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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. TWO)*
HELISYS, INC.
-------------
(Name of Issuer)
COMMON STOCK, $0.001 PAR VALUE
------------------------------
(Title of Class of Securities)
423282 10 2
-----------
(CUSIP Number)
Robert Steinberg Esq., c/o Jeffer, Mangels, Butler & Marmaro LLP,
2121 AVENUE OF THE STARS, 10TH FLOOR, LOS ANGELES, CALIFORNIA 90067,
(310) 203-8080
---------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
SEPTEMBER 14, 1998
-------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), (f) or (g), check the following box / /.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that Section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
1
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SCHEDULE 13D
<TABLE>
<CAPTION>
- --------------------- ---------------------
CUSIP NO. 423282 10 2
- --------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY)
REED L. HARMAN
- ----------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) /X/
(b) / /
- ----------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ----------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- ----------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / /
- ----------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.A.
- ----------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
-0-
--------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 900,000
OWNED --------------------------------------------------------------------------------------------------------------------
BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON --------------------------------------------------------------------------------------------------------------------
WITH
10 SHARED DISPOSITIVE POWER
900,000
- ----------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
900,000
- ----------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
- ----------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
17.6%
- ----------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- ----------------------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT
2
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SCHEDULE 13D
- --------------------- ---------------------
CUSIP NO. 423282 10 2
- --------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY)
NAN M. HARMAN
- ----------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) /X/
(b) / /
- ----------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ----------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- ----------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / /
- ----------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.A.
- ----------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
-0-
--------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 900,000
OWNED --------------------------------------------------------------------------------------------------------------------
BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON --------------------------------------------------------------------------------------------------------------------
WITH
10 SHARED DISPOSITIVE POWER
900,000
- ----------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
900,000
- ----------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
- ----------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
17.6%
- ----------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT
3
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SCHEDULE 13D
- --------------------- ---------------------
CUSIP NO. 423282 10 2
- --------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY)
VISALIA TRUST
- ----------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) /X/
(b) / /
- ----------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ----------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- ----------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / /
- ----------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA, U.S.A.
- ----------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
-0-
--------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 900,000
OWNED --------------------------------------------------------------------------------------------------------------------
BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON --------------------------------------------------------------------------------------------------------------------
WITH
10 SHARED DISPOSITIVE POWER
900,000
- ----------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
900,000
- ----------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
- ----------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
17.6%
- ----------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
00
- --------------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT
</TABLE>
4
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ITEM 1. SECURITY AND ISSUER
This statement relates to the Common Stock, par value $0.001 per share
("Common Stock"), of Helysis, Inc. a Delaware corporation (the
"Company"), consisting of (i) up to 600,000 shares of Common Stock
issuable upon conversion of Series A Preferred Stock of the Company,
and (ii) 300,000 shares of Common Stock issuable upon exercise of
Warrants to purchase an aggregate of 300,000 shares of Common Stock.
All of such shares and warrants are held of record by Visalia Trust,
a revocable trust of which Reed L. Harman and Nan M. Harman are the
co-trustees.
The Company's principal executive offices are located at 24015 Garnier
Street, Torrance, California 90505.
ITEM 2. IDENTITY AND BACKGROUND
a. This statement is being filed by Reed L. Harman, Nan M. Harman and
the Visalia Trust (collectively, the "Reporting Persons").
b. 1820 Via Visalia, Palos Verdes Estates, California 90274
c. Reed L. Harman is a private investor and is president of Southwest
Investment Partners, a privately held investment company whose
address is 1850 Via El Prado, Suite 405, Redondo Beach, California
90277. Nan M. Harman is the spouse of Mr. Harman and is not
currently employed.
d. None of the Reporting Persons has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors).
e. None of the Reporting Persons has been, during the last five years,
a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and as a result of such proceeding was or
is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with
respect to such laws.
f. U.S.A.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Pursuant to the terms of a Series A Preferred Stock and Warrant
Purchase Agreement, dated September 14, 1998 (the "Purchase
Agreement"), a copy of which is filed as Exhibit 99.A hereto, Visalia
Trust acquired (i) 24,000 shares of Series A Preferred Stock of the
Company (which shares are convertible into an aggregate of 600,000
shares of Common Stock of the Company, subject to adjustment in the
event of certain dilutive issuances), and (ii) Warrants (the
"Warrants") to purchase an aggregate of 300,000 shares of Common Stock
of the Company at an initial exercise price of $.35 per share (subject
to adjustment in the event of certain dilutive issuances). The
aggregate purchase price paid by the Visalia Trust for the shares of
Series A Preferred Stock and Warrants was $150,000. The source of the
funds paid by the Visalia Trust for the Series A Preferred Stock and
Warrants was cash held by the Visalia Trust, none of which was borrowed
or obtained from other sources and all of which was part of the assets
of the Visalia Trust.
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ITEM 4. PURPOSE OF THE TRANSACTION
The Reporting Persons acquired the Series A Preferred Stock and the
Warrants for investment purposes. Based on the Reporting Persons'
ongoing evaluation of the business, prospects, and financial condition
of the Company, the market for and price of the Common Stock, other
opportunities available to the Reporting Persons, and other future
developments, the Reporting Persons reserve the right to change their
plans and intentions at any time, as they deem appropriate. In
particular, the Reporting Persons may decide to sell or seek the sale
of all or part of their present or future beneficial holdings of Common
Stock, or may decide to acquire additional Common Stock, or securities
convertible into or exchangeable for Common Stock, either in the open
market, in private transactions or by any other permissible means.
The Stock Subscription Warrant governing the terms of the Warrants,
includes provisions protecting against certain dilutive events which
could result in an increase or decrease in the number of shares of
Common Stock issuable upon exercise of the Warrants. Reference is made
to Section 2.5 of the Stock Subscription Warrant filed as Exhibit 99.B
hereto.
The Restated Certificate of Designation of Rights, Preferences and
Privileges of Series A Preferred Stock of the Company (the
"Certificate of Designation") which sets forth the rights preferences
and privileges of the Series A Preferred Stock, includes provisions
protecting against certain dilutive events which could result in an
increase or decrease in the number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock into Common Stock.
Reference is made to Section 3 of the Certificate of Designation filed
as Exhibit 99.C hereto.
Pursuant to the provisions of Section 5(a) of the Certificate of
Designation, except as otherwise required by law or discussed below
with respect to the election of directors, the holders of Series A
Preferred Stock shall be entitled to vote as a single class with the
holders of Common Stock. Holders of Series A Preferred Stock shall
have the number of votes per share equal to:
(A) If the average market price of a share of Common Stock (as
defined in the Certificate of Designation) is $2.00 per share or
greater, the number of shares of Common Stock into which each such
share of Series A Preferred Stock is convertible at the time of
the vote;
(B) If the average market price of a share of Common Stock (as
defined in the Certificate of Designation) is less than $2.00 per
share but greater than or equal to $1.00 per share, the number of
shares of Common Stock into which each such share of Series A
Preferred Stock is convertible at the time of the vote multiplied
by 2.5; or
(C) If the average market price of a share of Common Stock (as
defined in the Certificate of Designation) is less than $1.00 per
share, the number of shares of Common Stock into which each such
share of Series A Preferred Stock is convertible at the time of
the vote multiplied by 5.
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As a result of these voting provisions, as of September 21, 1998, the
Reporting Persons had the right to vote the 24,000 shares of Series A
Preferred Stock beneficially owned by them as if they were the
equivalent of 3,000,000 shares of Common Stock. The voting rights
granted to the holders of the Series A Preferred Stock could impede the
acquisition of control of the Company by any other person and the
exercise of any control over the Company by the holders of Common
Stock.
Pursuant to the provisions of Section 5(b) of the Certificate of
Designation, the holders of the outstanding shares of Series A
Preferred Stock, voting as a separate class, have the right to elect
one member of the Board of Directors of the Company. In the event that
240,000 or more shares of Series A Preferred Stock are issued and
outstanding, the holders of the Series A Preferred Stock, voting as a
separate class, shall have the right to elect one additional director.
Reference is made to the Shareholders' Agreement (the "Shareholders'
Agreement"), dated September 14, 1998, by and among the Company and
certain of its stockholders (including the Visalia Trust), a copy of
which is filed as Exhibit 99.D hereto. Pursuant to Section 2.1 of the
Shareholders' Agreement, the holders of the Series A Preferred Stock
have agreed that so long as Telantis Venture Partners V, Inc. holds no
less than 35% of the shares of Series A Preferred Stock originally
acquired by it, it shall have the right to designate the Series A
Preferred stockholders' director nominee and the Visalia Trust has
agreed to vote its shares in favor of such nominee.
See the information disclosed in Item 6 of this Form 13D which is
incorporated herein by this reference.
ITEM 5. INTEREST IN SECURITIES OF THE COMPANY
a. Reed L. Harman and Nan M. Harman, as co-trustees of the Visalia
Trust, a revocable trust of which Mr. and Mrs. Harman are the
co-trustees and joint trustors, beneficially own an aggregate of
(i) 24,000 shares of Series A Preferred Stock of the Company which
is convertible into an aggregate of 600,000 shares of Common Stock
of the Company, and (ii) 300,000 shares of Common Stock issuable
upon exercise of the Warrants. The 900,000 shares of Common Stock
beneficially owned by the Reporting Persons constitutes 17.6% of
the outstanding shares of Common Stock (assuming (i) 4,109,762
shares of Common Stock outstanding, and (ii) exercise or conversion
of the Reporting Persons' Series A Preferred Stock and Warrants
into Common Stock).
b. Reed L. Harman and Nan M. Harman, as co-trustees of the Visalia
Trust, have shared power to vote and dispose of the shares of
Common Stock of the Company beneficially owned by the Reporting
Persons.
c. Pursuant to the terms of the Purchase Agreement, Reed L. Harman and
Nan M. Harman, as co-trustees of the Visalia Trust, acquired (i)
24,000 shares of Series A Preferred Stock of the Company (which
shares are convertible into an aggregate of 600,000 shares of
Common Stock of the Company, subject to adjustment in the event of
certain dilutive issuances), and (ii) Warrants (the "Warrants") to
purchase an aggregate of 300,000 shares of Common
7
<PAGE>
Stock of the Company at an initial exercise price of $.35 per share
(subject to adjustment in the event of certain dilutive issuances).
The aggregate purchase price paid by the Visalia Trust for the
shares of Series A Preferred Stock and Warrants was $150,000.
d. Not applicable.
e. Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Pursuant to Section 7.17 of the Purchase Agreement, in the event that
the average market price of the Company's Common Stock (as defined in
the Certificate of Designation) is less than $.50 per share at any
time commencing September 15, 1999, the Visalia Trust shall have the
right to exchange shares of Series A Preferred Stock for a convertible
promissory note of the Company in the principal amount equal to the
purchase price for such shares plus an annualized return from the date
of purchase equal 35% plus any accrued dividends. Such convertible
promissory note would bear interest at 10% per annum and be payable
quarterly over a two year period commencing six months from the
issuance of such note. The note would be convertible into Common Stock
upon demand of the holder. In the event of the loss of certain
intellectual property rights of the Company or the failure of the
Company to obtain a line of credit of at least $650,000 by October 31,
1998, the conversion right may be exercised by the holders of Series A
Preferred Stock without regard to the average market price of the
Company's Common Stock.
Pursuant to Section 8.6 of the Purchase Agreement, the Company has
granted the Reporting Persons (and certain other purchasers of Series A
Preferred Stock and Warrants) the right to exchange the shares of
Series A Preferred Stock and Warrants for any securities of the type to
be offered by the Company (other than certain issuances to management,
directors and employees of, and consultants to, the Company).
Pursuant to Section 3 of the Shareholders' Agreement, the Company has
granted the Reporting Persons (and certain other purchasers of Series A
Preferred Stock and Warrants) a preemptive right to acquire its
proportionate share of any new securities offered by the Company.
Pursuant to Section 9 of the Purchase Agreement, the Company has
agreed, subject to certain conditions, to register the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock and
exercise of the Warrants held by the Visalia Trust under the
Securities Act of 1933, as amended. The Company has also agreed that
the Visalia Trust may elect to exchange its registration rights for
any superior registration rights that it grants to any other person
in the future (see Section 8.2 of the Purchase Agreement).
Section 7 of the Certificate of Designation requires the approval of a
majority of the outstanding shares of Series A Preferred Stock in order
to take certain specified actions including (i) amendment of the
Company's Certificate of Incorporation or Bylaws, (ii) capital
reorganization of the Company, (iii) redemption of Common Stock (other
than from employees upon termination of employment), (iv) consolidation
or merger with or into, or acquisition of substantially all the assets
of, any other entity, (iv) sell, lease, convey, encumber or otherwise
dispose of all or substantially
8
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all of the property or business of the Company, (vi) create, authorize
or issue any additional shares of Common Stock or convertible stock,
having a preference or priority as to dividends or assets superior to
or on parity with the Series A Preferred Stock, or (vii) pay dividends
on Common Stock or any other class of stock unless all dividends have
been paid or set aside for payment on the Series A Preferred Stock.
Notwithstanding the foregoing, the Company may issue up to 96,000
shares of a new series of Preferred Stock identical to the Series A
Preferred Stock, except that each such share of new Preferred Stock
shall be convertible into 12.5 shares of Common Stock (the "New
Stock"). The Visalia Trust would have the right to purchase such
shares of New Stock in proportion to its holdings of the Series A
Preferred Stock bears to the total number of shares of Series A
Preferred Stock outstanding (currently, approximately 16.7%)
Section 4.5 of the Shareholders' Agreement provides certain holders of
the Series A Preferred Stock, including the Visalia Trust, with a right
of first refusal on any disposition of securities of the Company by
Michael Feygin, an executive officer and director of the Company. If
Mr. Feygin wishes to sell any equity security of the Company held by
him, he must first offer such securities to such Series A Preferred
Stockholders. As of the date of the Company's most recent proxy
statement, Mr. Feygin was the beneficial owner of 1,993,260 shares of
Common Stock. In addition, pursuant to Section 4.4. of the
Shareholders' Agreement, Mr. Feygin has agreed to limit his
dispositions of equity securities of the Company to the limits imposed
by Rule 144 of the Rules and Regulations under the Securities Act of
1933, as amended, on "affiliates" of the Company, regardless of
whether he falls within the meaning of such term. For the 12 month
period commencing September 14, 1998, Mr. Feygin has agreed that he
will not dispose of shares with an aggregate sales price of more than
$100,000 or a per share price of less than $1.00.
See the information disclosed in Item 4 of this Form 13D which is
incorporated herein by this reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 99.A Series A Preferred Stock and Warrant Purchase Agreement
Exhibit 99.B Form of Stock Subscription Warrant
Exhibit 99.C Restated Certificate of Designation of Rights, Preferences
and Privileges of Series A Preferred Stock of the Company
Exhibit 99.D Shareholders' Agreement
9
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SIGNATURES
After reasonable inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
September 22, 1998
/s/ Reed L. Harman
---------------------------------------
REED L. HARMAN, individually
and as Co-Trustee of
the Visalia Trust
/s/ Nan M. Harman
---------------------------------------
NAN M. HARMAN, individually
and as Co-Trustee of
the Visalia Trust
<PAGE>
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 24015 Garnier Street, Torrance, California 90505 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
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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, Berry & Howard LLP, 185 Asylum Street, CityPlace I, 25th Floor, Hartford,
Connecticut 06103-3499, 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
2
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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
3
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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
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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
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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.
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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 Michael Feygin, Alexander Shkolnik, Michael N. Diamond, Emmanual
Dvorskiy, Sung Sik Pak and James Ogg (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
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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.
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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.
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(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.
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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
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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
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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,
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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.
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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.
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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 Stradling Yocca Carlson & Rauth
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.
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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 Michael Feygin and
Gary S. Moskovitz 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
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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.
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(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
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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.
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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 Michael Feygin and
Gary S. Moskovitz 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.
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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.
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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
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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
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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
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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.
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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.
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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
Moody's 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
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(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.
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"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
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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, Berry & Howard 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.
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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
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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
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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
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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
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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)
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<PAGE>
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
37
<PAGE>
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;
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(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.
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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.
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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.
41
<PAGE>
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
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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.
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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: Frank J. Marco, Esq., Day, Berry & Howard LLP,
CityPlace I, Hartford, CT 06103, fax (860) 275-0343 (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, 24015
Garnier Street, Torrance, CA 90505, 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: Nick E. Yocca,
Esq., Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive, Suite 1600,
Newport Beach, CA 92660.
(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.
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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, Berry & Howard 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.
45
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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/Gary S. Moskovitz
---------------------------------
Name: Gary S. Moskovitz
Title: President and CEO
PURCHASERS:
TELANTIS VENTURE PARTNERS V, INC.
By: /s/Adam H. Meyerson
---------------------------------
Name: Adam H. Meyerson
Its: President
VISALIA TRUST
By: /s/Reed L. Harman
---------------------------------
Name: Reed L. Harman
Its:
46
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SCHEDULE 1
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES WARRANTS
- ---------------- ------ --------
<S> <C> <C> <C>
Telantis Venture Partners V, Inc. $250,000 40,000 500,000
791 Wye Road
Akron, OH 44333
(330) 664-2914
Visalia Trust $150,000 24,000 300,000
1820 Via Visalia
Palos Verdes, CA 90274
(310) 373-7538
-------- -------- --------
$400,000 64,000 800,000
</TABLE>
47
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BESOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVEREGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANYAPPLICABLE STATE SECURITIES LAWS OR THE
AVAILABILITY OF ANEXEMPTION FROM REGISTRATION UNDER SAID ACT.
HELISYS, INC.
No. 3
Warrant to Subscribe for 300,000 Shares
of Common Stock
STOCK SUBSCRIPTION WARRANT
September 14, 1998
NOT TRANSFERABLE OR EXERCISABLE
EXCEPT UPON CONDITIONS HEREIN SPECIFIED
THIS CERTIFIES that, for value received, VISALIA TRUST (the "Holder") is
entitled to subscribe for and purchase from HELISYS, INC., a Delaware
corporation (hereinafter, the "Company"), Three Hundred Thousand (300,000)
shares of Common Stock (as hereinafter defined), subject to adjustment from
time to time as hereinafter provided, at the price of $0.35 per share (such
price from time to time subject to adjustment in accordance with Section 2
hereof and hereinafter called the "Warrant Price"), at any time or from time
to time during the Term of this Warrant (as hereinafter defined). The
exercise of this Warrant shall be subject to the provisions, limitations and
restrictions herein contained and may be exercised in whole or in part.
SECTION 1. DEFINITIONS.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
COMMON STOCK - shall mean and include the Company's authorized common
stock, par value $.001 per share.
SECURITIES ACT - the Securities Act of 1933, as amended.
TERM OF THIS WARRANT - shall mean the period beginning on the date of
initial issuance hereof and ending, subject to Section 2.4 hereof, at
midnight on September 13, 2003.
<PAGE>
WARRANT PRICE - shall have the meaning ascribed thereto in the first
paragraph of this Warrant.
WARRANTS - this Warrant and any other Warrant or Warrants issued
pursuant to the provisions of this Warrant to the original holder of this
Warrant, or any transferees from such original holder or this holder.
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.
SECTION 2. EXERCISE OF WARRANT.
2.1 PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in
whole or in part, the Holder shall deliver to the Company at its office
referred to in Section 10 hereof at any time during the Term of this Warrant:
(i) the Notice of Exercise in the form attached hereto, (ii) cash or check
payable to the order of the Company, or evidences of indebtedness issued to
the Holder by the Company, in the amount of the purchase price, and (iii)
this Warrant. Notwithstanding any provisions herein to the contrary, if the
Current Market Price is greater than the Warrant Price (at the date of
calculation, as set forth below), in lieu of exercising this Warrant as
hereinabove permitted, the Holder may elect to receive shares of Common Stock
equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the office of the
Company referred to in Section 10 hereof, together with the Notice of
Exercise, in which event the Company shall issue to the Holder that number of
shares of Common Stock computed using the following formula:
CS = WCS X (CMP-WP)
-------------------
CMP
Where:
CS equals the number of shares of Common Stock to be issued to the Holder;
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of such calculation);
CMP equals the Current Market Price (at the date of such calculation); and
WP equals the Warrant Price (as adjusted to the date of such calculation).
In the event of any exercise of the rights represented by this Warrant, the
Holder shall be deemed to be the holder of record of the Common Stock issuable
upon such exercise, notwithstanding that the
-2-
<PAGE>
stock transfer books of the Company may then be closed or that certificates
representing such Common Stock may not then be actually delivered to such
Holder. The Company shall, as promptly as practicable thereafter, and in any
event within ten (10) business days, execute, or cause to be executed, and
deliver to the Holder, or Holder's nominee, a certificate or certificates
representing the aggregate number of shares of Common Stock issuable upon the
exercise hereof. Each stock certificate so delivered shall be in such
denomination as may be requested by the Holder and shall be registered in the
name of the Holder or such other name as shall be designated by the Holder.
If this Warrant shall have been exercised only in part, the Company shall, at
the time of delivery of said stock certificate or certificates, deliver to
such Holder a new Warrant evidencing the right of such Holder to purchase the
remaining shares of Common Stock covered by this Warrant. The Company shall
pay all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of stock certificates pursuant to this
Section, regardless of the name or names in which such stock certificates
shall be registered.
2.2 TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares
initially issued upon exercise of this Warrant shall bear the following
legend (and any additional legend required by any securities exchange upon
which such Warrant Shares may, at the time of such exercise, be listed) on
the face thereof unless such Warrant Shares shall be registered under the
Securities Act at the time of exercise:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, 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."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby) shall also bear such legend unless, in the
opinion of counsel for the holder thereof (which counsel shall be reasonably
satisfactory to counsel for the Company), the securities represented thereby
are not, at such time, required by law to bear such legend.
2.3 CHARACTER OF WARRANT SHARES. All shares of Common Stock issuable
upon the exercise of this Warrant shall, when so issued, be duly authorized,
validly issued, and, upon payment of the exercise price, fully paid and
nonassessable.
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<PAGE>
2.4 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Warrant Price as provided in Section 2.5, the holder of this Warrant shall
thereafter be entitled to purchase, at the Warrant Price resulting from such
adjustment, the number of shares (calculated to the nearest tenth of a share)
obtained by multiplying the Warrant Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment and dividing the product thereof by the Warrant
Price resulting from such adjustment.
2.5 ADJUSTMENT OF WARRANT PRICE. The Warrant Price shall be subject to
adjustment from time to time as follows:
(i) If the Company shall at any time or from time to time during the
Term of this Warrant issue shares of Common Stock other than Excluded Stock
(as hereinafter defined) without consideration or for a consideration per
share less than the Warrant Price in effect immediately prior to the issuance
of such Common Stock, the Warrant Price in effect immediately prior to each
such issuance or adjustment shall forthwith (except as provided in this
clause (i)) be adjusted to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock outstanding (including
any shares of Common Stock deemed to have been issued pursuant to
subdivision (3) of this clause (i) and to clause (ii) below) immediately
prior to such issuance multiplied by the Warrant Price in effect
immediately prior to such issuance, plus
(y) the consideration received by the Company upon such issuance,
by
(B) the total number of shares of Common Stock outstanding (including any
shares of Common Stock deemed to have been issued pursuant to
subdivision (3) of this clause (i) and to clause (ii) below)
immediately after the issuance of such Common Stock.
For the purposes of any adjustments of the Warrant Price pursuant to this clause
(i), the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor after
deducting therefrom any discounts, commissions or other expenses allowed,
paid or incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for consideration in
whole or in part other than cash, the consideration other than cash shall
be deemed to be the fair market value thereof as determined in good faith
by the Board of Directors; provided, however, that
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<PAGE>
such fair market value as determined by the Board of Directors shall not
exceed the aggregate Current Market Price (as hereinafter defined) of the
shares of Common Stock being issued.
(3) In the case of the issuance of (i) options to purchase or rights
to subscribe for Common Stock, (ii) securities by their terms convertible
into or exchangeable for Common Stock or (iii) options to purchase or
rights to subscribe for such convertible or exchangeable securities:
(A) the aggregate maximum number of shares of Common Stock deliverable
upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for consideration equal to the
consideration (determined in the manner provided in subdivisions (1)
and (2) above with the proviso in subdivision (2) being applied to the
number of shares of Common Stock deliverable upon such exercise), if
any, received by the Company upon the issuance of such options or
rights plus the minimum purchase price provided in such options or
rights for the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock deliverable
upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable securities
and subsequent conversions or exchanges thereof shall be deemed to
have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration received by the Company for any such securities and
related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company upon the
conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in subdivisions (1) and (2) above
with the proviso in subdivision (2) being applied to the number of
shares of Common Stock deliverable upon such conversion, exchange or
exercise);
(C) on any change in the number of shares of Common Stock deliverable upon
exercise of any such options or rights or conversion of or exchange
for such convertible or exchangeable securities, other than a change
resulting from the antidilution provisions thereof, the Warrant Price
shall forthwith be readjusted to such Warrant Price as would have
obtained had the adjustment made upon the issuance of such options,
rights or securities not converted prior to such change or options or
rights related to such securities not converted prior to such change
been made upon the basis of such change; and
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<PAGE>
(D) on the expiration of any such options or rights, the termination of
any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable
securities, the Warrant Price shall forthwith be readjusted to such
Warrant Price as would have obtained had the adjustment made upon the
issuance of such options, rights, securities or options or rights
related to such securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon the
conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.
(ii) "Excluded Stock" shall mean shares of Common Stock issued by the
Company (1) as a stock dividend payable in shares of Common Stock or upon any
subdivision or split-up of the outstanding shares of Common Stock; (2) upon
conversion of shares of Series A Preferred Stock; (3) to employees, officers
or directors of, or consultants to, the Corporation pursuant to the Company's
Employee Stock Purchase Plan or the Company's Stock Incentive Plan, in each
case as existing on the date hereof; or (4) to financial institutions in
connection with borrowing or lease financing arrangements of the Company,
provided that at least eighty percent (80%) of the entire Board of Directors
approves thereof.
(iii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date fixed for the determination of holders
of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the Warrant Price shall be appropriately decreased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
increased in proportion to such increase in outstanding shares.
(iv) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
(v) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than
out of earnings or earned surplus or shall distribute to holders of its
Common Stock shares of its capital stock (other than Common Stock), stock or
other securities of other persons, evidences of indebtedness issued by the
Company or other persons, assets (excluding cash dividends and distributions)
or options or rights (excluding options to purchase and rights to subscribe
for Common Stock or other securities of the Company convertible into
exchangeable for Common Stock), then, in each such case, immediately
following the record date fixed for the determination of the holders of
Common Stock entitled to receive such dividend or distribution, the Warrant
Price in effect thereafter shall be determined by multiplying the Warrant
Price in effect immediately prior to such record date by a fraction of which
the numerator shall be an amount equal to the remainder of (x) the Current
Market Price of one share of Common Stock less
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<PAGE>
(y) the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive) of the stock, securities, evidences of
indebtedness, assets, options or rights so distributed in respect to one
share of Common Stock, and of which the denominator shall be such Current
Market Price.
(vi) All calculations under this Section 2.5 shall be made to the
nearest cent or to the nearest one-tenth (1/10) of a share, as the case may
be.
(vii) For the purpose of any computation pursuant to this Section 2.5,
the Current Market Price at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than 15 business days before the day in question
(as adjusted for any stock dividend, split, combination or reclassification
that took effect during such 30 business day period). The closing price for
each day shall be the last reported sales price regular way or, in case no
such reported sales took place on such day, the average of the last reported
bid and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading (or if the Common Stock is not at the time listed or admitted for
trading on any such exchange, then such price as shall be equal to the
average of the last reported bid and asked prices, as reported by the
National Association of Securities Dealers Automated Quotations System
("NASDAQ") on such day, or if, on any day in question, the security shall not
be quoted on the NASDAQ, then such price shall be equal to the average of the
last reported bid and asked prices on such day as reported by The National
Quotation Bureau Incorporated or any similar reputable quotation and
reporting service, if such quotation is not reported by The National
Quotation Bureau Incorporated); provided, however, that if the Common Stock
is not traded in such manner that the quotations referred to in this Section
5(d) are available for the period required hereunder, the Current Market
Price shall be mutually determined in good faith by agreement of the Board of
Directors of the Company and the majority in interest of the Holders of the
Warrants or, if such determination cannot be made, by a nationally recognized
independent investment banking firm agreed upon by the Board of Directors of
the Company and a majority in interest of the Holders of the Warrants (or if
such selection cannot be made, by a nationally recognized independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules).
(viii) Whenever the Warrant Price shall be adjusted as provided in
Section 2.5, the Company shall prepare a statement showing the facts
requiring such adjustment and the Warrant Price that shall be in effect after
such adjustment. The Company shall cause a copy of such statement to be sent
by mail, first class postage prepaid, to each Holder of this Warrant at his
address appearing on the Company's records. Where appropriate, such copy may
be given in advance and may be included as part of the notice required to be
mailed under the provisions of subsection (x) of this Section 2.5.
(ix) Adjustments made pursuant to clauses (iii), (iv) and (v) above
shall be made on the date such dividend, subdivision, split-up, combination
or distribution, as the case may be, is made, and shall become effective at
the opening of business on the business day next following the record
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<PAGE>
date for the determination of stockholders entitled to such dividend,
subdivision, split-up, combination or distribution.
(x) In the event the Company shall propose to take any action of the types
described in clauses (iii), (iv), or (v) of this Section 2.5, the Company shall
forward, at the same time and in the same manner, to the Holder of this Warrant
such notice, if any, which the Company shall give to the holders of capital
stock of the Company. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(xi) In any case in which the provisions of this Section 2.5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(xii) The sale or other disposition of any Common Stock theretofore
held in the treasury of the Company shall be deemed to be an issuance thereof.
(xiii) The Company shall reserve, free from preemptive rights, out of
its treasury stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of this Warrant,
sufficient shares to provide for the exercise of this Warrant.
SECTION 3. OWNERSHIP.
3.1 OWNERSHIP OF THIS WARRANT. The Company may deem and treat the person
in whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 3.
3.2 TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder
are transferable in whole or in part upon the books of the Company by the
Holder hereof in person or by duly authorized attorney, and a new Warrant or
Warrants, of the same tenor as this Warrant but registered in the name of the
transferee or transferees shall be made and delivered by the Company upon
surrender of this Warrant duly endorsed, at the office of the Company
referred to in Section 10 hereof; provided, however, that except for
transfers in whole or in part to partners and other affiliates of the Holder,
this Warrant shall not be transferred except if sold in its entirety. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft or destruction, and, in such case,
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<PAGE>
of indemnity or security reasonably satisfactory to it, and upon surrender of
this Warrant if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant; provided that if the Holder hereof is an
instrumentality of a state or local government or an institutional holder or
a nominee for such an instrumentality or institutional holder an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section
3, and no evidence of loss or theft or destruction shall be necessary. This
Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any transfer or replacement. Except as otherwise provided
above, in the case of the loss, theft or destruction of a Warrant, the
Company shall pay all expenses, taxes and other charges payable in connection
with any transfer or replacement of this Warrant, other than stock transfer
taxes (if any) payable in connection with a transfer of this Warrant, which
shall be payable by the Holder.
SECTION 4. MERGERS, CONSOLIDATION, SALES.
In the case of any proposed consolidation or merger of the Company with
another corporation, or the proposed sale of all or substantially all of its
assets to another corporation, or any proposed reorganization or
reclassification of the capital stock of the Company, then, as a condition of
such consolidation, merger, sale, reorganization or reclassification, lawful and
adequate provision shall be made whereby the Holder of this Warrant shall
thereafter have the right to receive upon the basis and upon the terms and
conditions specified herein, in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable hereunder, such shares of stock,
securities or assets as may (by virtue of such consolidation, merger, sale,
reorganization or reclassification) be issued or payable with respect to or in
exchange for the number of shares of such Common Stock purchasable hereunder
immediately before such consolidation, merger, sale, reorganization or
reclassification. In any such case appropriate provision shall be made with
respect to the rights and interests of the Holder of this Warrant to the end
that the provisions hereof shall thereafter be applicable as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of this Warrant. The Company shall not effect any such
consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor corporation or purchaser, as the case may be,
shall assume by written instrument the obligation to deliver to the Holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder is entitled to receive.
SECTION 5. NOTICE OF DISSOLUTION OR LIQUIDATION.
In case of any distribution of the assets of the Company in dissolution
or liquidation (except under circumstances when the foregoing Section 4 shall
be applicable), the Company shall give notice thereof to the Holder hereof
and shall make no distribution to shareholders until the expiration of thirty
(30) days from the date of mailing of the aforesaid notice and, in any case,
the Holder hereof may exercise this Warrant within thirty (30) days from the
date of the giving of such notice, and all rights herein granted not so
exercised within such thirty-day period shall thereafter become null and void.
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SECTION 6. NOTICE OF EXTRAORDINARY DIVIDENDS.
If the Board of Directors of the Company shall declare any dividend or
other distribution on its Common Stock except out of earned surplus or by way of
a stock dividend payable in shares of its Common Stock, the Company shall mail
notice thereof to the Holder hereof not less than thirty (30) days prior to the
record date fixed for determining shareholders entitled to participate in such
dividend or other distribution, and the Holder hereof shall not participate in
such dividend or other distribution unless this Warrant is exercised prior to
such record date. The provisions of this Section shall not apply to
distributions made in connection with transactions covered by Section 4.
SECTION 7. FRACTIONAL SHARES.
Fractional shares shall not be issued upon the exercise of this Warrant but
in any case where the Holder would, except for the provisions of this Section,
be entitled under the terms hereof to receive a fractional share upon the
complete exercise of this Warrant, the Company shall, upon the exercise of this
Warrant for the largest number of whole shares then called for, pay a sum in
cash equal to the excess of the value of such fractional share (determined in
such reasonable manner as may be prescribed in good faith by the Board of
Directors of the Company).
SECTION 8. TAXES.
The Company covenants and agrees that it will pay when due and payable any
and all federal and state taxes which may be payable in respect of the issue of
this Warrant, or any Common Stock or certificates therefor issuable upon the
exercise of this Warrant.
SECTION 9. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any period
while the stock transfer books of the Company for its Common Stock may be
closed. The Company shall not be required, however, to deliver certificates of
the Common Stock issuable upon the exercise of this Warrant while such books are
duly closed for any purpose, but the Company may postpone the delivery of the
certificates for such Common Stock until the opening of such books, and they
shall be delivered forthwith upon the opening thereof, or as soon as
practicable thereafter, but in any case within ten (10) business days of the
exercise of this Warrant.
SECTION 10. NOTICES.
Any notice or other document required or permitted to be given or delivered
to the Holder shall be delivered at, or sent by certified or registered mail to
the Holder at the address set forth on the Company's records or to such other
address as shall have been furnished to the Company in writing by the Holder.
Any notice or other document required or permitted to be given or delivered to
the Company shall be delivered at, or sent by certified or registered mail to,
Helisys, Inc.,
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Attention: President, 24015 Garnier Street, Torrance, CA 90505, or to such
other address as shall have been furnished in writing to the Holder by the
Company. Any notice so addressed and mailed by registered or certified mail
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.
SECTION 11. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY.
This Warrant shall not entitle the Holder to any of the rights of a
shareholder of the Company. No provision hereof, in the absence of affirmative
action by the Holder to purchase shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the Warrant Price hereunder or as a shareholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
SECTION 12. GOVERNING LAW.
This Warrant shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware, without regard to the choice of law
provisions thereof.
SECTION 13. AMENDMENT.
The Holder hereof has agreed, by his acceptance hereof, that this Warrant
and any provision hereof may be changed, waived, discharged or terminated (i) by
an instrument in writing signed by the party (or any predecessor in interest
thereof) against which enforcement of the same is sought or (ii) if the Company
obtains the written consent to such change, waiver, discharge or termination
from the holder or holders of at least seventy-five percent (75%) of the Common
Stock issuable pursuant to this Warrant and the other Warrants issued on the
date hereof.
SECTION 14. HEADINGS.
The headings in this Warrant are for purposes of reference only and shall
not affect the meaning or construction of any of the provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this 14th day of September, 1998.
HELISYS, INC.
By: /s/ Gary S. Moskovitz
---------------------------------------
Name: Gary S. Moskovitz
Its: President and CEO
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<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns and
transfers unto ___________________________________________ all rights of the
undersigned under and pursuant to the within Warrant to purchase _________
shares of the Common Stock of Helisys, Inc., and the undersigned does hereby
irrevocably constitute and appoint ______________________________ Attorney
to transfer the said Warrant on the books of the Company, with full power of
substitution.
----------------------------------
[Type Name of Holder]
By:
-------------------------------
Dated: , 19
---------------- ----
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
NOTICE OF EXERCISE
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase _____ shares of
the Common Stock of Helisys, Inc., which the undersigned is entitled to
purchase by the terms of the within Warrant according to the conditions
thereof, and herewith makes payment of the Warrant Price of such shares in
full. All shares to be issued pursuant hereto shall be issued in the name of
__________________ __________________and the initial address of such person
to be entered on the books of the Company shall be: _________________________.
The shares are to be issued in certificates of the following denominations:
----------------------------------
[Type Name of Holder]
By:
-------------------------------
Dated: , 19
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<PAGE>
RESTATED CERTIFICATE OF DESIGNATION OF RIGHTS,
PREFERENCES & PRIVILEGES
OF
SERIES A PREFERRED STOCK
OF
HELISYS, INC.,
a Delaware corporation
Pursuant to Section 151 of the General Corporation Law of the State of Delaware
_________________
HELISYS, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies, pursuant to the authority contained in the Certificate of
Incorporation and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware that the following
resolution has been duly adopted by the Board of Directors of the Corporation
amending a series of its Preferred Stock designated as Series A Preferred
Stock and deleting a series of its Preferred Stock designated as Series A
Preferred Stock:
RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation (the "Board") by the provisions
of the Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"), there hereby is created, out of the 5,000,000 shares of
Preferred Stock, par value $0.001 per share, of the Corporation authorized in
Article 4 of the Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock of the Corporation consisting of 144,000
shares, which shall be designated Series A Convertible Preferred Stock (the
"Series A Stock" or the "Preferred Stock"). The series of the Preferred
Stock of the Corporation designated as Series A Convertible Preferred Stock
(the "Series A Stock") but never issued is hereby deleted. The Preferred
Stock shall have the following powers, designations, preferences and
relative, participating, optional and other rights, and the following
qualifications, limitations and restrictions:
RIGHTS, PREFERENCES AND PRIVILEGES OF PREFERRED STOCK.
The following is a statement of the designations, powers, privileges,
preferences and relative, participating, optional or other special rights,
and the qualifications, limitations or restrictions relating to the Preferred
Stock:
1
<PAGE>
SECTION 1
DESIGNATION
The initial series of Preferred Stock shall be designated and known as
"Series A Preferred Stock." The number of authorized shares constituting
such series shall be 144,000.
SECTION 2
LIQUIDATION RIGHTS
(a) LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the Corporation, each holder of shares of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock and any other series of preferred stock which is
junior to the Series A Preferred Stock, by reason of his, her or its
ownership thereof, an amount per share of the Series A Preferred Stock equal
to $6.25 (plus any dividends which, pursuant to Section 6 hereof, have
accrued but remain unpaid at such time). After the payment to such holders of
such preferential amount, any remaining assets shall be distributed to the
holders of Common Stock on the basis of the number of shares of Common Stock
held by each of them.
(b) PRO RATA DISTRIBUTION. If the assets or surplus funds to be
distributed to the holders of (i) the Series A Preferred Stock under Section
2(a) and (ii) the holders of any other series of Preferred Stock ranking on a
parity with the Series A Preferred Stock are insufficient to permit the
payment to such holders of their full preferential amount, the assets and
surplus funds legally available for distribution shall be distributed ratably
among (i) the holders of the Series A Preferred Stock (to the extent provided
in Section 2(a) hereof) and (ii) the holders of such other series of
Preferred Stock in proportion to the full preferential amount each such
holder is otherwise entitled to receive.
(c) SERIES A PREFERRED STOCK PRIORITY. All of the preferential amounts
to be paid to the holders of (i) the Series A Preferred Stock under this
Section 2 and (ii) the holders of any other series of Preferred Stock ranking
on a parity with the Series A Preferred Stock shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of the Corporation to, the holders of the
Common Stock and any other series of Preferred Stock which is junior to the
Series A Preferred Stock in connection with such liquidation, dissolution or
winding up.
(d) CONSOLIDATION, MERGER, SALE OF ASSETS. A consolidation or merger
of the Corporation with or into another corporation, or a conveyance of all
or substantially all of the assets of the Corporation, shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation
within the meaning of Section 2(a) unless, upon consummation of such
consolidation
2
<PAGE>
or merger or sale of assets, the holders of voting securities of the
Corporation own directly or indirectly more than fifty percent (50%) of the
voting power to elect directors of the consolidated or surviving or acquiring
corporation, PROVIDED, HOWEVER, that each holder of Series A Preferred Stock
shall have the right to elect the benefits of the provisions of Section
3(d)(vii) hereof in lieu of receiving payment in such liquidation,
dissolution or winding up of the Corporation pursuant to this Section 2.
SECTION 3
CONVERSION
The holders of the Series A Preferred Stock shall have conversion rights
as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, without the payment of any additional consideration by the
holder thereof, at the option of the holder thereof, at the office of the
Corporation or any transfer agent for the Series A Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $6.25 by the Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. If more than one
share of the Series A Preferred Stock shall be surrendered for conversion at
the same time by the same holder of record, the number of full shares that
shall be issuable upon the conversion thereof shall be computed on the basis
of the total number of shares of the Series A Preferred Stock so surrendered.
Each share of Series A Preferred Stock shall be so convertible at any time
after the date of issuance of such share. The price at which shares of Common
Stock shall be deliverable upon conversion of Series A Preferred Stock
without the payment of any additional consideration by the holder thereof
(the "Conversion Price") shall initially be $0.25 per share of Common Stock.
Such initial Conversion Price shall be subject to adjustment, in order to
adjust the number of shares of Common Stock into which the Series A Preferred
Stock is convertible, as hereinafter provided.
(b) RESERVED.
(c) MECHANICS OF CONVERSION. Each party who holds of record Series A
Preferred Stock at the time of any conversion shall be entitled to any
dividends which, pursuant to Section 6 hereof, have accrued but remain unpaid
at such time. Such dividends shall be paid to all such holders within thirty
(30) days of the conversion. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series A Preferred Stock
shall be entitled to convert the same into full shares of Common Stock, he,
she or it shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series A
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Preferred Stock, and shall give written notice to the Corporation at such
office that he, she or it elects to convert the same. A holder surrendering
his, her or its certificate or certificates shall notify the Corporation of
his, her or its name or the name or names of his, her or its nominees in
which he, she or it wishes the certificate or certificates for shares of
Common Stock to be issued. If the person or persons in whose name any
certificate for shares of Common Stock issuable upon such conversion shall be
other than the registered holder or holders of the Series A Preferred Stock
being converted, the Corporation's obligation under this Section 3(c) shall
be subject to the payment and satisfaction by such registered holder or
holders of any and all transfer taxes in connection with the conversion and
issuance of such Common Stock. The Corporation shall, as soon as practicable
thereafter (and, in any event, within ten (10) days of such surrender), issue
and deliver at such office to such holder of Series A Preferred Stock, or to
his, her or its nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which he, she or it shall be entitled as
aforesaid, together with cash in lieu of any fraction of a share. Such
conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the party or parties entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on
such date.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Section 3(d), the
following definitions shall apply:
(1) "OPTION" shall mean options, warrants or other rights to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean the first date on which
a share of Series A Preferred Stock shall have been issued.
(3) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares (other than Common Stock and Series A Preferred
Stock) of capital stock or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean any or all
shares of Common Stock issued (or, pursuant to Section 3(d)(iii),
deemed to be issued) by the Corporation after the Original Issue Date,
other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series A Preferred Stock; or
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(B) to employees, officers or directors of, or consultants
to, the Corporation pursuant to the Company's Employee Stock
Purchase Plan or the Company's Stock Incentive Plan, in each
case as existing on the date of the adoption of this Restated
Certificate of Designation; or
(C) to financial institutions in connection with borrowing or
lease financing arrangements of the Company, provided that at
least eighty percent (80%) of the entire Board of Directors
approves thereof.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. Subject to the provisions of
Section 3(d)(iii)(2) and Section 3(d)(vi) below, no adjustment in the number
of shares of Common Stock into which any series of the Series A Preferred
Stock is convertible shall be made, by adjustment in the Conversion Price of
the Series A Preferred Stock in respect of the issuance of Additional Shares
of Common Stock or otherwise, unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Conversion Price in effect on the date of, and
immediately prior to, the issue of such Additional Share of Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK.
(1) OPTIONS AND CONVERTIBLE SECURITIES. In the event the
Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating thereto without
regard to any provisions contained therein for a subsequent adjustment of
such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close of
business on such record date, provided that such Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 3(d)(v) hereof) of
such Additional Shares of Common Stock would be less than the Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
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(B) if such Options or Convertible Securities by their terms
provide, with the passage of time, pursuant to any provisions
designed to protect against dilution, or otherwise, for any
increase or decrease in the consideration payable to the
Corporation, or increase or decrease in the number of shares
of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Applicable Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible
Securities;
(C) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be
recomputed as if such Options or Convertible Securities, as
the case may be, were never issued;
(D) no readjustment pursuant to clause (B) or (C) above shall
have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on
the original date on which an adjustment was made pursuant to
this Section 3(d)(iii)(l), or (ii) the Conversion Price that
would have resulted from any issuance of Additional Shares of
Common Stock between such original adjustment date and the
date on which a readjustment is made pursuant to clause (B) or
(C) above;
(E) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(C) above; and
(F) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the
Conversion Price which became effective on such record date
shall be canceled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted
pursuant to this Section 3(d)(iii) as of the actual date
of their issuance.
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(2) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND SUBDIVISIONS.
In the event the Corporation at any time or from time to time after the
Original Issue Date for the Series A Preferred Stock shall declare or pay
any dividend or make any other distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in
Common Stock), then and in any such event, Additional Shares of Common
Stock shall be deemed to have been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for
the determination of holders of any class of securities
entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which
such corporate action becomes effective.
If such record date shall have been fixed and such
dividend shall not have been fully paid on the date fixed for
the payment thereof, the adjustment previously made in the
Conversion Price which became effective on such record date
shall be canceled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted
pursuant to this Section 3(d)(iii) as of the time of actual
payment of such dividend.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK. In the event the Corporation shall issue Additional Shares
of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 3(d)(iii)(1), but excluding Additional Shares of
Common Stock deemed to be issued pursuant to Section 3(d)(iii)(2), which
event is dealt with in Section 3(d)(vi) hereof) without consideration or for
a consideration per share less than the Conversion Price in effect on the
date of and immediately prior to such issue, then such Conversion Price shall
be reduced, concurrently with such issue, to the price determined by dividing
(i) an amount equal to the sum of (a) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and the number of shares
of Common Stock issuable upon conversion of all Series A Preferred Stock and
any Convertible Securities multiplied by the then existing Conversion Price
and (b) the consideration, if any, received by the Corporation upon such
issue or sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale and the number of shares of Common Stock
issuable upon conversion of all Series A Preferred Stock and any Convertible
Securities.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Section
3(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
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(1) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be the aggregate amount
of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue,
as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are issued
together with other shares of securities or other assets of
the Corporation for a single undivided consideration, be the
proportion of such consideration so received allocable to such
Additional Shares of Common Stock, computed as provided in
clauses (A) and (B) above, as determined in good faith by the
Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3(d)(iii)(l) shall be
determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent
adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or
in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and
the conversion or exchange of such Convertible
Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of
such Convertible Securities.
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(vi) ADJUSTMENT FOR STOCK DIVIDENDS, STOCK DISTRIBUTIONS, SUBDIVISIONS,
COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(1) STOCK DIVIDENDS, STOCK DISTRIBUTIONS OR SUBDIVISIONS. In the
event the Corporation shall issue Additional Shares of Common Stock
pursuant to Section 3(d)(iii)(2) in a stock dividend, other stock
distribution or subdivision, the Conversion Price in effect immediately
prior to such stock dividend, stock distribution or subdivision shall,
concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased to adjust
equitably for such dividend, distribution or subdivision.
(2) COMBINATIONS OR CONSOLIDATIONS. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the Conversion Price in effect immediately prior to such combination
or consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased to adjust
equitably for such combination or consolidation.
(vii) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, or any proposed reorganization or reclassification of the
Corporation (except a transaction for which provision for adjustment is
otherwise made in this Section 3), each share of Series A Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A Preferred Stock would
have been entitled upon such consolidation, merger, conveyance, reorganization
or reclassification; and, in any such case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interest thereafter
of the holders of the Series A Preferred Stock, to the end that the provisions
set forth herein (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series A Preferred Stock. The
Company shall not effect any such consolidation, merger or sale unless prior to
or simultaneously with the consummation thereof the successor corporation or
purchaser, as the case may be, shall assume by written instrument the obligation
to deliver to the holder of the Series A Preferred Stock such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder is entitled to receive.
Upon the occurrence of a consolidation or merger of the Corporation with or
into another corporation, or the conveyance of all or substantially all of the
assets of the Corporation to another corporation (unless upon consummation
thereof the holders of voting
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securities of the Corporation own directly or indirectly more than fifty
percent (50%) of the voting power to elect directors of the consolidated or
surviving or acquiring corporation), each holder of Series A Preferred Stock
shall have the option of electing treatment of its shares of Series A
Preferred Stock under this Section 3(d)(vii) in lieu of Section 2(d) hereof,
notice of which election shall be submitted in writing to the Corporation at
its principal offices no later than ten (10) business days before the
effective date of such event; provided, however, that such notice of election
shall not be required to be submitted less than ten (10) business days after
each holder of Series A Preferred Stock is given notice of such transaction
in writing.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Section 3, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) all such adjustments and
readjustments theretofore made, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at such time would be received upon the conversion of Series A
Preferred Stock.
(g) NOTICES OF RECORD DATE. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is in the same amount per share as cash dividends
paid in previous quarters) or other distribution, the Corporation shall mail to
each holder of Series A Preferred Stock at least ten (l0) days prior to the date
thereof, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend or distribution.
(h) COMMON STOCK RESERVED. The Corporation shall reserve and at all times
keep available out of its authorized but unissued Common Stock, free from
preemptive or other preferential rights, restrictions, reservations,
dedications, allocations, options, other warrants and other rights under any
stock option, conversion option or similar agreement, such number of shares of
Common Stock as shall from time to time be sufficient to effect conversion of
the Series A Preferred Stock.
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(i) NO REISSUANCE OF SERIES A PREFERRED STOCK. Shares of Series A
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
(j) ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversion of Series A Preferred Stock shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series A Preferred Stock which is
being converted.
(k) CLOSING OF BOOKS. The Corporation will at no time close its transfer
books against the transfer of any Series A Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Series A
Preferred Stock in any manner which interferes with the timely conversion of
such Series A Preferred Stock, except as may otherwise be required to comply
with applicable securities laws.
(l) DEFINITION OF COMMON STOCK. As used in this Section 3, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $.001 per share, as constituted on the date of filing of this Restated
Certificate of Incorporation, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall neither be limited to
a fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of Series A Preferred Stock shall
include only shares designated as Common Stock of the Corporation on the date of
filing of this Restated Certificate of Incorporation.
(m) CONVERSION TO DEBT INSTRUMENT. In addition to the conversion
provisions set forth in this Section 3, the holders of the Series A Preferred
Stock who are parties to the Purchase Agreement shall have the right to convert
their shares of Series A Preferred Stock into convertible promissory notes
under the terms and as set forth in Section 7.17 of the Purchase Agreement.
SECTION 4
REDEMPTION
The shares of Series A Preferred Stock are not redeemable.
SECTION 5
VOTING RIGHTS
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(a) NUMBER OF VOTES. Except as otherwise required by law and the
provisions of this Section 5, the holders of Series A Preferred Stock and the
holders of the Common Stock shall be entitled to notice of any shareholders'
meeting and to vote together as a single class of capital stock upon any matter
submitted to a shareholder for a vote, on the following basis:
(i) Holders of Common Stock shall have one vote per share; and
(ii) Holders of Series A Preferred Stock shall have that number of
votes per share as is equal to:
(A) if the Average Market Price (as defined in Section 5(e)
below) of the Common Stock is $2.00 per share or greater, the number
of shares of Common Stock into which each such share of Series A
Preferred Stock held by such holder is convertible at the time of such
vote;
(B) if the Average Market Price (as defined in Section 5(e)
below) of the Common Stock is less than $2.00 per share but greater
than or equal to $1.00 per share, the number of shares of Common
Stock into which each such share of Series A Preferred Stock held by
such holder is convertible at the time of such vote multiplied by 2.5;
or
(C) if the Average Market Price (as defined in Section 5(e)
below) of the Common Stock is less than $1.00 per share, the number
of shares of Common Stock into which each such share of Series A
Preferred Stock held by such holder is convertible at the time of such
vote multiplied by 5.
(b) ELECTION OF DIRECTORS. The Board of Directors shall consist of
five (5) members, which number shall not be increased above seven (7)
without the approval or written consent of the holders of a majority of the
outstanding shares of Series A Preferred Stock. Except as otherwise required
by law, the holders of Series A Preferred Stock and the holders of Common
Stock shall be entitled to vote upon the election of directors on the
following basis: (A) the holders of Common Stock then issued and
outstanding, voting separately as a class, shall, by majority vote, elect
three (3) members of the Board of Directors, and (B) the holders of Series A
Preferred Stock then issued and outstanding, voting separately as a class,
shall, by majority vote, elect one (1) member of the Board of Directors,
subject to the provisions of the Shareholders' Agreement. If less than
240,000 shares of Series A Preferred Stock have been issued by the
Corporation, the holders of the Common Stock then issued and outstanding
voting as a class, shall, by majority vote, elect one (1) additional member
of the Board of Directors. If 240,000 or more shares of Series A Preferred
Stock have been issued by the Corporation, the holders of the Series A
Preferred Stock then issued and outstanding, voting separately as a class,
shall, by majority vote, elect one (1) additional member of the Board of
Directors, subject to the provisions of the Shareholder's Agreement.
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(c) QUORUMS. Except as otherwise required by law, the following shall
constitute quorums at meetings of shareholders:
(i) The presence in person, by teleconference or by proxy of the
holders of shares constituting a majority of the votes entitled to vote
thereat, calculated in accordance with Section 5(a) hereof, shall
constitute a quorum for the purpose of transaction of business at all
meetings of shareholders, except with respect to election of directors
under Section 5(b) hereof.
(ii) For the purpose of electing directors under Section 5(b) hereof,
(A) the presence in person, by teleconference or by proxy of the holders of
a majority of the shares of Series A Preferred Stock entitled to vote
thereat shall constitute a quorum for the purpose of electing that number
of directors of the Board of Directors which such shareholders are entitled
to elect pursuant to Section 5(b) hereof; and (B) the presence in person or
by proxy of the holders of a majority of the shares of Common Stock
entitled to vote thereat shall constitute a quorum for the purpose of
electing that number of directors of the Board of Directors which such
shareholders are entitled to elect pursuant to Section 5(b) hereof.
(d) RESERVED.
(e) AVERAGE MARKET PRICE. For the purpose of any computation pursuant
to this Restated Certificate of Designation, the Average Market Price at any
date of one share of Common Stock shall be deemed to be the average of the
daily closing prices for the 90 consecutive business days ending no more than
15 business days before the day in question (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such
90 business day period). The closing price for each day shall be the last
reported bid price regular way on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if the Common
Stock is not at the time listed or admitted for trading on any such exchange,
then such price as shall be equal to the last reported bid price, as
reported by the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") on such day, or if, on any day in question, the
security shall not be quoted on the NASDAQ, then such price shall be equal to
the last reported bid price on such day as reported by The National Quotation
Bureau Incorporated or any similar reputable quotation and reporting service,
if such quotation is not reported by The National Quotation Bureau
Incorporated); provided, however, that if the Common Stock is not traded in
such manner that the quotations referred to in this Section 5(e) are
available for the period required hereunder, the Average Market Price shall
be mutually determined in good faith by agreement of the Board of Directors
of the Company and the majority in interest of the Series A Preferred Stock
or, if such determination cannot be made, by a nationally recognized
independent investment banking firm agreed upon by the Board of Directors of
the Company and a majority in interest of the Series A Preferred Stock (or if
such selection cannot be made, by a nationally recognized independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules).
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SECTION 6
DIVIDEND RIGHTS
If any cash dividends or other distributions (other than dividends in
Additional Shares of Common Stock) are declared by the Board of Directors to be
paid on the Common Stock as a class, then a dividend shall be paid at the same
time to the holders of the outstanding shares of Series A Preferred Stock at a
rate per share equal to the product of (x) such dividend or other distribution
on each share of Common Stock times (y) the number of shares of Common Stock
into which each share of Series A Preferred Stock is then convertible.
No dividend or other distribution shall be paid on or declared or set apart
for payment on any shares of the Common Stock of the Corporation or any shares
of the Common Stock of the Corporation or any shares of any other class or
series or issue of Preferred Stock as long as any dividends payable on the
Series A Preferred Stock are in arrears.
The term "distribution" as used in this Section 6 and in Section 7 hereof
shall include the transfer of cash or property without consideration, whether by
way of dividend or otherwise (except a dividend in shares of Common Stock), or
the purchase or redemption of shares of the Corporation (other than from
employees of the Corporation upon termination of employment or pursuant to the
Corporation's rights of first refusal, in each case upon approval of the Board
of Directors), for cash or property, including such transfer, purchase or
redemption by a subsidiary of the Corporation. The time of any distribution by
way of dividends shall be the date of declaration thereof, and the time of any
distribution by purchase or redemption of shares shall be the date on which cash
or property is transferred by the Corporation, whether or not pursuant to a
contract of an earlier date; PROVIDED that where a debt security is issued in
exchange for shares, the time of the distribution is the date when the
Corporation acquires the shares for such exchange.
SECTION 7
COVENANTS
Without limiting the rights of the holders of the Series A Preferred Stock
to vote as a class, as required by law, so long any shares of Series A Preferred
Stock shall be outstanding, the Corporation shall not, without first obtaining
the affirmative vote or written consent of not less than a majority of such
outstanding shares of Series A Preferred Stock:
(a) amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or Bylaws;
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(b) reclassify any Common Stock into shares having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series A Preferred Stock, or otherwise effect a
capital reorganization of either the Corporation or any subsidiary of the
Corporation;
(c) apply any of its assets to the redemption, retirement, purchase or
other acquisition directly or indirectly, through subsidiaries or otherwise, of
any shares of Common Stock, except from employees of the Corporation upon
termination of employment or pursuant to the Corporation's rights of first
refusal;
(d) consolidate or merge the Corporation or any subsidiary of the
Corporation into or with, or acquire or cause any subsidiary of the Corporation
to acquire the stock or all or substantially all the assets of, any other
corporation, partnership or other entity;
(e) sell, lease, convey, encumber or otherwise dispose of all or
substantially all of the property or business of the Corporation or any
subsidiary of the Corporation;
(f) create, authorize or issue, directly or indirectly, any Additional
Shares of Common Stock or Convertible Security, having any preference or
priority as to dividends or assets to or on a parity with any such preference or
priority of the Series A Preferred Stock; or
(g) pay, set aside for payment or declare any dividend or other
distribution (as defined in Section 6 hereof) on any share of Common Stock or
any shares of any other class or series or issue of Preferred Stock unless all
dividends accumulated on the Series A Preferred Stock shall have been either
paid in full or funds set aside for the payment thereof.
Notwithstanding the foregoing, nothing herein shall require the Corporation
to obtain the consent of the Holders of Series A Preferred Stock to issue up to
96,000 shares of a new class of Preferred Stock at the sale price of not less
than $6.25 per share, 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 number of shares of such new class of Preferred
Stock issued shall be included in the calculation of the total number of shares
of Series A Preferred Stock issued for purposes of determining the number of
Directors to be elected by the holders of the Series A Preferred Stock (together
with the holders of such new class of Preferred Stock, once issued) in
accordance with Section 5(b). The Holders of the Series A Preferred Stock shall
have preemptive rights to purchase such new class of Preferred Stock in the
proportion that the number of shares of Series A Preferred Stock of any such
Holder bears to the total number of shares of Series A Preferred Stock issued
and outstanding at the time such new class of Preferred Stock is offered for
sale by the Corporation.
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<PAGE>
SECTION 8
STOCK DIVIDENDS, STOCK DISTRIBUTIONS,
SUBDIVISIONS, COMBINATIONS AND CONSOLIDATIONS
In the event the Corporation shall issue additional shares of Series A
Preferred Stock in a stock dividend, other stock distribution or subdivision, or
in the event the outstanding shares of Series A Preferred Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Series A Preferred Stock, (i) the amounts set forth in Section 2(a)
hereof, (ii) the Redemption Price set forth in Section 4 hereof, and (iii) the
Dividend Rate set forth in Section 6 hereof, in each case in effect immediately
prior to such event shall, concurrently therewith, be proportionately decreased
(in the case of a stock dividend, other stock distribution or subdivision) or
increased (in the case of a combination or consolidation) in each such case to
adjust equitably therefor.
SECTION 9
RESIDUAL RIGHTS
All rights accruing to the outstanding shares of capital stock of the
Corporation not expressly provided for to the contrary herein shall be vested in
the Common Stock.
IN WITNESS WHEREOF, Helisys, Inc. has caused this Restated Certificate
of Designation of Rights, Preferences & Privileges of Series A Preferred Stock
to be duly executed by its President and attested to by its Secretary as of this
10th day of September, 1998.
HELISYS, INC.
By: /s/ GARY S. MOSKOVITZ
--------------------------------
Name: Gary S. Moskovitz
Its President
ATTEST:
By: /s/ DAVID OKAZAKI
-------------------------
Name: David Okazaki
Its Secretary
16
<PAGE>
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (this "Agreement") is made and entered into
as of this 14th day of September, 1998, by and among Helisys, Inc., (the
"Company"), a Delaware corporation, the Shareholders listed on Schedule I
hereto, Walter W. Cruttenden III ("Cruttenden"), and Michael Feygin
("Feygin").
W I T N E S S E T H:
WHEREAS, the Shareholders listed on Schedule I hereto (each a "Shareholder"
and collectively the "Shareholders") have agreed to purchase from the Company
shares (the "Shares") of Preferred Stock and Warrants (as hereinafter defined)
pursuant to a certain Series A Preferred Stock Package Agreement of even date
herewith (the "Purchase Agreement");
WHEREAS, Cruttenden is an existing holder of Preferred Stock, and Feygin is
a founder of the Company and the holder of a majority of the Company's Common
Stock and each will benefit from the Shareholders' investment in the Company;
WHEREAS, the Shareholders, Cruttenden, Feygin and the Company have agreed
to enter into an agreement with respect to (i) the procedures to be followed in
connection with the election of the Company's Board of Directors and (ii)
certain restrictions upon the issuance by the Company of New Securities; and
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and to induce the Purchasers to
purchase the Shares and Warrants, and in consideration thereof, it is hereby
covenanted and agreed as follows:
SECTION L
DEFINITIONS
As used herein, the following terms shall have the respective meanings
following such term:
AFFILIATE shall mean, as to any Shareholder, (i) the partners, retired
partners, directors and officers, as the case may be, of such Shareholder,
(ii) the partners of any of the parties referred to in the foregoing clause
of this definition, (iii) the spouse or lineal descendants of such
Shareholder or any of the parties referred to in the foregoing clauses of
this definition, (iv) a trust for the benefit of such Shareholder or any of
the parties referred to in the foregoing clauses of this definition, (v) any
corporation or partnership controlled by such Shareholder or by any of the
parties referred to in the foregoing clauses of this definition, and (vi) any
other party that directly, or indirectly through one
<PAGE>
or more intermediaries, controls, or is controlled by, or is under common
control with, any Shareholder.
CERTIFICATE OF INCORPORATION shall mean the Company's Amended and Restated
Certificate of Incorporation, as amended from time to time.
COMMON STOCK shall mean the Company's common stock, par value $.001.
CONVERSION SHARES shall mean, at any time, (i) the issued and outstanding
shares of Preferred Stock (for purposes of calculating the number of Conversion
Shares at any time, each such share shall be deemed to be that number of shares
of Common Stock or other securities into which such share is then convertible),
(ii) the shares of Common Stock issued upon conversion of the issued and
outstanding shares of Preferred Stock owned as of the date hereof by the
Shareholders and (iii) any securities issued or issuable directly or indirectly
in respect of the aforesaid shares of Common Stock or Preferred Stock, or both,
in payment of a dividend or in connection with a stock split, recapitalization
or other similar event.
EQUITY SECURITY shall mean any capital stock (including the Common and
Preferred Stock) of the Company, whether now authorized or not, and rights,
options, warrants or rights to purchase capital stock, and securities of any
type whatsoever that are, or may become, convertible into capital stock; the
number of shares of an Equity Security which is an option, warrant, right or
convertible security shall be the number of shares of such Equity Security which
would result upon the immediate exercise of such option, warrant or right of
conversion of such convertible security, without regard to when such option,
warrant or right may in fact be exercised or such convertible security may in
fact be converted.
NEW SECURITIES shall mean any Equity Securities hereafter issued; provided,
however, that such term shall not include (i) securities purchased under the
Purchase Agreement; (ii) securities offered to the public pursuant to a
registration statement filed in accordance with the provisions of the Securities
Act; (iii) securities issued in connection with the acquisition of another
corporation by the Company by merger, purchase of substantially all assets or
other reorganization whereby the Company owns, upon consummation of such
acquisition, greater than fifty percent (50%) of the voting power to elect the
directors of such corporation; (iv) securities issued in any merger or
consolidation of the Company, provided that such merger or consolidation is
approved by the holders of not less than seventy-five percent (75%) of the
Conversion Shares; (v) securities evidencing any borrowings, direct or indirect,
from financial institutions or other persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, provided such securities do not have equity features
(such as warrants, options or other rights to purchase capital stock) and are
not convertible into capital stock of the Company; (vi) securities issued
pursuant to any stock option plan, stock purchase or stock bonus arrangement, or
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<PAGE>
grant; and (vii) securities issued to financial institutions and leasing
companies in connection with borrowing or lease financing arrangements of the
Company, provided that such issuances or grants are unanimously approved by the
Board of Directors.
PREEMPTIVE SHARE shall mean, immediately prior to any issue of New
Securities, and as to each Shareholder, the percentage which expresses the ratio
between (i) the number of Equity Securities owned at such time by such
Shareholder, and (ii) the aggregate number of Equity Securities outstanding at
such time.
PREFERRED STOCK shall mean the Company's Series A Preferred Stock, par
value $.001 per share.
PURCHASE AGREEMENT shall mean the Series A Preferred Stock Purchase
Agreement, dated as of the date hereof, among the Company and the Purchasers,
including any supplemental agreements executed in accordance with Section 2.2 of
the Purchase Agreement..
SECURITIES ACT shall mean the Securities Act of l933, as amended, and any
successor statute thereto.
SELL, as to any Equity Security, shall mean to sell, or in any other way
directly or indirectly transfer, assign, distribute, encumber or otherwise
dispose of such Equity Security, either voluntarily or involuntarily.
SHAREHOLDERS shall mean the persons listed on Schedule I hereto and shall
include any other party who agrees in writing with the parties hereto to be
bound by and to comply with all applicable provisions of this Agreement.
WARRANTS shall mean the Warrants to purchase up to an aggregate of 900,000
shares of Common Stock, $.001 par value per share, of the Company, issued
pursuant to the Purchase Agreement.
SECTION 2
ELECTION OF DIRECTORS
SECTION 2.1. DESIGNATION OF NOMINEES.
3
<PAGE>
(a) So long as a Shareholder named below shall continue to hold (with any
members of its Shareholder) no less than thirty-five (35%) of the shares of
Preferred Stock originally acquired by it, such Shareholder shall be entitled,
but shall be under no obligation, to designate one nominee for election to the
Board of Directors by the Shareholders:
Telantis Venture Partners V, Inc.
(b) In the event a designation is not made by Telantis Venture Partners V,
Inc. in accordance with this Section 2.1, unless otherwise agreed by such
Shareholder, the Shareholders will use their best efforts to ensure that such
position on the Board of Directors shall be left vacant until a nominee is so
designated.
SECTION 2.2. VOTING FOR NOMINEES. Each Shareholder and Cruttenden agrees
to vote the Equity Securities held by it from time to time for the nominees so
designated in accordance with Section 2.1 at each annual meeting of shareholders
of the Company, and at any special meeting of shareholders of the Company called
for the election of directors, in such manner as may be required to elect such
nominees. Cruttenden agrees to vote in accordance with the majority vote of the
Shareholders with respect to the election for any position on the Board of
Directors.
SECTION 2.3. OBLIGATIONS OF COMPANY AND FEYGIN. The Company agrees to use
its best efforts to cause the nominees so designated in accordance with Section
2.1 to be included in part of the slate of directors and to be recommended to,
and elected by shareholders, at each annual meeting of shareholders of the
Company, and at any special meeting of shareholders of the Company called for
the election of directors. In the event of exchange of Series A Preferred Stock
for Exchange Notes (as defined in the Purchase Agreement) in accordance with
Section 7.17 of the Purchase Agreement, the Company agrees to the foregoing on
the same basis as if such exchange had not occurred. Feygin agrees to vote the
shares of Equity Securities held by or controlled by him in favor of the
designee (if the Shareholders are entitled to elect one director) or designees
(if the Shareholders are entitled to elect more than one director) of the
Shareholders.
SECTION 2.4. REMOVAL; ELECTION OF SUCCESSORS. If (a) the Company receives
a written notice that Shareholders holding a majority of the voting power of the
Equity Securities held by the Shareholders wish to remove a director elected
pursuant to Section 2.1, or (b) such director shall have resigned or shall be
unable to serve, then, in any such case, the Company and the Shareholders agree
to take such action as may be necessary to call a special meeting of the
stockholders of the Company for the purpose of effecting any such removal or
filling such vacancy, as the case may be, and at such meeting each Shareholder
shall vote to accomplish said result.
SECTION 2.5. PROXY. If any Shareholder shall refuse to vote the Equity
Securities held by it as provided in any of the foregoing Sections of this
Section 2 at any meeting of shareholders of the
4
<PAGE>
Company, or shall refuse to give its written consent in lieu of a meeting,
thereupon, without further action by such Shareholder, the President or any
Vice President of the Company shall be, and hereby is, irrevocably
constituted the attorney-in-fact and proxy of such Shareholder for the
purpose of voting, and shall vote such shares at such meeting as provided in
the foregoing Sections of this Section 2 or give such consent, as the case
may be.
SECTION 3
SALE OF NEW SECURITIES BY THE COMPANY
Except as otherwise expressly provided herein, the Company hereby agrees
that it shall not Sell any New Securities except in accordance with the
following procedures:
(a) The Company shall first deliver to each Shareholder a written Notice
of Intention To Sell, which shall be irrevocable for a period of twenty (20)
days after delivery thereof, offering to each Shareholder the right to purchase
up to its Preemptive Share of such New Securities at the purchase price and on
the terms specified therein. Each Shareholder shall have the right and option,
for a period of thirty (30) days after delivery to Shareholders of such Notice
of Intention To Sell, to purchase all or any part of the New Securities so
offered at the purchase price and on the terms stated therein. Such acceptance
shall be made by delivering a written Notice of Acceptance to the Company within
the aforesaid thirty (30) day period.
(b) If any Shareholder shall fail to accept, or shall reject in writing,
the offer made pursuant to Section 3(a), then, upon the earlier of the
expiration of the aforesaid thirty (30) day period or the receipt of Notices of
Acceptance, or written rejections of such offer, from all Shareholders, the then
remaining New Securities formerly subject to such offer shall be reoffered to
all other Shareholders, if any, which shall have accepted their Preemptive Share
of such original offer. Such subsequent offer shall be on the terms and subject
to acceptance in the manner provided in Section 3(a), except that the
Shareholders receiving such subsequent offer shall have (i) the right and option
to accept such offer with respect to all of the then remaining New Securities
subject thereto PRO RATA in accordance with their respective Preemptive Shares,
for a period of seven (7) business days, and (ii) the further right and option
to offer, in any Notice of Acceptance, to purchase any of such New Securities
not purchased by other Shareholders, in which case such New Securities not
accepted by other Shareholders shall be deemed to have been offered to and
accepted by the Shareholders which have exercised their option under this clause
(ii), PRO RATA, in accordance with their respective Preemptive Shares, and on
the above-described terms and conditions.
(c) The closing of any sales of New Securities under the terms of Section
3(a) shall be made at the offices of the Company on a mutually satisfactory
business day within fourteen (14) days after
5
<PAGE>
the expiration of the aforesaid periods. Delivery of certificates or other
instruments evidencing such New Securities duly endorsed for transfer to the
Shareholders shall be made on such date against payment of the purchase price
therefor.
(d) If effective acceptance shall not be received pursuant to Section 3(a)
above with respect to all New Securities offered for sale pursuant to a Notice
of Intention To Sell, then the Company may sell all or any part of the remaining
New Securities so offered for sale at a price not less than the price, and on
terms not more favorable to the purchaser thereof than the terms stated in the
original Notice of Intention To Sell, at any time within one hundred twenty
(l20) days after the expiration of the offer required by Section 3(a) above. In
the event the remaining New Securities are not sold by the Company during such
one hundred twenty (l20) day period, the right of the Company to sell such
remaining New Securities shall expire and the obligations of this Section 3
shall be reinstated; provided, however, that in the event the Company
determines, at any time during such one hundred twenty (l20) day period, that
the sale of all or any part of the remaining New Securities on the terms set
forth in the Notice of Intention To Sell is impractical, the Company can
terminate the offer and reinstate the procedure provided in this Section 3
without waiting for the expiration of such one hundred twenty (l20) day period.
SECTION 4
TRANSFER OF SHARES; COVENANTS OF THE COMPANY
SECTION 4.L. TRANSFER BY SHAREHOLDERS. No Shareholder shall sell, assign,
transfer, pledge, encumber or otherwise dispose of, whether by operation of law
or otherwise, any Equity Securities unless any such transfer is made to a
transferee who concurrently is or prior to such transfer becomes a party to this
Agreement.
SECTION 4.2. REGISTRATION OF TRANSFER. The Company shall permit
registration of transfer of Equity Securities held by a Shareholder only in
accordance with the terms of this Agreement. Any transfer of Equity Securities
which is made in any manner contrary to the provisions of this Agreement shall
be void and shall not be effective to constitute the transferee as a shareholder
of the Company entitled to any rights, benefits, and privileges as such.
SECTION 4.3. LEGEND. Each certificate of Common Stock or Preferred
Stock and certificates representing other Equity Securities of the Company, held
by a Shareholder, shall be stamped or otherwise have endorsed or imprinted
thereon a legend in substantially the following form:
6
<PAGE>
"The transfer of the shares represented by this certificate, and the
rights of the holder hereof, are subject to the terms and conditions of a
Shareholders' Agreement, dated as of September 14, 1998 (a copy of which is
on file with the Company), as the same may be amended from time to time, and
no transfer of the shares represented hereby or of shares issued in exchange
therefor shall be valid or effective unless the terms and conditions of such
Agreement have been fulfilled."
SECTION 4.4. "MARKET STAND-OFF" AGREEMENT. Feygin agrees that he shall
not Sell any Equity Security at any time owned by him or of which he is at
any time the "Beneficial Owner," as that term is defined in Rule 13d-3 of the
Rules and Regulations under the Securities Exchange Act of 1934, except in
accordance with the volume limitations applicable to "affiliates" of the
Company as set forth in Rule 144 of the Rules and Regulations under the
Securities Act of 1933, regardless of whether Feygin falls within the meaning
of "affiliate" under said Rule 144. Additionally, during the twelve-month
period commencing as of the date hereof, Feygin may only sell shares with an
aggregate sale price of up to $100,000 provided that: (i) the price per
share in any transaction is not less than $1.00; (ii) such sale is otherwise
in compliance with all federal and state securities laws and regulations; and
(iii) Feygin has first offered to sell such shares to the Shareholders in
accordance with Section 4.5. Notwithstanding the foregoing, at any time
Feygin is not an employee of the Company, he may only sell any Equity
Security with the consent of the majority in interest of the Shareholders.
SECTION 4.5. RIGHT OF FIRST OFFER. Feygin hereby agrees that he shall
not Sell any Equity Security except in accordance with Section 4.4 and with
the following procedures
(a) Feygin shall first deliver to each Shareholder a written Notice of
Intention To Sell, which shall be irrevocable for a period of twenty (20) days
after delivery thereof, offering to each Shareholder the right to purchase up
to its Preemptive Share of the shares proposed to be sold (the "Feygin Sale
Shares") at the purchase price and on the terms specified therein. Each
Shareholder shall have the right and option, for a period of thirty (30) days
after delivery to Shareholders of such Notice of Intention To Sell, to
purchase all or any part of the Feygin Sale Shares so offered at the purchase
price and on the terms stated therein. Such acceptance shall be made by
delivering a written Notice of Acceptance to Feygin within the aforesaid
thirty (30) day period.
(b) If any Shareholder shall fail to accept, or shall reject in
writing, the offer made pursuant to Section 4.5(a), then, upon the earlier of
the expiration of the aforesaid thirty (30) day period or the receipt of
Notices of Acceptance, or written rejections of such offer, from all
Shareholders, the then remaining Feygin Sale Shares formerly subject to such
offer shall be reoffered to all other Shareholders, if any, which shall have
accepted their Preemptive Share of such original offer. Such subsequent
offer shall be on the terms and subject to acceptance in the manner provided
in Section 4.5(a), except that the Shareholders receiving such subsequent
offer shall have (i) the right and option to accept such offer with respect
to all of the then remaining Feygin Sale Shares subject thereto PRO RATA in
accordance with their respective Preemptive Shares, for a period of seven
(7) business days,
7
<PAGE>
and (ii) the further right and option to offer, in any Notice of Acceptance,
to purchase any of such Feygin Sale Shares not purchased by other
Shareholders, in which case such Feygin Sale Shares not accepted by other
Shareholders shall be deemed to have been offered to and accepted by the
Shareholders which have exercised their option under this clause (ii), PRO
RATA, in accordance with their respective Preemptive Shares, and on the
above-described terms and conditions.
(c) The closing of any sales of Feygin Sale Shares under the terms of
Section 4.5(a) shall be made at the offices of the Company on a mutually
satisfactory business day within fourteen (14) days after the expiration of
the aforesaid periods. Delivery of certificates or other instruments
evidencing such Feygin Sale Shares duly endorsed for transfer to the
Shareholders shall be made on such date against payment of the purchase price
therefor.
(d) If effective acceptance shall not be received pursuant to
Section 4(a) above with respect to all Feygin Sale Shares offered for sale
pursuant to a Notice of Intention To Sell, then Feygin may sell all or any
part of the remaining Feygin Sale Shares so offered for sale at a price not
less than the price, and on terms not more favorable to the purchaser thereof
than the terms stated in the original Notice of Intention To Sell, at any
time within one hundred twenty (l20) days after the expiration of the offer
required by Section 4.5(a) above. In the event the remaining Feygin Sale
Shares are not sold by Feygin during such one hundred twenty (l20) day
period, the right of Feygin to sell such remaining Feygin Sale Shares shall
expire and the obligations of this Section 4.5 shall be reinstated; provided,
however, that in the event Feygin determines, at any time during such one
hundred twenty (l20) day period, that the sale of all or any part of the
remaining Feygin Sale Shares on the terms set forth in the Notice of
Intention To Sell is impractical, Feygin can terminate the offer and
reinstate the procedure provided in this Section 4 without waiting for the
expiration of such one hundred twenty (l20) day period.
8
<PAGE>
SECTION 5
DURATION
The provisions of this Agreement shall be of no further force or effect
(i) upon the closing of the first sale of Common Stock to the public pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act, with gross
proceeds to the Company as seller of not less than twenty million dollars
($20,000,000) before deducting underwriting commissions, provided the sale
price to the public per share of Common Stock is not less than $3.00 per
share, or (ii) at such time as 75% of the Series A Preferred Stock
outstanding as of the date hereof and any Exchange Notes exchanged therefor
are no longer outstanding. In addition, the provisions of Section 2 of this
Agreement shall be of no further force or effect upon the date which is ten
(l0) years from the date hereof.
SECTION 6
MISCELLANEOUS PROVISIONS
SECTION 6.1. ASSIGNMENT OF RIGHTS. The provisions of this Agreement
shall be binding upon and inure to the benefit of any successor or assign of
any party hereto.
SECTION 6.2. DURATION OF AGREEMENT. Unless sooner terminated in
accordance with the provisions of this Agreement, the rights and obligations
of each Shareholder under this Agreement shall terminate as to such
Shareholder when the Shareholder has transferred all Equity Securities owned
by such Shareholder in accordance with this Agreement.
SECTION 6.3. ENFORCEMENT. The parties hereto agree that the remedy at
law for any breach of this Agreement is inadequate and that should any
dispute arise concerning any matter hereunder, this Agreement shall be
enforceable in a court of equity by an injunction or a decree of specific
performance. Such remedies shall, however, be cumulative and not exclusive,
and shall be in addition to any other remedies which the parties hereto may
have.
SECTION 6.4. SEVERABILITY OF PROVISIONS. If any one or more provisions
of this Agreement shall be declared invalid or unenforceable, the same shall
not affect the validity or enforceability of any other provisions of this
Agreement.
SECTION 6.5. AMENDMENTS. Neither this Agreement nor any term hereof
may be amended, waived, discharged, or terminated, except by written
instrument signed by the Company and Shareholders holding greater than
seventy-five percent (75%) of the voting Equity Securities held by
9
<PAGE>
the Shareholders; PROVIDED, HOWEVER, that (i) the provisions of Section 2.1
may not be amended without the consent of the Shareholders named in, or
entitled to the benefit of, Section 2.1(a); (ii) the periods set forth in
Section 5 may not be extended without the consent of each and every
Shareholder; (iii) this Section may not be amended without the consent of
each and every Shareholder; and (iv) the obligations of any Shareholder may
not be increased without the consent of such Shareholder.
SECTION 6.6. NOTICES.
(a) All notices and other communications required or permitted
hereunder shall be in writing and (unless otherwise expressly provided on
Schedule I attached hereto) shall be mailed by 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 (i) if
to a Shareholder, as indicated on Schedule I, or at such other address as
such Shareholder shall have furnished in writing to the party initiating the
notice or communication, (ii) if to the Company, Helisys, Inc., Attention:
President, 24015 Garnier Street, Torrance, CA 90505, or at such other address
as the Company shall have furnished in writing to the party initiating the
notice or communication, or (iii) if to Michael Feygin, c/o Helisys, Inc.,
24015 Garnier Street, Torrance, CA 90505, or at such other address as
Mr. Feygin shall have furnished in writing to the party initiating the notice
or communication..
(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 delivered and given when so mailed. Any
notice so addressed and otherwise delivered shall be deemed to be given when
actually received by the addressee.
SECTION 6.7. GOVERNING LAW. This Agreement shall be construed in
accordance with, and the rights of the parties shall be governed by, the law
of the State of Delaware, without regard to the choice of law provisions
thereof..
SECTION 6.8. ENTIRE AGREEMENT. All prior understandings and agreements
between the parties hereto with respect to the transactions contemplated
hereby are merged in this Agreement, and this Agreement reflects all the
understandings with respect to such transactions. Nothing herein contained
shall be construed to obligate the Shareholders to make any additional
investment in the Company or to constitute the Shareholders as partners.
SECTION 6.9. 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
10
<PAGE>
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, each party hereto has caused this Agreement to be
signed by its duly authorized officer or partner, as the case may be, as of
the date and year first above written.
HELISYS, INC.
By: /s/ Gary S. Moskovitz
--------------------------------------
Name: Gary S. Moskovitz
Its: President and CEO
/s/ Michael Feygin
-----------------------------------------
Michael Feygin, Individually
/s/ Walter W. Cruttenden III
-----------------------------------------
Walter W. Cruttenden III, Individually
PURCHASERS:
TELANTIS VENTURE PARTNERS V, INC.
By: /s/ Adam H. Meyerson
--------------------------------------
Name: Adam H. Meyerson
Its: President
VISALIA TRUST
By: /s/ Reed L. Harman
--------------------------------------
Name: Reed L. Harman
Its:
11
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SCHEDULE I
SCHEDULE OF SHAREHOLDERS
NAME AND ADDRESS
Telantis Venture Partners V, Inc.
791 Wye Road
Akron, OH 44333
(330) 664-2914
Visalia Trust
1820 Via Visalia
Palos Verdes, CA 90274
(310) 373-7538
12
