent
counsel to the Company addressed to the Purchasers in form and scope
reasonably satisfactory to the Purchasers.
5.5 Good Standing Certificates. The Company shall have delivered to the
Purchasers a certificate of recent date from the Secretary of State of the
State of the Company's and each Subsidiary's state of incorporation with respect
to the Company's and each Subsidiary's due incorporation, good standing, legal
corporate existence, due authorization to conduct business and the payment of
all franchise taxes, and, certificates from the Secretary of State in each
jurisdiction in which the Company or any Subsidiary is required to be qualified
to do business with respect to the Company's or such Subsidiary's good standing
and due authorization to conduct business therein, except where the failure to
be so qualified would not have a material adverse effect on the Company and
payment of all qualification fees that have become due and payable.
5.6 Legal Investment. At the time of the Closing, the purchase of the
Shares and the Warrants to be purchased by the Purchasers hereunder shall be
legally permitted by all laws and regulations to which it and the Company and
its Subsidiaries are subject.
5.7 Qualifications. All authorizations, approvals, or permits of any
governmental authority or regulatory body that are required in connection
with the lawful issuance and sale of the Shares and the Warrants pursuant
to this Agreement, the conversion of the Shares into Common Stock, the issuance
of such Common Stock upon such conversion, the exercise of the Warrants and the
issuance of the Warrant Shares upon such exercise, shall have been duly obtained
and shall be effective on and as of the Closing Date, including, if necessary,
permits from applicable state securities authorities, qualifying the offer and
sale of the Shares, the Conversion Shares, the Warrants and the Warrant Shares.
5.8 Amendment of Certificate and Filing of Certificate. The Certificate
of Incorporation of the Company shall have been duly amended as set forth in
Exhibit A hereto. The Certificate shall have been filed with the Secretary of
the State of Delaware.
5.9 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to the Purchasers and special counsel for the Purchasers.
5.10 Provisions of By-Laws. The By-Laws of the Company shall provide that
(a) a majority of the Directors constituting the Board shall constitute a quorum
for the transaction of any business at a meeting of the Board, and (b) the
number of Directors shall be no greater than seven (7).
5.11 Shareholders' Agreement. The Company and the Purchasers shall have
executed and delivered a Shareholders' Agreement (the "Shareholders' Agreement")
to the effect and in substantially the form set forth in Exhibit E hereto.
5.12 Key Person Life Insurance. The Company shall have delivered to the
Purchasers evidence of insurance on the lives of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ in the amount of $2,000,000 naming the Company as the owner and
beneficiary thereof.
SECTION 6
Conditions to Closing of Company
The Company's obligation to sell the Shares to be purchased at the Closing
is subject to the fulfillment to its satisfaction on or prior to the Closing
Date of each of the following conditions:
6.1 Representations. The representations made by the Purchasers pursuant
to Section 4 hereof shall be true and correct when made and shall be true and
correct on the Closing Date.
6.2 Legal Investment. At the time of the Closing, the conditions set
forth in Sections 5.7 and 5.8 shall have occurred and the purchase of the Shares
to be purchased by the Purchasers hereunder shall be legally permitted by all
laws and regulations to which the Purchasers and the Company are subject.
SECTION 7
Covenants of the Company
The Company hereby covenants and agrees, so long as any Purchaser owns any
Shares, any Conversion Shares or any Exchange Notes or as otherwise provided in
this Article 7:
7.1 Basic Financial Information. The Company will furnish the following
reports to the Purchasers:
(a) As soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a consolidated
(and consolidating) balance sheet of the Company and its Subsidiaries, if any,
as at the end of such fiscal year, and consolidated (and consolidating)
statements of operations, accumulated earnings and cash flows of the Company and
its Subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail audited (without scope limitations imposed by the Company) and
certified by independent public accountants of recognized national standing
selected by the Company and satisfactory to the Purchasers.
(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and
in any event within thirty (30) days thereafter, a consolidated (and
consolidating) balance sheet of the Company and its Subsidiaries, if any, as of
the end of each such quarterly period, and consolidated (and consolidating)
statements of operations, accumulated earnings and cash flows of the Company and
its Subsidiaries, if any, for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from year-end audit adjustments, and setting forth any events which could
reasonably be expected to have an adverse effect upon the Company's or any
Subsidiary's finances or the results of its operations, all in reasonable detail
and certified by the principal financial or accounting officer of the Company.
(c) So long as the Company is subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
lieu of the financial information required pursuant to Sections 7.1(a) and (b),
but within the time periods required for the furnishing thereof, copies of all
SEC Documents filed by the Company, including, but not limited to, its reports
filed on Form 10-KSB, Form 10-QSB, Form 8-K or any successor form or forms.
(d) Each set of financial statements delivered to the Purchasers
pursuant to Section 7.1 will be accompanied by a certificate of the Chairman,
President or a Vice President and the Treasurer or an Assistant Treasurer of the
Company setting forth:
(i) Covenant Compliance - any information required in order to
establish whether the Company and its Subsidiaries were in compliance with
the requirements of this Section 7 during the period covered by the income
statement then being furnished; and
(ii) Event of Default - that the signers have reviewed the
relevant terms of this Agreement and have made, or caused to be made, under
their supervision, a review of the transactions and conditions of the Company
and its Subsidiaries, if any, from the beginning of the accounting period
covered by the income statements being delivered therewith to the date of the
certificate and that such review has not disclosed the existence during such
period of any condition or event which constitutes a breach or default under
this Agreement or any of the other agreements contemplated hereby or, if any
such condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Company has taken or proposes to take with
respect thereto.
7.2 Additional Information and Rights.
The Company will, for any Purchaser which owns any Shares or 10% or more of
the Conversion Shares, Warrant Shares or Exchange Notes:
(a) Permit such Purchaser (or its designated representative) to visit
and inspect any of the properties of the Company and its Subsidiaries, including
its books of account, and to discuss its affairs, finances and accounts with the
Company's and its Subsidiaries' officers and its independent public accountants,
all at such reasonable times and as often as any such party may reasonably
request. Any such Purchaser shall give not less than two (2) business days
notice of any such visitation or inspection and such visitation or inspection
shall be performed in a reasonable manner and with due regard to the proprietary
and confidential nature of any information received by it.
(b) Deliver the reports and data described below to such Purchaser:
(i) At such Purchaser's request, at such time as such
information is delivered to the Company's Board of Directors, all monthly
financial statements delivered to the Company's Board of Directors,
including, without limitation, a consolidated balance sheet of the Company
and its Subsidiaries, if any, as at the end of such month, and consolidated
statements of operations, accumulated earnings and cash flows of the
Company and its Subsidiaries, if any, for each month, prepared in
accordance with generally accepted accounting principles consistently
applied; provided that if the Company does not prepare the foregoing
financial statements within thirty (30) days after the end of any fiscal
month, the Company agrees to make its records available and to make Company
management available for consultation with the Purchasers and/or their
agents or consultants in order that the Purchasers shall be able, at their
own expense, to develop or complete such financial statements. In the
event that the Company wishes to use such financial statements developed by
the Purchasers, the Purchasers may charge the Company a reasonable
consulting fee therefor.
(ii) Make best efforts to deliver sixty (60) days or more before
the commencement of its fiscal year the Company's budget and its operating
plan (the "Annual Budget") approved by the Board indicating, among other
things, quarterly income statements, balance sheets and cash flow
statements for the next fiscal year, plans for incurring indebtedness and
projections regarding other sources of funds; any material changes in such
financial plan shall be submitted as promptly as practicable after such
changes have been approved by the Board; provided that if the Company does
not prepare an Annual Budget by 60 days before the commencement of its
fiscal year or notifies the Purchasers that it does not intend to do so,
the Company agrees to make the Company's records available and to make
Company management available for consultation with the Purchasers and/or
their agents or consultants in order that the Purchasers shall be able, at
their own expense, to develop or complete such Annual Budget. In the event
that the Company wishes to use such Annual Budget developed by the
Purchasers, the Purchasers may charge the Company a reasonable consulting
fee therefor.
(iii) As soon as available, information and data on any material
adverse changes in or any event or condition which materially adversely
affects or could materially adversely affect the business, operations,
properties or plans of the Company;
(iv) Immediately upon becoming aware of any condition or event
which constitutes a breach of this Agreement, the Financing Documents or
any agreement contemplated hereby or thereby, written notice specifying the
nature and period of existence thereof and what action the Company is
taking or proposes to take with respect thereto; and
(v) With reasonable promptness, such other information and data
with respect to the Company and its Subsidiaries as any such party may from
time to time reasonably request.
(c) Hold meetings of its Directors at least quarterly and provide ten
(10) days notice in writing of such meetings and in any event such Purchaser
shall receive notice no less favorable than any other outside director
(provided, however, that in the case of emergency, the Purchaser shall be given
no less than 2 hours notice and permitted to participate by telephone) and, if
such Purchaser does not have a representative on the Board of Directors and
holds at least 16,000 of the Shares or Exchange Notes received in exchange
therefor, will permit such Purchaser to send a representative (without voting
rights and subject to such representative executing a confidentiality agreement
in a form to be provided by the Company) to each meeting of the Board of
Directors of the Company and all committees of such Board.
7.3 Prompt Payment of Taxes, etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon
the income, profits, property or business of the Company or any
Subsidiary; provided, however, that any such tax, assessment, charge or
levy need not be paid if the validity thereof shall at the time be
contested in good faith by appropriate proceedings, and provided, further,
that unless otherwise approved by the Board, the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor. Unless otherwise approved by the Board, the Company will
promptly pay or cause to be paid when due, or in conformance with customary
trade terms, all other obligations incident to its operations.
7.4 Maintenance of Properties and Leases. The Company and each Subsidiary
will keep its properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all needful
and proper, or legally required, repairs, renewals, replacements, additions
and improvements thereto; and the Company and each Subsidiary will at all
times comply with each provision of all leases to which it is a party or
under which it occupies, or has possession of, property if the breach of
such provision might have a material adverse effect on the condition,
financial or otherwise, or operations of the Company or any Subsidiary.
7.5 Insurance. The Company will keep its assets and those of its
Subsidiaries which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, extended
coverage and explosion in amounts sufficient to prevent the Company or any
Subsidiary from becoming a co-insurer and not in any event less than 80% of
the insurable value of the property insured. The Company will maintain for
itself and its Subsidiaries, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated. All such policies of insurance shall be
occurrence policies with "tail coverage" so-called respecting all prior
"claims made" policies, all in a form reasonably satisfactory to the
Purchasers. The Company shall give prompt written notice to the Purchasers
and to insurers of loss or damage to the property and shall promptly file
proof of loss with insurers.
7.6 Key Person Life Insurance. The Company will use its best efforts to
maintain or cause to be maintained, with financially sound and reputable
insurers, term life insurance on the lives of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ in the amount of $2,000,000 and on the lives of such other
officers and employees of the Company and in such amounts as the Board may
from time to time designate. Such policies shall be owned by the Company
and all benefits thereunder shall be payable to the Company; provided,
however, that at such time as the insured individual is no longer employed
by the Company (except in the case of termination for cause), such
individual may have the policy transferred to him upon payment to the
Company of the pro-rated portion of premiums paid by the Company applicable
to the remaining term of such policy.
7.7 Accounts and Records. The Company will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
7.8 Compliance with Requirements of Governmental Authorities. The Company
shall duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of its businesses or to its property or
assets the non-compliance with which would have a material adverse effect
on the Company. Without limiting the generality of the foregoing, the
Company will:
(a) Comply with all minimum funding requirements applicable to any
pension plans, employee benefit plans or employee contribution plans which
are subject to ERISA or to the Internal Revenue Code of 1986, as amended
(the "Code"), and comply in all other respects with the provisions of
ERISA and the provisions of the Code applicable to such plans;
(b) Comply with all applicable laws of the United States and of each
applicable jurisdiction relating to equal employment opportunity, any rules,
regulations, administrative orders and Executive Orders relating thereto and the
applicable terms, relating to equal employment opportunity, of any contract,
agreement or grant the Company has with, from or relating (by way of subcontract
or otherwise) to any other contract, agreement or grant of, any federal or state
governmental unit; and keep all records required to be kept, and file all
reports, affirmative action plans and forms required to be filed, pursuant to
any such applicable law or the terms of any such government contract; and
(c) So conduct its business that neither the Company nor any property
owned or occupied by the Company is in violation of any Federal or State
Environmental Law of any sort or in violation of any Federal or State "OSHA" Law
so-called.
7.9 Maintenance of Corporate Existence, etc. The Company shall:
(a) Maintain in full force and effect its corporate existence,
rights, government approvals and franchises and all licenses and other rights to
use patents, processes, licenses, trademarks, trade names or copyrights owned or
possessed by it and deemed by the Company to be necessary and material to the
conduct of its business.
(b) Not transfer, assign or license any of its Listed Rights or
Intellectual Property now owned or hereafter acquired by it without the
written consent of the Purchasers holding two-thirds of the Shares (or
Exchange Notes exchanged therefor), which consent the Purchasers may
withhold in their reasonable discretion.
7.10 Availability of Common Stock for Conversion and Warrant Exercise.
The Company will, from time to time, in accordance with the laws of the
state of its incorporation, increase the authorized amount of Common Stock
if at any time the number of shares of Common Stock remaining unissued and
available for issuance shall be insufficient to permit the conversion of
all the then outstanding shares of the Series A Preferred or the exercise
of the Warrants.
7.11 Invention and Secrecy Agreement.
(a) The Company will make best efforts to enter into an Invention
and Secrecy Agreement to the effect and in substantially the form of Exhibit C
hereto or as otherwise approved by the Board with each person currently and
hereafter employed by it with access to confidential information.
(b) The Company will cause all technological developments,
inventions, discoveries or improvements made by employees of the Company
and its Subsidiaries in the course of their employment with the Company to
be fully documented in engineering notebooks in accordance with the
prevailing industrial professional standards, and where possible and
appropriate, cause all employees to file and prosecute United States and
foreign patent applications relating to and protecting such developments.
7.12 Use of Proceeds. The Company will use the proceeds from the sale of
the Shares for the purposes described in Section 3.17 hereof.
7.13 Compliance by Subsidiaries. The Company will cause any Subsidiary
which it may now have and/or which it may organize or acquire in the future
to comply fully with all the terms and provisions of this Section 7 to the
same extent as if such Subsidiary or Subsidiaries were the "Company"
herein.
7.14 Expenses of Board Members. The Company agrees to reimburse each of
the directors elected to the Company's Board of Directors by the Purchasers
for their reasonable out-of-pocket travel and living expenses in connection
with attending Board of Directors' meetings and performing their respective
obligations and responsibilities as directors of the Company.
7.15 Securities Law Filings. The Company will make any filings necessary
to perfect in a timely fashion exemptions from (i) the registration and
prospectus delivery requirements of the Securities Act, and (ii) the
registration or qualification requirements of all applicable securities or
blue sky laws of any state or other jurisdiction, for the issuance of the
Shares to the Purchasers.
7.16 Pro-Forma Financial Statements. The Company will make best efforts
to furnish forecasts of hard orders and projected pro-forma financial
statements, including balance sheets, income statements and cash flow
statements, presented on a quarterly basis, on a twelve-month rolling
basis. Such projected pro-forma financial statements shall be in form and
substance acceptable to the holders of Series A Preferred. In the event
that the Company does not supply such forecasts and pro-forma financial
statements on a timely basis, the Company agrees to make the Company's
records available and to make Company management available for consultation
with the Purchasers and/or their agents or consultants in order that the
Purchasers shall be able, at their own expense, to develop or complete such
forecasts and financial statements. In the event that the Company wishes
to use such forecasts and financial statements developed by the Purchasers,
the Company and the Purchasers agree to negotiate in good faith with
respect to a reasonable consulting fee therefor, and if such fee cannot be
agreed upon, the Company agrees that it shall not make use of such
forecasts or financial statements without the consent of the Purchasers.
7.17 Exchange Note. If at any time twelve months from the date hereof,
the Average Market Price (as defined in the Certificate) of the Company's
Common Stock shall be less than two times the initial Conversion Price per
share, upon the request of any Purchaser, the shares of Series A Preferred
Stock held by such Purchaser (or any portion thereof as requested by the
Purchaser) shall be exchanged by the Company for a convertible promissory
note of the Company in the principal amount corresponding to the Purchaser's
purchase price for such shares plus an annualized return on such purchase price
from the date of purchase equal to 35%, plus all accrued dividends on such
shares, bearing interest at 10% per annum (each, an "Exchange Note"). Equal
payments of principal and interest shall be payable on the Exchange Notes
quarterly over a two year period, commencing six months from the issuance of
such Exchange Note. Any Exchange Note shall be convertible at the option of the
holder into such number Common Stock as calculated by dividing the principal
balance and accrued interest on such Exchange Note by the Conversion Price (as
defined in the Certificate). The Exchange Notes shall contain covenants and
terms of default no less favorable to such Purchaser than those typically found
in commercial loans to businesses presenting a similar risk as the Company, but
in no event shall such covenants be less favorable to the Purchaser than those
contained herein and in accordance with the rights and privileges of the Series
A Preferred Stock. All approval rights granted to the holders of the Series A
Preferred Stock shall be granted to the Purchaser as the holder of an Exchange
Note, including approval rights equivalent to the voting rights of the number of
shares of Series A Preferred Stock exchanged for the Exchange Note. The Company
shall covenant to ensure the continued election of the same number of members of
the Board of Directors designated by the Purchasers as the Purchasers were
entitled to prior to exercising their rights under this section. In the event
that (1) the Company's right or ability to manufacture or sell its product in
the United States, Europe or Japan is limited as a result of a determination
that the Company is infringing on the intellectual property rights of any other
person; (2) the claims under any of the patents listed on the Schedule of
Exceptions are materially narrowed or invalidated; or (3) the Company is unable
to obtain a line of credit of at least $650,000 from a commercial bank
acceptable to Telantis Venture Partners V, Inc. by October 31, 1998, then
regardless of the Average Market Price at the time of such occurrence, any
Purchaser shall have the right to exercise its rights under this section,
provided, however, that under such circumstance, the Exchange Notes issued shall
be payable on demand.
7.18 Line of Credit. The Company shall obtain a line of credit of not
less than $650,000 from a commercial bank acceptable to Telantis Venture
Partners V, Inc. by October 31, 1998.
SECTION 8
Negative Covenants
The Company agrees that, so long as any Purchaser is a Holder of Restricted
Securities or Exchange Notes the Company (and each of its Subsidiaries unless
the context otherwise requires) will not do any of the following without the
approval of 75% of the Board (unless such other requirement is set forth below):
8.1 Sale/Purchase of Assets; Merger. Without the written consent of the
holders of 50% in interest of the Restricted Securities and Exchange Notes,
hereafter:
(a) Sell or otherwise dispose of the capital stock of any Subsidiary
or of all or a substantial part of the Company's assets or business or of all or
a substantial part of the assets or business of any Subsidiary (whether by sale
of assets, exclusive license or otherwise);
(b) Purchase or otherwise acquire capital stock of any corporation or
equity interest in any other entity or lend money to any person or entity or
purchase a substantial part of the operating assets of any person or entity; or
(c) Consolidate with or merge into or with any other person or entity
or permit any other person or entity to consolidate with or merge into it
(except that a 100% Subsidiary may consolidate with or merge into the Company or
another 100% Subsidiary); provided that the foregoing restriction does not apply
to the merger of another corporation into the Company, if:
(i) The Company is the surviving corporation and more than 50%
of the outstanding common stock of the surviving corporation is owned by persons
who prior to such merger owned Common Stock of the Company;
(ii) After giving effect to the proposed merger or consolidation
the surviving corporation will be engaged in substantially the same lines of
business; and
(iii) Immediately after the consummation of the transaction, and
after giving effect thereto, no default under this Agreement or any Financing
Document would exist.
8.2 Future Registration Rights. Except as expressly permitted by this
Agreement and except for an underwriting agreement between the Company and
one or more professional underwriters of securities, the Company shall not
agree to register any Equity Securities under the Securities Act with any
rights senior to, or on a pari passu basis with, the Purchasers. Without
limiting the foregoing, if the Company, after receiving the approval required
under this section, grants registration rights to any other person, the Company
shall give notice thereof and provide a copy of the agreement containing such
registration rights to the Purchasers. If any Purchaser, in its sole
discretion, determines that the rights granted to the other person are senior to
the rights held by the Purchaser ("Senior Rights"), such Purchaser may elect the
Senior Rights by providing the Company with notice of such election within 30
days of its receipt of notice from the Company. Upon such notification, the
Company shall enter into an agreement with such Purchaser granting such
Purchaser the Senior Rights.
8.3 Private Offerings. Except in a public offering registered under the
Securities Act, issue or sell any Equity Security unless each issuer and
purchaser agrees in writing with the Company not to effect any public sale
or distribution of any such Equity Security during the ten (10) business
days prior to and the ninety (90) calendar days after the effectiveness of
any underwritten registration of securities of the Company, except as part
of such underwritten registration if otherwise permitted.
8.4 Changes in Type of Business. So long as any Shares or Exchange Notes
remain outstanding, make any substantial change in the character of its
business.
8.5 Loans, Guarantees. Make any loan or advance to any person or entity
in excess of $100,000 in the aggregate, including, without limitation, any
employee or director of the Company or any Subsidiary, except advances for
travel and entertainment expenses, relocation costs and similar expenditures in
the ordinary course of business or under the terms of an employee stock option
plan or stock purchase agreement approved by the Board; or guarantee, directly
or indirectly, any Indebtedness except for trade accounts of the Company or any
Subsidiary arising in the ordinary course of business.
8.6 Issuance of Equity Securities. Hereafter issue, sell, grant or award
or enter into any agreement or adopt any plan to issue, sell, grant or award any
Equity Security or option to acquire any Equity Security except to management,
directors and employees of, and consultants to, the Company in compliance with
Section 2.2 or Section 8.14 hereof. Without limiting the foregoing, if the
Company intends to sell any Equity Security to any other person, the Company
shall give notice thereof and provide a copy of the documents pertaining to the
sale and defining the rights and privileges of such Equity Security to the
Purchasers. If any Purchaser, in its sole discretion, determines that the terms
attendant to the sale of such Equity Security or the rights and privileges of
such Equity Security are preferable to the rights held by the Purchaser
("Preferred Securities"), such Purchaser may elect to exchange the securities
purchased hereunder for Preferred Securities, with all rights, privileges and
terms of sale attendant thereto, by providing the Company with notice of such
election within 30 days of its receipt of notice from the Company. Upon such
notification, the Company shall enter into all necessary agreements with such
Purchaser to exchange the securities purchased hereunder for such amount of
Preferred Securities as would have a sale price equivalent to the greater of (i)
the purchase price paid by the Purchaser hereunder or (ii) the Fair Market Value
of the securities purchased hereunder at the time of such exchange. The "Fair
Market Value" at any date of the securities purchased hereunder shall equal the
sum of (i) the Current Market Price (as defined in the Certificate) of one share
of Common stock multiplied by the sum of (w) the number of shares of Common
Stock into which the Shares held by the Purchaser are then convertible and (x)
the number of shares of Common Stock for which the Warrant held by the Purchaser
would be exercisable in a cashless exercise and (ii) the greater of (y) the
principal and accrued interest owing on any Exchange Note held by the Purchaser
or (z) the Current Market Price multiplied by the number of shares of Common
Stock into which such Exchange Note is then convertible.
8.7 Purchase of Equity Securities. Directly or indirectly redeem,
purchase or otherwise acquire, or permit any Subsidiary to redeem, purchase
or otherwise acquire, any of the Company's Equity Securities except as
permitted by this Agreement, the Shareholders' Agreement, the Certificate
or any agreement with management, directors and employees of, and consultants
to, the Company in accordance with Section 8.14.
8.8 Conflicting Agreements. Without the written consent of the holders of
75% in interest of the Restricted Securities and Exchange Notes, become subject
to, or permit any of its Subsidiaries to become subject to, any agreement or
instrument, which by its terms would (under any circumstances) restrict the
Company's right to perform any of its obligations pursuant to the terms of this
Agreement or any agreement contemplated hereby, the Certificate, the Financing
Documents, or the Company's By-laws (including, without limitation, all
obligations relating to payment of dividends on and making redemptions of the
Series A Preferred and conversions of the Series A Preferred).
8.9 Amendment of Charter Documents. Without the written consent of the
holders of 75% in interest of the Restricted Securities and Exchange Notes,
except as contemplated by this Agreement, make any amendment to the Company's
Certificate of Incorporation or By-laws, or file any resolution of the Board
with the Secretary of State of the State of Delaware containing any provisions
which would adversely affect or otherwise impair the rights of the holders of
the Series A Preferred, the Conversion Shares, the Warrants or the Warrant
Shares under this Agreement, the Certificate or the Company's By-laws.
8.10 Related Party Transactions. Enter into, or permit any Subsidiary to
enter into, any transaction with any Related Party or any of its or any
Subsidiary's Affiliates, except as otherwise expressly contemplated by this
Agreement or disclosed in the SEC Documents.
8.11 Subsidiaries. Establish or acquire (a) any Subsidiaries other than
wholly-owned Subsidiaries, or (b) any Subsidiaries organized outside of the
United States and its territorial possessions.
8.12 Business Plan. Adopt a new plan or make any material changes in the
plan or the Company's and its Subsidiaries operation of the Company's business
as set forth in the Confidential Information Memorandum and that certain Summary
Plan of Restructure and Growth dated April 30, 1998 (the "Restructuring
Memorandum").
8.13 Amendment of Other Agreements. Without the written consent of the
holders of 75% in interest of the Restricted Securities and Exchange Notes,
amend, modify or waive any provision of any of the Financing Documents, fail to
enforce the provisions of any of the Financing Documents or avail itself of all
rights and remedies thereunder.
8.14 Employee Stock Plans. Hereafter issue, sell, grant or award any
Equity Security or any option to acquire any Equity Security to employees,
consultants or advisors to the Company, provided, however, that the Company
may issue, sell grant or award any Equity Security or option to acquire any
Equity Security under the Company's Employee Stock Purchase Plan or the
Company's 1995 Stock Incentive Plan, in each case as existing on the date
hereof.
8.15 Liens. Create, assume or permit, or permit any Subsidiary to create,
assume or permit, any Lien upon any of its properties or assets, whether now
owned or hereafter acquired, except (a) Liens existing as of the date hereof as
disclosed in Section 3.7 hereof, (b) any Lien on any asset of a corporation
existing at the time such corporation is merged into or consolidated with the
Company and not created in contemplation of such event, (c) any Lien existing on
any asset prior to the acquisition thereof by the Company and not created in
contemplation of such event, (d) any Lien created on any real property or
equipment in connection with the leasing of such real property or equipment, (e)
Permitted Liens, and (f) such Liens as are approved by a majority of the Board.
8.16 Executive Compensation. (a) Pay or provide annual aggregate cash and
noncash compensation in excess of a base salary of $250,000 and incentive
compensation of $500,000 (including, in each case, any form of personal
benefit or property and including any compensation which has been earned by
payment or which has been deferred, but excluding compensation pursuant to
group life, health, hospitalization, medical or dental reimbursement or
relocation plans that do not discriminate in scope, terms or operation in
favor of officers, directors or key employees of the Company and that are
available generally to all salaried employees), or (b) otherwise fix the
compensation of, or grant compensation to, any key employee of the Company
or any Subsidiary.
8.17 Investments. Own, purchase or acquire any stock, obligations or
securities of, or any interest in, or make any capital contribution to, any
other Person, or own, purchase or acquire any property not used in the usual and
ordinary course of business, except that the Company or any Subsidiary may (a)
own, purchase or acquire certificates of deposit in or repurchase agreements
from United States commercial banks having capital resources in excess of
$100,000,000 and obligations of the United States Government or any agency
thereof and obligations guaranteed by the United States Government, (b) invest
in commercial paper rated at least Prime 1 by ▇▇▇▇▇'▇ Industrial Manual, (c)
deposit funds in money market accounts in financial institutions having capital
resources in excess of $100,000,000, and (d) make such investments as are
approved by a majority of the Board.
8.18 Purchases and Sales. Hereafter, except as contemplated by the Annual
Budget:
(a) other than normal operating expenditures made as a part of the
ordinary course of the Company's business, purchase, directly or indirectly, any
item (or group of items) of real or personal property which has a purchase price
in excess of $10,000 or enter into any other transaction with respect to such
item (or group of items) which, under generally accepted accounting principles
is or should be treated as a purchase or capital expenditure for accounting
purposes; or
(b) increase the compensation of any person listed in part 3.16 of
the Schedule of Exceptions and will not compensate any other officer, director
or employee at an annual rate of $50,000 per year or more.
8.19 Leases. Enter into any leases or other rental agreements (excluding
capitalized leases) that are not within the scope of an Annual Budget, except
for leases of personal property within the ordinary course of the Company's
business and not exceeding $25,000 in the aggregate. The Company shall obtain
the consent of the holders of 75% in interest of the Restricted Securities and
Exchange Notes held by the Purchasers if the value of such leases exceeds
$100,000 in the aggregate.
8.20 Indebtedness. Create, incur, issue, assume, guarantee or otherwise
become or remain directly or indirectly liable for, or permit any Subsidiary to
create, incur, issue, assume, guarantee or otherwise become or remain directly
or indirectly liable for, any Indebtedness in excess of $100,000 in the
aggregate (other than a credit line for trade receivables of up to $1,000,000
(the "Trade Receivables Credit Line"). The Company shall obtain the consent of
the holders of 75% in interest of the Restricted Securities and Exchange Notes
held by the Purchasers if the aggregate of any such additional indebtedness
(exclusive of the Trade Receivables Credit Line) exceeds $1,500,000 in the
aggregate.
8.21 Compliance by Subsidiaries. The Company will cause any Subsidiary
which it may now have and/or which it may organize or acquire in the future
to comply with all the terms and provisions of this Section 8 to the same
extent as if such Subsidiary were the "Company" herein.
SECTION 9
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
9.1 Restrictions on Transferability. None of the Shares, the Conversion
Shares, the Warrants or the Warrant Shares shall be transferable, except upon
the conditions specified in this Section 9, which conditions are intended to
insure compliance with the provisions of the Securities Act or, in the case of
Section 9.15 hereof, to assist in an orderly distribution of the Company's
securities. Each Purchaser will cause any proposed transferee of Shares,
Conversion Shares, Warrants or Warrant Shares held by such Purchaser to agree to
take and hold those securities subject to the provisions and upon the conditions
specified in this Section 9.
9.2 Certain Definitions. As used in this Section 9, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Restricted Securities" shall mean the securities of the Company required
to bear or bearing the legend set forth in Section 9.3 hereof.
"Registrable Securities" shall mean, from time to time (i) the Conversion
Shares and the Warrant Shares less any Conversion Shares and Warrant Shares
theretofore sold to the public, and (ii) any shares of Common Stock issued
as dividends on the Shares.
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 effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Sections 9.5, 9.6 and 9.7 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company and one special counsel for all Holders chosen by the
Holders of a majority of the securities included in such registration, blue sky
fees and expenses, and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).
"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 any Holder.
"Holder" shall mean any holder of outstanding Shares or Registrable
Securities which have not been sold to the public or any transferee thereof,
where the transfer is made in compliance with the provision of Section 9.14.
"Initiating Holders" shall mean any Purchasers (or their assignees under
Section 9.14 hereof) who in the aggregate are Holders of not less than fifty
percent (50%) of the Registrable Securities, and, after any other Holder or
Holders have joined in a request by Initiating Holders, shall include such other
Holder or Holders.
"Other Shareholders" shall have the meaning set forth in Section 9.5(b).
9.3 Restrictive Legend. Each certificate representing (i) the Shares, or
(ii) Conversion Shares, or (iii) the Warrants, or (iv) the Warrant Shares,
or (v) any other securities issued in respect of the Series A Preferred or
the Conversion Shares, the Warrants or the Warrant Shares upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted or unless the securities evidenced
by such certificate shall have been registered under the Securities Act) be
stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required under applicable state securities
laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT.
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if with such request, the
Company shall have received either the opinion referred to in Section
9.4(a)(i) or the "no-action" letter referred to in Section 9.4(a)(ii), to
the effect that any transfer by such holder of the securities evidenced by
such certificate will not violate the Securities Act and applicable state
securities laws.
9.4 Notice of Proposed Transfers and Securities Act Compliance.
(a) The holder of Restricted Securities by acceptance thereof agrees
to comply in all respects with the provisions of this Section 9.4. Prior
to any proposed transfer of any Restricted Securities (other than under
circumstances described in Sections 9.5, 9.6 and 9.7 hereof), the holder
thereof shall give written notice (or oral notice in the case of
transactions in compliance with Rule 144) to the Company of such holder's
intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied (except in transactions in compliance with Rule 144 or
transfers to Affiliates) by either (i) a written opinion of Day, ▇▇▇▇▇ &
▇▇▇▇▇▇ LLP or other legal counsel (including counsel for the holder who
also may be an employee of the holder) who shall be reasonably satisfactory
to the Company, addressed to the Company and reasonably satisfactory in
form and substance to the Company's counsel, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act and applicable state securities laws,
or (ii) a "no-action" letter from the Commission to the effect that the
distribution of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with
respect thereto. Upon receipt by the Company of such notices and
accompanying opinion or "no-action" letter, if required, the holder of such
Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the
holder to the Company. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 9.3 above, except that such
certificate need not bear such restrictive legend if such legend is no
longer required if the opinion of counsel or "no-action" letter referred to
above is to the further effect that such legend is not required in order to
establish compliance with any provisions of the Securities Act or
applicable state securities laws or if the transaction is made, to the
Company's reasonable satisfaction, in compliance with Rule 144.
(b) With a view to making available the benefits of certain rules and
regulations of the Commission and applicable state securities laws which
may permit the sale of the Restricted Securities without registration, the
Company agrees to (i) make available to the holder of Restricted Securities
and any proposed transferee current financial and other information about
the Company (it being agreed that current filings pursuant to the Exchange
Act shall fulfill this requirement), and (ii) use its best efforts to
otherwise cooperate with such holder and such transferee, all as may be
reasonably required by such holder or proposed transferee.
9.5 Requested Registration.
(a) Request for Registration. If at any time the Company shall
receive from Initiating Holders a written request that the Company effect a
registration with respect to all or a part of the Registrable Securities,
the Company will, without limiting any other rights under this Section 9:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its commercially reasonable best
efforts to effect such registration (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 may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Registrable Securities
as are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request as
are specified in a written request given by such Holder or Holders within
thirty (30) days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 9.5 if the
request for registration does not request the registration of Registrable
Securities equal to not less than 25% of the number of the shares of Common
Stock issuable upon conversion of all of the Series A Preferred Stock issued
by the Company pursuant to this Agreement (including shares issued pursuant
to Section 2.2 hereof).
Subject to subsection 9.5(a)(ii), the Company shall file a registration
statement covering the Registrable Securities so requested to be registered
as soon as practicable after receipt of the request or requests of the
Initiating Holders.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of subsection 9.5(b) below, include
other securities of the Company which are held by officers or directors of
the Company or which are held by parties who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 9.5 and the Company shall include such information in the written
notice referred to in subsection 9.5(a)(i) above. The right of any Holder to
registration pursuant to this Section 9.5 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein.
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to this Section
9.5, or if holders of securities of the Company who are entitled, by contract
with the Company, to have securities included in such registration (the "Other
Shareholders") request such inclusion, the Initiating Holders shall, on behalf
of all Holders, offer to include the securities of such officers, directors and
Other Shareholders in the underwriting and may condition such offer on their
acceptance of all applicable provisions of this Section 9. The Company shall
(together with all Holders, officers, directors and Other Shareholders proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 9.5, if the
representative of the underwriter or underwriters advises the Initiating
Holders in writing that marketing factors make it advisable to impose a
limitation on the number of shares to be underwritten, the securities of
the Company (other than Registrable Securities) held by officers or
directors of the Company and by Other Shareholders shall be excluded from
such registration to the extent so required by such limitation and if a
limitation of the number of shares is still required, the Initiating
Holders shall so advise all Holders of Registrable Securities whose
securities would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such Holders in
proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such persons at the time of filing the
registration statement. No Registrable Securities or any other securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration.
If any Holder of Registrable Securities, officer, director or Other
Shareholder above disapproves of the terms of the underwriting, such party
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The securities so withdrawn shall
also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or
other securities to be underwritten, the Company may include its securities
for its own account in such registration if the underwriter so agrees and
if the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
9.6 Company Registration.
(a) Notice of Registration. If the Company shall determine to
register any of its securities either for its own account or the account of
a security holder or holders exercising their respective demand registration
rights, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales, the
Company will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in subsection 9.6(b) below.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to subsection
9.6(a)(i). In such event, the right of any Holder to registration pursuant to
Section 9.6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company,
directors and officers and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company.
Notwithstanding any other provision of this Section 9.6, if the underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude from such registration and underwriting some or all of the
Registrable Securities which would otherwise be underwritten pursuant hereto.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner: The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and Other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities held by such persons at the time of filing the
registration statement.
If any Holder of Registrable Securities or any officer, director or Other
Shareholder disapproves of the terms of any such underwriting, such party
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
9.7 Registration on Form S-2 or Form S-3. The Company shall use its best
efforts to qualify for the use of Form S-2 and Form S-3 or any comparable or
successor form or forms of the Commission; and to that end the Company shall
maintain its registration (whether or not required by law to do so) of the
Common Stock under the Exchange Act, in accordance with the provisions of the
Exchange Act. After the Company has qualified for the use of either Form S-2 or
Form S-3, or both, in addition to the rights contained in the foregoing
provisions of this Section 9, the Holders of Registrable Securities shall have
the right to request registrations on Form S-2 or Form S-3 (by written request
stating the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of such shares by such Holder or Holders),
subject only to the following:
(i) No request made under this Section 9.7 shall require a
registration statement requested therein to become effective (a) prior to
ninety (90) days after the effective date of a registration statement filed
by the Company covering a firm commitment underwritten public offering of
Common Stock, or (b) prior to ninety (90) days after the effective date of
a registration statement referred to in (a) above if the Company shall
theretofore have given written notice of such registration statement to the
Holders of Registrable Securities pursuant to subsection 9.5(a) or 9.6(a)
and shall have thereafter pursued the preparation, filing and effectiveness
of such registration statement with diligence; and
(ii) The Company shall not be required to effect a registration
pursuant to this paragraph 9.7 unless the Registrable Securities requested
to be registered pursuant to this paragraph 9.7 have a proposed public
offering price of $2,000,000 or more;
The Company shall give notice to all Holders of Registrable Securities of
the receipt of a request for registration pursuant to this Section 9.7 and
shall provide a reasonable opportunity for other Holders to participate in
the registration, and, if the intended method of disposition specified as
aforesaid is an underwritten public offering, participation by the Company
and other holders of Common Stock shall be on the basis set forth in
Section 9.5(b) above. Subject to the foregoing, the Company will use its
commercially reasonable efforts to effect promptly the registration of all
shares of Registrable Securities on Form S-2 or Form S-3 to the extent
requested by the Holder or Holders thereof for purposes of disposition.
9.8 Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Sections 9.5, 9.6 and 9.7 hereof.
All Selling Expenses shall be borne by the holders of the securities so
registered pro rata on the basis of the number of their shares so registered.
9.9 Registration Procedures. In the case of each registration effected by
the Company pursuant to this Section 9, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. Except as provided in Section 9.7, at its expense, the
Company will:
(a) keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs, provided, however, that such 120-day period shall
be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration in accordance
with the provisions of Section 9.15 hereof;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable
Securities under the securities or blue-sky laws of such jurisdictions as
any Holder may request; provided, however, that the Company shall not be
obligated to register or qualify such Registrable Securities in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in order to effect such registration,
qualification or compliance, unless the Company is already subject to
service in such jurisdiction and except as may be required by the
Securities Act or applicable rules or regulations thereunder.
9.10 Indemnification and Contribution.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 9, will indemnify and hold
harmless each Holder, each of its officers, directors and partners, and
each party controlling such Holder, and each underwriter, if any, and each
party who controls 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 Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of
its officers, directors and partners, and each party controlling such
Holder, each such underwriter and each party who controls any such
underwriter, for any legal and any other expenses incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case 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 solely upon
written information furnished to the Company by such Holder or underwriter,
as the case may be, and specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by such party are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each party who
controls the Company or such underwriter, each other such Holder and Other
Shareholder and each of their respective officers, directors and partners, and
each party controlling such Holder or Other Shareholder, 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 statements
therein not misleading, and will reimburse the Company and such Holders, Other
Shareholders, directors, officers, partners, parties, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or 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 solely in reliance upon and in conformity with written information
furnished to the Company by such Holder or Other Shareholder and specifically
for use therein; provided, however, that the obligations of such Holders and
Other Shareholders hereunder shall be limited to the lesser of: (i) an amount
equal to the proceeds to each such Holder or Other Shareholder of securities
sold as contemplated herein, or (ii) an amount equal to the proportion of such
claims, losses, damages and liabilities as the proceeds to each such Holder or
Other Shareholder of securities sold pursuant to such offering bears to the
total proceeds of such offering.
(c) Each party entitled to indemnification under this Section 9.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (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 or 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
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case any such expense, to the extent it is reasonable, shall be paid by
the Indemnifying Party), 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 Section 9. 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.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Securities exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9.10 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 9.10
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 9.10; then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such holder is responsible for the portion represented by the percentage
that the public offering price of its Restricted Securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
will be required to contribute any amount in excess of the public offering price
of all such Restricted Securities offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
9.11 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 9.
9.12 Limitations on Registration of Issues of Securities. From and after
the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company; provided that this Section
9.12 shall not limit the right of the Company to enter into any agreements with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder the right to require the Company, upon any
registration of any of its securities, to include, among the securities which
the Company is then registering, securities owned by such holder and provided
further that the Board may waive the requirement that the Company not enter into
any agreement giving a holder of any securities of the Company the right to
require the Company to initiate registration of any securities of the Company.
Any right given by the Company to any holder or prospective holder of the
Company's securities in connection with the registration of securities shall be
conditioned such that it shall be (i) consistent with the provisions of this
Section 9 and with the rights of the Holders provided in this Agreement, and
(ii) require the inclusion of Registrable Securities (within the meaning of this
Agreement) in any registration required by any such holder or prospective holder
on the same basis as securities of Other Shareholders are required to be
included in registrations effected pursuant to Sections 9.5 and 9.6 of this
Agreement.
9.13 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale
of the Restricted Securities to the public without registration, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) Use commercially reasonable efforts to file with the Commission
in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as a Purchaser owns any Restricted Securities, furnish to
the Purchasers forthwith upon request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the first
registration statement in connection with an offering of its Securities to
the general public), and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as a Purchaser may reasonably request
in availing itself of any rule or regulation of the Commission allowing a
Purchaser to sell any such securities without registration.
9.14 Transfer of Registration Rights. The rights to cause the Company to
register securities granted by the Company under this Section 9 may be
assigned by any Holder to a transferee or assignee, provided that the Company is
given written notice at the time of or within a reasonable time after said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned, and provided further that the transferee or assignee of such
rights is not deemed by the Board, in its reasonable judgment, to be a
competitor of the Company; and provided further that the transferee or assignee
of such rights assumes the obligations of such Purchaser under this Section 9.
SECTION 10
Definitions
As used in this Agreement or in the Financing Documents, capitalized terms
shall have the respective meanings set forth in this Agreement (including,
without limitation, in Section 9.2 hereof) or set forth below or in the
Section of this Agreement referred to below:
Additional Shares - Section 2.2.
Additional Warrants - Section 2.2.
Additional Purchasers - Section 2.2.
Affiliate shall mean any natural person, corporation, business trust,
association, company, partnership, joint venture or other entity or
government agency or political subdivision which directly or indirectly
controls, is controlled by or is under common control with each entity or
person.
Annual Budget- Section 7.2.
Balance Sheet - Section 3.6.
Board shall mean the entire Board of Directors of the Company.
Certificate - Section 1.1.
Closing - Section 2.1.
Closing Date - Section 2.1.
Code - Section 7.8.
Common Stock - Section 3.4.
Confidential Information Memorandum shall mean the Confidential Financing
Memorandum dated May 1998 and all attachments thereto, delivered to the
Purchasers prior to the date of this Agreement.
Conversion Shares shall mean at any time, shares of Common Stock, $.001 par
value, (i) issued and then outstanding upon the conversion of the Series A
Preferred, (ii) issuable upon the conversion of the Series A Preferred, and
(iii) issued and then outstanding or issuable in respect of the Common
Stock referred to in clause (i) of this definition upon any stock split,
stock dividend, recapitalization or similar event.
Environmental Claim shall mean any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of compliance or violation
(written or oral) by any person or entity (including any governmental
authority) alleging potential liability (including, without limitation,
potential liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a) the presence, or Release or
threatened Release into the environment, of any Hazardous Material at any
location, whether owned, operated, leased or managed by the Company or its
Subsidiaries, or (b) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law, or (c) any and all claims by
any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
Environmental Laws shall mean all laws or orders relating to the regulation
or protection of human health, safety or the environmental (including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata), including, without limitation, laws and regulations relating
to Releases or threatened Releases of Hazardous Materials, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, recycling or handling of Hazardous Materials.
Environmental Permits - Section 3.18.
Equity Securities shall mean any stock or similar security, including
without limitation securities containing equity features and securities
containing profit participation features, or any security convertible or
exchangeable, with our without consideration, into any stock or similar
security, or any security carrying any warrant or right to subscribe to or
purchase any stock or similar security, or any such warrant or right.
Erisa - Section 3.18.
Exchange Act - Section 7.1.
Exchange Note - Section 7.17.
Financing Documents shall mean collectively, the Certificate, the Warrants,
the Shareholders' Agreement and all other documents set forth in any other
schedules or exhibits hereto (other than Exhibit D), under which, upon its
execution thereof, the Company, any Subsidiary, any Founder or any Related
Party shall have an obligation to any Purchaser, all in the respective
forms thereof as executed and as amended from time to time.
Financial Statements - Section 3.6.
Hazardous Materials shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become
friable, above ground or underground storage tanks and compressors or other
equipment that contain polychlorinated biphenyls ("PCBs"), and (b) any
chemicals, materials or substances which are now defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," "pollutants," "contaminants" or
words of similar import, under any Environmental Law; and (c) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any environmental law.
Holder - Section 9.2.
Indebtedness shall mean any obligation of the Company or any Subsidiary,
contingent or otherwise, which under generally accepted accounting principles is
required to be shown on the balance sheet of the Company or such Subsidiary as a
liability. Any obligation secured by a Lien on, or payable out of the proceeds
of or production from, property of the Company or any Subsidiary shall be deemed
to be Indebtedness even though such obligation is not assumed by the Company or
Subsidiary.
Initial Public Offering shall mean the first underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offering and sale of Common Stock for the account of the
Company, on a firm commitment basis.
Intellectual Property - Section 3.12.
Invention and Secrecy Agreement - Section 3.16.
Listed Rights - Section 3.12.
Permitted Liens shall mean (a) Liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which
the validity thereof shall currently be contested in good faith by
appropriate proceedings conducted with due diligence and for the payment of
which the Company has furnished adequate security, (b) Liens in respect of
pledges or deposits under workers' compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's and similar
Liens, if the obligations secured by such Liens are not then delinquent or are
being contested in good faith by appropriate proceedings conducted with due
diligence and for the payment of which the Company has furnished adequate
security, (c) statutory Liens incidental to the conduct of the business of the
Company or any Subsidiary which were not incurred in connection with the
borrowing of money or the obtaining of advances or credits and which do not in
the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business, and (d) purchase money
liens or security interests securing the cost of acquisition of assets subject
to such liens or security interests.
Person shall include all natural persons, corporations, business trusts,
associations, companies, partnerships, joint ventures and other entities
and governments and agencies and political subdivisions.
Related Party shall mean any officer, director, employee or consultant of
the Company or any Subsidiary or any holder of 5% or more of any class of
capital stock of the Company or any Subsidiary or any member of the
immediate family of any such officer, director, employee, consultant or
shareholder or any entity controlled by any such officer, director,
employee, consultant or shareholder or a member of the immediate family of
any such officer, director, employee, consultant or shareholder.
Release shall mean any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, ground water or property.
Restricted Securities - Section 9.2.
SEC - Section 3.22.
SEC Documents - Section 3.22.
Securities Act - Section 3.14.
Series A Preferred - Section 1.1
Shareholders' Agreement - Section 5.11.
Shares - Section 1.1.
Subsidiary shall mean any corporation, partnership, joint venture,
association or other business entity at least 50% of the outstanding voting
stock or voting interests of which is at the time owned or controlled,
directly or indirectly, by the Company or by one or more of such Subsidiary
entities or both.
Technology - Section 3.12.
Warrant - Section 1.1.
Warrant Shares shall mean at any time, shares of Common Stock, $.001 par
value, (i) issued and then outstanding upon the exercise of the Warrants,
(ii) issuable upon the exercise of the Warrants, and (iii) issued and then
outstanding or issuable in respect of the Common Stock referred to in clause (i)
of this definition upon any stock split, stock dividend, recapitalization or
similar event.
SECTION 11
Miscellaneous
11.1 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware. The parties
agree that any legal or equitable suit, action or proceeding arising out of this
Agreement may be instituted and prosecuted in any state or federal court in the
State of Delaware and for the purposes of this Agreement, irrevocably submit to
the jurisdiction of any such court in any such suit, action or proceeding, and
hereby irrevocably name the Secretary of State of the State of Delaware an agent
for service of process.
11.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and shall
survive the Closing for such time as any Shares, Conversion Shares,
Warrants and Warrant Shares have not been registered under the Securities
Act or otherwise sold to the public.
11.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the Company may not assign its
rights hereunder. Without limiting the generality of the foregoing, all
representations, covenants and agreements benefiting the Purchasers shall
inure to the benefit of any and all subsequent holders from time to time of
the Shares, the Conversion Shares, the Warrants and the Warrant Shares.
11.4 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof. Except as
otherwise expressly provided herein, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the holders of seventy-five
percent (75%) or more of the Shares, Conversion Shares, Warrants and
Warrant Shares and Exchange Notes which have not been sold to the public,
but in no event shall this paragraph be amended or the obligation of any
Purchaser hereunder increased, except upon the written consent of such
Purchaser.
11.5 Notices, etc.
(a) All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first-class,
registered or certified mail, postage prepaid, or delivered either by hand
or by messenger, or sent via telex, telecopier, computer mail or other
electronic means, addressed (a) if to a Purchaser, at the address shown on
the Schedule of Purchasers, or at such other address as such Purchaser
shall have furnished to the Company in writing, with a copy sent to: ▇▇▇▇▇
▇. ▇▇▇▇▇, Esq., Day, ▇▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
fax (▇▇▇) ▇▇▇-▇▇▇▇ (b) if to any other holder of any Shares or any
Conversion Shares, at such address as such holder shall have furnished to
the Company in writing, or, until any such holder so furnishes an address
to the Company, then to and at the address of the last holder thereof who
has so furnished an address to the Company, or (c) if to the Company, ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: President and Chief
Executive Officer, or at such other address as the Company shall have
furnished to the Purchasers and each such other holder in writing, with a
copy to: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq., Stradling, Yocca, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
(b) Any notice or other communications so addressed and mailed,
postage prepaid, by registered or certified mail (in each case, with return
receipt requested) shall be deemed to be given when so mailed. Any notice
so addressed and otherwise delivered shall be deemed to be given when
actually received by the addressee.
11.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of Shares or Conversion Shares, upon
any breach or default of the Company under this Agreement, shall impair any
such right, power or remedy of such holder nor shall it be construed to be
a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of
any breach or default under this Agreement, or any waiver on the part of
any holder of any provisions or conditions of this Agreement must be made
in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
11.7 Rights; Separability. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
11.8 Agent's Fees and Services.
(a) The Company represents and warrants that, except as disclosed in
the Schedule of Exceptions, it has retained no finder or broker or other
person or firm in connection with the transactions contemplated by this
Agreement. The Company accepts sole responsibility for and agrees to pay
all agent's fees to any broker, finder or other person or firm in connection
with the transactions contemplated herein. In addition, the Company hereby
agrees to indemnify and to hold the Purchasers harmless of and from any
liability for any commission or compensation in the nature of an agent's fee to
any broker, finder or other person or firm (and the costs and expenses of
defending against such liability or asserted liability) arising from any act by
the Company or any of its employees or
representatives.
(b) Each Purchaser represents and warrants as to itself only that it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement.
11.9 Legal Fees and Expenses. The Company shall bear its own expenses and
legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby. On the Closing Date (or if no closing
shall take place, within thirty (30) days of receiving any statement or
invoice therefor), the Company will pay the reasonable legal fees not to
exceed $30,000 and out-of-pocket expenses of Day, ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP,
special counsel to the Purchasers, with respect to this Agreement and the
transactions contemplated hereby.
11.10 Titles and Subtitles. The titles of the Sections and subsection's of
this Agreement are for convenience or reference only and are not to be
considered in construing this Agreement.
11.11 Counterparts. This Agreement may be executed in counterparts, each
of which when so executed and delivered shall constitute a complete and
original instrument but all of which together shall constitute one and the
same agreement, and it shall not be necessary when making proof of this
Agreement or any counterpart thereof to account for any other counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of
the day and year first written above.
HELISYS, INC.
By: /S/▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President and CEO
PURCHASERS:
TELANTIS VENTURE PARTNERS V, INC.
By: /S/▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its: President
VISALIA TRUST
By: /S/▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Its:
Schedule 1
SCHEDULE OF PURCHASERS
NAME AND ADDRESS SHARES WARRANTS
Telantis Venture Partners V, Inc. $250,000 40,000 500,000
▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(330) 664-2914
Visalia Trust $150,000 24,000 300,000
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
________ ______ ________
$400,000 64,000 800,000