SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. __________){1}
Helisys, Inc.
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(Name of Issuer)
Common Stock, par value $.001 per share
- -------------------------------------------------------------------------------
(Title of Class of Securities)
423282 10 2
- -------------------------------------------------------------------------------
(CUSIP Number)
Scott H. Rothstein, Esq.
Day, Berry & Howard LLP
CityPlace I
Hartford, Connecticut 06103
(860) 275-0100
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(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), 13d-1(f) or 13d-1(g), check the following
box / /.
Note: Schedules filed in paper format shall include a signed original and five
copies of this schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
(Continued on the following pages)
(Page 1 of 10 Pages)
**FOOTNOTES**
{1} 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 the disclosures provided in a prior cover
page.
The information required in 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 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).
<PAGE>
CUSIP No. 423282 10 2 13D Page 2 of 10 Pages
1 NAME OF REPORTING PERSONS
IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Robert F. Meyerson
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
PF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
7 SOLE VOTING POWER
NUMBER OF 1,630,000 shares (includes 1,600,000 shares beneficially
SHARES owned by Telantis Venture Partners V, Inc.)
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0 shares
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH 1,630,000 shares (includes 1,600,000 shares beneficially
owned by Telantis Venture Partners V, Inc.)
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,630,000 shares (includes 1,600,000 shares beneficially owned by
Telantis Venture Partners V, Inc.)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* / /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
28.9%
14 TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
CUSIP No. 423282 10 2 13D Page 3 of 10 Pages
1 NAME OF REPORTING PERSONS
IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Telantis Venture Partners V, Inc.
(I.D.# 65-0761765)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC, OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware corporation
7 SOLE VOTING POWER
NUMBER OF 1,600,000 shares
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0 shares
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH 1,600,000 shares
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,600,000 shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* / /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
28.4%
14 TYPE OF REPORTING PERSON*
CO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Item 1. SECURITY AND ISSUER.
The class of equity securities to which this Statement on Schedule 13D
relates is the common stock, par value $.001 per share (the "Common
Stock"), of Helisys, Inc. (the "Company"), a Delaware corporation,
including 1,000,000 shares of Common Stock issuable upon the conversion of
Series A Preferred Stock, par value $.001 per share (the "Series A
Preferred Stock") of the Company beneficially owned by the Filing Persons
(as defined in Item 2), and 600,000 shares of Common Stock issuable upon
the exercise of stock subscription warrants beneficially owned by the
Filing Persons.
The Company's principal executive offices are located at 24015 Garnier
Street, Torrance, California 90505.
Item 2. IDENTITY AND BACKGROUND.
This Statement is being filed by (A) Telantis Venture Partners V, Inc.
("Telantis") and (B) Robert F. Meyerson (together, the "Filing Persons").
(A) Telantis is a Delaware corporation engaged in the business of venture
capital investment. The address of its principal business and
principal office is 791 Wye Road, Akron, OH 44333. The Executive
Officers, Directors and persons controlling Telantis are (1) Robert F.
Meyerson; (2) Adam H. Meyerson; (3) Elizabeth S. Murphy; and (4)
Richard W. Dyer. The information required by subsections (a) through
(c) and (f) of this Item 2 with respect to such persons is as follows:
(1) Robert F. Meyerson, the Chief Executive Officer, Chairman of the
Board and sole stockholder of Telantis, is a U.S. citizen with a
business address at 791 Wye Road, Akron, OH 44333. His principal
occupation is as an independent investor. Mr. Meyerson is the
father of Adam H. Meyerson and Elizabeth S. Murphy.
(2) Adam H. Meyerson, President and a Director of Telantis, is a U.S.
citizen with a business address at 791 Wye Road, Akron, OH 44333.
His principal occupation is as President of Hartley Management
Corp., a business/capital management company. Mr. Meyerson is
the son of Robert F. Meyerson and the brother of Elizabeth S.
Murphy.
(3) Elizabeth S. Murphy, Executive Vice President and a Director of
Telantis, is a U.S. citizen with a business address at 791 Wye
Road, Akron, OH 44333. Her principal occupation is as a
homemaker. Ms. Murphy is the daughter of Robert F. Meyerson and
the sister of Adam H. Meyerson.
(4) Richard W. Dyer, the Chief Financial Officer and a Director of
Telantis, is a U.S. citizen with a business address at 791 Wye
Road, Akron, OH 44333. His principal occupation is as Chief
Financial Officer of Hartley Management Corp.
During the past five years, the reporting person has not been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors). During the past five years, none of the
executive officers, directors or controlling persons of the reporting
person have been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
During the past five years, the reporting person has not been a
party to a civil proceeding of a judicial or an administrative body of
competent jurisdiction and as a result of such proceeding is or was
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. During the past five years, none of the executive
officers, directors or controlling persons of the reporting person
have been a party to a civil proceeding of a judicial or an
administrative body of competent jurisdiction and as a result of such
proceeding is or was 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.
(B) The information required by this Item 2 with respect to Robert F.
Meyerson is set forth above.
Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
In seven transactions that took place between October 15, 1997 and
February 13, 1998, Robert F. Meyerson purchased an aggregate of 30,000
shares of Common Stock in open market transactions at purchase prices
ranging from $.625 per share to $2.50 per share. The aggregate
consideration for such purchases was $33,452.00. The funds to purchase
such shares of Common Stock were personal funds of Mr. Meyerson.
On September 4, 1998, Telantis acquired a Stock Subscription Warrant
for 100,000 shares of Common Stock in connection with a loan made by
Telantis to the Company in the principal amount of $100,000. A copy of
such Stock Subscription Warrant is filed herewith as Exhibit 2 and is
incorporated herein by reference.
On September 14, 1998, Telantis entered into a Preferred Stock and
Warrant Purchase Agreement (the "Purchase Agreement"), pursuant to which it
acquired 40,000 shares of Series A Preferred Stock, which are convertible
into an aggregate of 1,000,000 shares of Common Stock, and a Stock
Subscription Warrant for 500,000 shares of Common Stock in a private
transaction, at an aggregate purchase price of $250,000. A copy of the
Purchase Agreement is filed herewith as Exhibit 3 and is incorporated
herein by reference. A copy of such Stock Subscription Warrant is filed
herewith as Exhibit 4 and is incorporated herein by reference. The funds
to purchase such securities were working capital of Telantis in the amount
of $48,054.80 and cancellation of indebtedness of the Company to Telantis
evidenced by two Promissory Notes including principal and interest in the
aggregate amount of $201,945.20.
Item 4. PURPOSE OF TRANSACTION.
The Filing Persons are holding all of the securities set forth herein
for investment purposes. Based on the Filing 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 Filing Persons, offers for their shares of Common Stock, general
economic conditions and other future developments, the Filing Persons
reserve the right to change their plans and intentions at any time, as they
deem appropriate. In particular, the Filing 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 Filing Persons may also decide to enter into derivative transactions
relating to the Common Stock. Any such transactions may be effected at any
time and from time to time.
Reference is made to Item 6 below, which sets forth certain rights of
Telantis with respect to the appointment of Directors, the right to acquire
additional securities of the Company under specified circumstances and
certain voting rights of the Series A Preferred Stock that may impede the
acquisition of control of the Company by other persons. Telantis intends
to appoint a Director in accordance with the provisions described in Item 6
below.
Except as set forth in this Item 4 and Item 6, Telantis does not have
any present plans or proposals that relate to or that would result in any
of the actions specified in clauses (a) through (j) of Item 4 of Schedule
13D.
Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of the date hereof, Telantis beneficially owns 1,600,000
shares of Common Stock (including shares of Common Stock issuable upon the
conversion of the Series A Preferred Stock and upon the exercise of the
Stock Subscription Warrants), representing approximately 28.4% of the
shares of Common Stock outstanding. Robert F. Meyerson beneficially owns
1,630,000 shares of Common Stock (including the 1,600,000 shares of Common
Stock beneficially owned by Telantis, of which Mr. Meyerson is the sole
stockholder), representing approximately 28.9% of the shares of Common
Stock outstanding. Together, the Filing Persons beneficially own 1,630,000
shares of Common Stock, representing approximately 28.9% of the Common
Stock outstanding. None of the other persons named in Item 2 beneficially
own any Common Stock.
(b) Upon the issuance of the Common Stock issuable upon the
conversion of the Series A Preferred Stock and upon the exercise of the
Stock Subscription Warrants, Telantis will have the sole power to vote or
to direct the vote and to dispose or direct the disposition of the
1,600,000 shares of Common Stock beneficially owned by it. Upon the
issuance of the Common Stock issuable upon the conversion of the Series A
Preferred Stock and upon the exercise of the Stock Subscription Warrants,
as the sole stockholder of Telantis, Robert F. Meyerson indirectly will
have the sole power to vote or to direct the vote and to dispose or direct
the disposition of the 1,600,000 shares of Common Stock beneficially owned
by Telantis. Prior to conversion of the Series A Preferred Stock, Telantis
has the sole power and Robert F. Meyerson, as the sole stockholder of
Telantis, indirectly has the sole power to vote the 40,000 shares of Series
A Preferred Stock owned by it as set forth in Item 6 below. Based upon the
voting provisions described in Item 6 below, as of September 22, 1998, the
Filing Persons had the right to vote the 40,000 shares of Series A
Preferred stock beneficially owned by them as if they were the equivalent
of 5,000,000 shares of Common Stock. Additionally, Robert F. Meyerson has
the sole power to vote or to direct the vote and to dispose or direct the
disposition of the 30,000 shares of Common Stock owned directly by him.
(c) Except as set forth in Item 3 above, no transactions in the
Common Stock were effected by the Filing Persons during the past 60 days.
(d) Robert F. Meyerson, as the sole stockholder of Telantis, has the
power to direct the receipt of dividends from, or the proceeds from the
sale of, the shares of Common Stock beneficially owned by Telantis. No
other person is known by the Filing Persons to have the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the
sale of, any shares of Common Stock beneficially owned by any Filing
Person.
(e) Not applicable.
Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
Telantis has entered into the Purchase Agreement, the Stock
Subscription Warrants and a Shareholders Agreement dated September 14, 1998
by and among the Company, Telantis and certain other stockholders of the
Company (the "Shareholders' Agreement"). A copy of the Shareholders'
Agreement is filed herewith as Exhibit 5 and is incorporated herein by
reference.
The rights, preferences and privileges of the Series A Preferred Stock
are set forth in the Amended Certificate of Designations, Preferences and
Rights filed by the Company with the Delaware Secretary of State on
September 10, 1998 (the "Certificate"), a copy of which is filed herewith
as Exhibit 6 and is incorporated herein by reference. Each of the Purchase
Agreement, the Stock Subscription Warrants, the Shareholders' Agreement and
the Certificate contain agreements between Telantis, the Company, and, in
the case of the Shareholders' Agreement, certain other persons, with
respect to securities of the Company, and each of such documents is
incorporated herein, in its entirety, by reference. The following sets
forth the principal terms of such agreements insofar as they concern the
securities of the Company.
Pursuant to Section 7.17 of the Purchase Agreement, the Company has
agreed that if the Average Market Price (as defined in the Certificate) of
the Company's Common Stock is less than $.50 per share at any time
commencing twelve months from September 14, 1998, upon the request of
Telantis, it will exchange the shares of Series A Preferred Stock held by
Telantis 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 form the date of purchase equal
to 35%, plus all accrued dividends on such shares. 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 convertible promissory note. The convertible promissory note would be
convertible into the Company's Common Stock upon the demand of the holder.
Upon certain events concerning the Company's intellectual property rights
and the Company's ability to obtain a line of credit, the rights described
above would become exercisable by Telantis regardless of the Average
Market Price of the Company's Common Stock.
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 Telantis under the Securities Act of 1933, as
amended. Such registration rights include the right of certain holders of
the Series A Preferred Stock to demand that the Company effect a
registration statement. The Company has also agreed that Telantis 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).
In the event that the Company issues any new class of equity
securities, the Company has agreed, pursuant to Section 8.6 of the Purchase
Agreement, to permit Telantis to exchange its securities for shares of such
new class of equity security in the event that the terms of such equity
security are deemed preferable by Telantis.
Pursuant to the Certificate, each share of Series A Preferred Stock is
convertible, at the request of the holder, into twenty-five (25) shares of
Common Stock. Included among the rights set forth in the Certificate are
certain provisions protecting against certain dilutive events, pursuant to
which the Series A Preferred Stock would be convertible into a greater
number of shares of Common Stock. Reference is made to Section 3(d) of the
Certificate.
Each of the Stock Subscription Warrants provides that, at any time
through September 13, 2003, the holder may purchase up to the number of
shares of Common Stock set forth therein at a purchase price of $.35 per
share. Section 2.5 of the Stock Subscription Warrants also provides
protection against certain dilutive events, which could result in an
increase in the number of shares of Common Stock issuable upon the exercise
of the Stock Subscription Warrants.
Pursuant to Section 7 of the Certificate, the Company has agreed that,
without the approval of a majority of the outstanding shares of Series A
Preferred Stock, it will not (1) amend its Certificate of Incorporation or
Bylaws; (2) 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 the Company; (3) redeem, retire,
purchase or otherwise acquire any shares of its Common Stock, except from
employees upon termination of employment or pursuant to the Corporation's
rights of first refusal; (4) consolidate or merge the Company into or with,
or acquire the stock or substantially all of the assets of, any other
corporation, partnership or other entity; (5) sell, lease, convey, encumber
or otherwise dispose of all or substantially all of the property or
business of the Company; (6) create, authorize or issue any additional
shares of Common Stock or Convertible Security, having a 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 (7) pay, set
aside for payment or declare any dividend or other distribution on any
share of Common Stock or 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 in all respects to the Series A
Preferred Stock, except that each share of such new class of Preferred
Stock shall be convertible into 12.5 shares of Common Stock (the "New
Series"). Telantis would have the right to purchase such shares of the new
class of Preferred Stock in the proportion that its holdings of the Series
A Preferred Stock bear to the total number of shares of Series A Preferred
Stock outstanding. Telantis currently holds 40,000 shares of Series A
Preferred Stock, out of a total of 144,000 shares, or approximately 27.8%.
Pursuant to Section 5(b) of the Certificate, the Series A Preferred
Stock is entitled to elect a Director to the Board of Directors of the
Company. If at any time, the total number of shares of Series A Preferred
Stock outstanding (including shares of the New Series) exceeds 240,000
shares, the Series A Preferred Stock (including the New Series) will be
entitled to elect an additional member to the Board of Directors of the
Company. Additionally, pursuant to the Shareholders' Agreement, the first
Director to be elected by the Series A Preferred Stock holders shall be
designated by Telantis and all Series A Preferred Stock holders have agreed
to vote their shares in favor of such designee.
Section 4.5 of the Shareholders' Agreement provides certain holders of
the Series A Preferred Stock, including Telantis, with a right of first
refusal on any disposition of securities of the Company by Michael Feygin,
a founder, 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 Stock holders. As
of the date of the Company's most recent Proxy Statement, Mr. Feygin was
the beneficial owner of 1,993,260 shares of the Company's Common Stock. In
addition to the foregoing, 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 twelve month period commencing September 14,
1998, Mr. Feygin has agreed that he will not dispose of shares with an
aggregate sale price of more than $100,000 or a per share price of less
than $1.00.
Pursuant to Section 3 of the Shareholders' Agreement, Telantis has the
right to purchase its pro rata share of any sale of New Securities (as
defined in the Shareholders' Agreement) issued by the Company in the
future.
Pursuant to Section 5 of the Certificate, the holders of the Series A
Preferred Stock and the holders of the Common Stock vote together as a
single class on all matters submitted to the shareholders for a vote. The
holders of Series A Preferred Stock have the number of votes they would
have if their shares were converted to Common Stock multiplied by a factor
of (1) 5, if the Average Market Price of the Common Stock is less than
$1.00 per share; (2) 2.5 if the Average Market Price of the Common Stock is
less than $2.00 per share but greater than or equal to $1.00 per share; or
(3) 1, if the Average Market Price of the Common Stock is $2.00 per share
or greater. These voting rights 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.
<PAGE>
Item 7. MATERIAL TO BE FILED AS EXHIBITS.
(1) Joint Filing Agreement.
(2) Stock Subscription Warrant by and between Helisys, Inc. and
Telantis Venture Partners V, Inc. dated September 4, 1998.
(3) Preferred Stock and Warrant Purchase Agreement by and among
Helisys, Inc., Telantis Venture Partners V, Inc. and Visalia
Trust dated September 14, 1998.
(4) Stock Subscription Warrant by and between Helisys, Inc. and
Telantis Venture Partners V, Inc. dated September 14, 1998.
(5) Shareholders Agreement by and among Helisys, Inc., Telantis
Venture Partners V, Inc. and certain other stockholders, dated
September 14, 1998.
(6) Amended Certificate of Designations, Preferences and Rights of
Helisys, Inc., filed with the Delaware Secretary of State on
September 10, 1998.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
Dated: September 24, 1998 TELANTIS VENTURE PARTNERS V, INC.
By /s/Adam H. Meyerson
-------------------------
Adam H. Meyerson
Its President
Dated: September 24, 1998 /s/Robert F. Meyerson
-------------------------
Robert F. Meyerson
EXHIBIT 1
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) promulgated under the Securities
Exchange Act of 1934, as amended, the undersigned agree to the joint filing
of a Statement on Schedule 13D (including any and all amendments thereto)
with respect to the shares of Common Stock, par value $.001 per share, of
Helisys, Inc. and further agree to the filing of this agreement as an
Exhibit thereto. In addition, each party to this Agreement expressly
authorizes each other party to this Agreement to file on its behalf any and
all amendments to such Statement on Schedule 13D.
Date: September 22, 1998
/s/Robert F. Meyerson
---------------------------
Robert F. Meyerson
TELANTIS VENTURE PARTNERS V, INC.
By /s/Adam H. Meyerson
-------------------------
Adam H. Meyerson
Its President
EXHIBIT 2
THESE SECURITIES 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 LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT.
HELISYS, INC.
No. 1
Warrant to Subscribe for 100,000 Shares
of Common Stock
STOCK SUBSCRIPTION WARRANT
September 4, 1998
Not Transferable or Exercisable
Except Upon Conditions Herein Specified
THIS CERTIFIES that, for value received, Telantis Venture Partners V,
Inc. (the "Holder") is entitled to subscribe for and purchase from HELISYS,
INC., a Delaware corporation (hereinafter, the "Company"), One Hundred Thousand
(100,000) 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 3, 2003.
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 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.
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 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
(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 (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 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, 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 cancelled 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.
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., 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.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer this 4 day of September, 1998.
HELISYS, INC.
By: /s/Gary S. Moskovitz
-----------------------
Name: Gary S. Moskovitz
Its: President and CEO
<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.
<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 ____
EXHIBIT 3
SERIES A PREFERRED STOCK
AND WARRANT
PURCHASE AGREEMENT
by and among
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO
and
HELISYS, INC.
Dated as of September 14, 1998
<PAGE>
TABLE OF CONTENTS
PAGE NO.
SECTION 1 Authorization, Purchase and Sale of Shares and Warrants .........1
1.1 Authorization of the Shares and Warrants ...........................1
1.2 Sale and Purchase of the Shares and Warrants .......................1
1.3 Certain Defined Terms ..............................................1
SECTION 2 Closing, Payment and Delivery ...................................2
2.1 Closing ............................................................2
2.2 Sale of Additional Shares and Warrants .............................2
SECTION 3 Representations and Warranties of the Company ...................3
3.1 Organization and Standing; Articles and By-Laws.....................3
3.2 Corporate Power.....................................................4
3.3 Subsidiaries........................................................4
3.4 Capitalization......................................................4
3.5 Authorization.......................................................4
3.6 Financial Information...............................................5
3.7 Absence of Undisclosed Liabilities..................................5
3.8 Absence of Certain Changes..........................................5
3.9 Taxes...............................................................6
3.10 Litigation..........................................................7
3.11 Consents............................................................7
3.12 Title to Properties; Liens and Encumbrances.........................7
3.13 Franchises, Licenses, Trademarks, Patents and Other Rights..........8
3.14 Issuance Taxes......................................................9
3.15 Offering............................................................9
3.16 Compliance with Other Instruments...................................9
3.17 Employees...........................................................9
3.18 Business of the Company............................................11
3.19 Use of Proceeds....................................................11
3.20 Applicability of, and Compliance With, Other Laws..................11
3.21 Condition of Properties............................................13
3.22 Insurance Coverage.................................................13
3.23 Registration Rights................................................14
3.24 SEC Documents......................................................14
3.25 Disclosure.........................................................14
SECTION 4 Representations and Warranties of Purchaser.....................15
4.1 Experience.........................................................15
4.2 Investment.........................................................15
4.3 Rule 144...........................................................15
4.4 Access to Data.....................................................15
4.5 Accredited Investor................................................15
4.6 Restrictions Under Securities Laws.................................15
SECTION 5 Conditions to Closing of Purchaser..............................16
5.1 Representations and Warranties Correct.............................16
5.2 Performance........................................................16
5.3 Compliance Certificate.............................................16
5.4 Opinion of Company's Counsel.......................................16
5.5 Good Standing Certificates.........................................16
5.6 Legal Investment...................................................16
5.7 Qualifications.....................................................17
5.8 Amendment of Certificate and Filing of Certificate.................17
5.9 Proceedings and Documents..........................................17
5.10 Provisions of By-Laws..............................................17
5.11 Shareholders' Agreement............................................17
5.12 Key Person Life Insurance..........................................17
SECTION 6 Conditions to Closing of Company................................17
6.1 Representations....................................................17
6.2 Legal Investment...................................................18
SECTION 7 Covenants of the Company........................................18
7.1 Basic Financial Information........................................18
7.2 Additional Information and Rights..................................19
7.3 Prompt Payment of Taxes, etc.......................................21
7.4 Maintenance of Properties and Leases...............................21
7.5 Insurance..........................................................21
7.6 Key Person Life Insurance..........................................21
7.7 Accounts and Records...............................................22
7.8 Compliance with Requirements of Governmental Authorities...........22
7.9 Maintenance of Corporate Existence, etc............................22
7.10 Availability of Common Stock for Conversion and Warrant Exercise ..23
7.11 Invention and Secrecy Agreement....................................23
7.12 Use of Proceeds....................................................23
7.13 Compliance by Subsidiaries.........................................23
7.14 Expenses of Board Members..........................................23
7.15 Securities Law Filings.............................................23
7.16 Pro-Forma Financial Statements.....................................24
7.17 Exchange Note......................................................24
7.18 Line of Credit.....................................................25
SECTION 8 Negative Covenants..............................................25
8.1 Sale/Purchase of Assets; Merger....................................25
8.2 Future Registration Rights.........................................26
8.3 Private Offerings..................................................26
8.4 Changes in Type of Business........................................26
8.5 Loans, Guarantees..................................................26
8.6 Issuance of Equity Securities......................................26
8.7 Purchase of Equity Securities......................................27
8.8 Conflicting Agreements.............................................27
8.9 Amendment of Charter Documents.....................................27
8.10 Related Party Transactions.........................................28
8.11 Subsidiaries.......................................................28
8.12 Business Plan......................................................28
8.13 Amendment of Other Agreements......................................28
8.14 Employee Stock Plans...............................................28
8.15 Liens..............................................................28
8.16 Executive Compensation.............................................28
8.17 Investments........................................................29
8.18 Purchases and Sales................................................29
8.19 Leases.............................................................29
8.20 Indebtedness.......................................................29
8.21 Compliance by Subsidiaries.........................................29
SECTION 9 Restrictions on Transferability of Securities; Compliance
with Securities Act.............................................30
9.1 Restrictions on Transferability....................................30
9.2 Certain Definitions................................................30
9.3 Restrictive Legend.................................................31
9.4 Notice of Proposed Transfers and Securities Act Compliance.........31
9.5 Requested Registration.............................................32
9.6 Company Registration...............................................34
9.7 Registration on Form S-2 or Form S-3...............................35
9.8 Expenses of Registration...........................................36
9.9 Registration Procedures............................................36
9.10 Indemnification and Contribution...................................37
9.11 Information by Holder..............................................39
9.12 Limitations on Registration of Issues of Securities................39
9.13 Rule 144 Reporting.................................................39
9.14 Transfer of Registration Rights....................................40
SECTION 10 Definitions....................................................40
SECTION 11 Miscellaneous..................................................44
11.1 Governing Law.....................................................44
11.2 Survival..........................................................44
11.3 Successors and Assigns............................................44
11.4 Entire Agreement..................................................45
11.5 Notices, etc......................................................45
11.6 Delays or Omissions...............................................45
11.7 Rights; Separability..............................................46
11.8 Agent's Fees and Services.........................................46
11.9 Legal Fees and Expenses...........................................46
11.10 Titles and Subtitles..............................................46
11.11 Counterparts......................................................46
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 1 - Schedule of Purchasers
Schedule 2 - Schedule of Exceptions
Exhibit A - Restated Certificate of Designation of Rights, Preferences &
Privileges of Series A Preferred Stock
Exhibit B - Form of Warrant
Exhibit C - Form of Invention and Secrecy Agreement
Exhibit D - Form of Opinion of Counsel
Exhibit E - Shareholders' Agreement
<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
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 entire Board of Directors of
the Company; and (v) the Purchasers are granted preemptive rights to purchase
the Additional Shares and Additional Warrants. Upon the issuance of Additional
Shares, references to Series A Preferred Stock herein shall be deemed to refer
to Series A Preferred Stock and such class of stock as shall have been issued
as the Additional Shares, collectively.
SECTION 3
Representations and Warranties of the Company
Except as expressly set forth (with reference to a paragraph in this
Section 3) on Schedule 2 (the "Schedule of Exceptions") hereto, the Company
hereby represents and warrants to the Purchasers as follows:
3.1 Organization and Standing; Articles and By-Laws.
(a) The Company and each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its state of
organization and is qualified, licensed or domesticated as a foreign corporation
in each jurisdiction wherein the nature of its activities or properties owned or
leased by it makes such qualification, licensing or domestication necessary,
except where the failure to be so qualified, licensed or domesticated would not
have a material adverse effect on the Company. The Schedule of Exceptions sets
forth the jurisdictions in which the Company or any Subsidiary is qualified,
licensed or domesticated as a foreign corporation. The Company and each
Subsidiary has all requisite power, governmental licenses, authorization
consents and approvals to own the properties owned by it and to conduct the
business as it is being conducted by it and as contemplated by the Confidential
Information Memorandum dated May 1998 (the "Confidential Information
Memorandum"), a true and correct copy of which has been given to the Purchasers
and special counsel for the Purchasers. The Schedule of Exceptions sets forth
all jurisdictions in which the Company or any Subsidiary owns or leases property
or engages in any activity.
(b) The Company has furnished special counsel for the Purchasers with
true, correct and complete copies of the Company's and each Subsidiary's
Certificate of Incorporation and By-Laws, and all amendments thereto through and
including the Closing Date and each Additional Closing Date as applicable, and
copies of the minutes of all Board of Directors, Committees of the Board of
Directors and stockholders meetings of the Company or such Subsidiary. Prior to
the Closing, the Company shall have properly filed and recorded the Certificate
with the Secretary of the State of Delaware. The Company and each Subsidiary is
not in breach of any of the provisions of its Certificate of Incorporation and
is not in breach of any of the provisions of its By-Laws in any material
respect.
3.2 Corporate Power. The Company and each Subsidiary, as applicable, has
all requisite corporate power to enter into this Agreement and each of the
Financing Documents and will have on the Closing Date all requisite corporate
power to sell the Shares and to carry out and perform its obligations under the
terms of this Agreement and each of the Financing Documents.
3.3 Subsidiaries. Except as set forth in the Schedule of Exceptions, the
Company has no Subsidiaries and does not own of record or beneficially any
capital stock or equity interest or investment in any corporation, partnership,
association or business entity. The Company is the sole owner of the securities
of each of the Subsidiaries.
3.4 Capitalization. The Schedule of Exceptions contains a true and
correct list of all securities of the Company and each Subsidiary (including the
amounts thereof) outstanding immediately prior to the Closing, and the holders
of any interest in such securities. Immediately prior to the Closing, the
Company's authorized capital stock will consist of twenty-five million
(25,000,000) shares, consisting of (a) twenty million (20,000,000) shares of
Common Stock, par value $.001 per share ("Common Stock") of which four million
thirty nine thousand seven hundred sixty-two (4,039,762) shares will be issued
and outstanding on the Closing Date, and (b) five million (5,000,000) shares of
Preferred Stock, one hundred forty-four thousand (144,000) shares of which have
been designated as Series A Preferred, 80,000 of which will be issued and
outstanding prior to the Closing. Upon consummation of the Closing, all issued
and outstanding shares of capital stock of the Company will have been duly
authorized and validly issued, will be fully paid and nonassessable, and will
have been offered issued, sold and delivered by the Company in compliance with
applicable federal and state securities laws. Except as set forth in the
Schedule of Exceptions and the Shareholders' Agreement, there are no outstanding
preemptive or other preferential rights, conversion rights or other rights,
options, warrants or agreements granted or issued by or binding upon the Company
for the purchase or acquisition of any shares of its capital stock. The Company
holds no shares of its capital stock in its treasury.
3.5 Authorization. All action on the part of the Company, the
Subsidiaries, their directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company and the Subsidiaries, as
applicable, of this Agreement and each of the Financing Documents and for the
consummation of the transactions contemplated herein and therein, and for the
authorization, issuance and delivery of the Shares and of the Conversion Shares
has been taken or will be taken prior to the Closing. This Agreement and each
of the Financing Documents is a valid and binding obligation of the Company and
the Subsidiaries parties hereto and thereto, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally. The execution and
delivery by the Company and the Subsidiaries, as applicable, of this Agreement
and each of the Financing Documents, and compliance herewith and therewith, and
the issuance and sale of the Shares and the Conversion Shares will not, with or
without notice or the passage of time or both, result in any material violation
of and will not conflict with, or result in a breach of any of the terms of, or
constitute a default under any provision of, any state or federal law to which
the Company or any Subsidiary is subject, the Certificate or By-Laws, as
amended, the Certificate of Incorporation or By-Laws of the Company or any
Subsidiary or any mortgage, indenture, material agreement, instrument, judgment,
decree, order, rule or regulation or other restriction to which the Company or
any Subsidiary is a party or by which it or any of its property is bound, or may
be affected, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or any
Subsidiary pursuant to any such term or give any other person or entity the
right to accelerate the time for performance of any obligation of the Company or
any Subsidiary. Except as set forth in the Shareholders' Agreement, no
shareholder has any preemptive rights or rights of first refusal by reason of or
in connection with the issuance of the Shares. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will be free of any liens or encumbrances. The
Conversion Shares have been duly and validly reserved (and are in addition to
any other shares reserved for any other purpose) and are not subject to any
preemptive rights or rights of first refusal and, upon such issuance, will be
validly issued, fully paid and nonassessable.
3.6 Financial Information. Copies of (i) the audited balance sheet of the
Company dated July 31, 1997 (the "Balance Sheet") and the related statements of
operations and accumulated deficit and cash flows for the year then ended,
accompanied by a report thereon containing an opinion without qualification of
the Company's independent certified public accountants, and (ii) the unaudited
balance sheet of the Company as of April 30, 1998 and the related statements of
income for the nine months then ended (collectively, the "Financial Statements")
and Financial Statements for each Subsidiary have been delivered to the
Purchasers and special counsel for the Purchasers, present fairly the financial
position of the Company or such Subsidiary as of such date, have been prepared
in accordance with generally accepted accounting principles, consistently
applied, except for those changes promulgated and required by accounting
authority, and show all material liabilities, absolute or contingent, of the
Company or such Subsidiary required to be recorded thereon in accordance with
generally accepted accounting principles as of the date thereof.
3.7 Absence of Undisclosed Liabilities. The Company and each Subsidiary
does not have, and does not know of, any liabilities (fixed or contingent,
including without limitation any tax liabilities due or to become due), which,
either individually or in the aggregate, are material and not disclosed on the
Balance Sheet.
3.8 Absence of Certain Changes. Since the date of the Balance Sheet,
there has not been:
(a) Any change in the condition, assets, liabilities, prospects or
business of the Company or any Subsidiary from that shown on the Balance Sheet
or as described in the Plan which, either individually or in the aggregate, has
been or is reasonably likely to be materially adverse;
(b) Any damage to, or destruction or loss of, any of the properties
or assets of the Company or any Subsidiary (whether or not covered by insurance)
materially adversely affecting the business or plans of the Company or any
Subsidiary or the Technology;
(c) Any declaration, setting aside or payment or other distribution
in respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock (or any warrant,
option or other right with respect to such stock) by the Company or any
Subsidiary or any repayment of Company or any Subsidiary debt held by any
Related Party or by an Affiliate;
(d) Any organizational activity, collective bargaining activity,
labor dispute or labor trouble;
(e) Any event or condition of any character, which, either
individually or in the aggregate, materially adversely affects the business,
operations or plans of the Company or any Subsidiary;
(f) Any action taken or entered into by the Company or any Subsidiary
involving any transaction other than in the usual and ordinary course of
business, except this Agreement;
(g) Any wage or salary increase made or granted, or entered into by
the Company or any Subsidiary involving any employment agreement other than any
agreement set forth in the Schedule of Exceptions;
(h) Any disclosure to any person of any material trade secrets,
except for disclosures made to persons subject to valid and enforceable
confidentiality agreements; or
(i) Any disposition of assets other than the sale of the Company's
products in the ordinary course of business.
3.9 Taxes. The Company and each Subsidiary has filed or will file within
the time prescribed by law (including extensions of time approved by any
appropriate taxing authority) all tax returns and reports required to be filed
with the United States Internal Revenue Service and with the States of
California and Michigan and any other state in which such a filing is required,
and (except to the extent that the failure to file would not have a material
adverse effect on the condition or operations of the Company or such Subsidiary)
with all other jurisdictions where such filing is required by law; and the
Company and each Subsidiary has paid, or made adequate provision in the Balance
Sheet for the payment of, all taxes, interest, penalties, assessments or
deficiencies due in connection therewith. The Company and each Subsidiary has
never had any tax deficiency proposed or assessed against it and the Company and
each Subsidiary has executed no waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's or any Subsidiary's federal income tax returns nor any state income,
sales or franchise tax returns has ever been audited by governmental
authorities. No tax audit, action, suit, proceeding, investigation or claim is
now pending nor, to the best of the Company's knowledge after reasonable
inquiry, threatened against the Company or any Subsidiary, and to the Company's
knowledge, no issue or question has been raised (and is currently pending) by
any taxing authority in connection with any of the Company's or any Subsidiary's
tax returns or reports.
The Company and each Subsidiary has withheld or collected from each payment
made to each of their employees, the amount of all taxes (including, but not
limited to, federal income taxes, Federal Insurance Contribution Act taxes and
Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
3.10 Litigation. There is neither pending nor threatened any action,
suit, proceeding or claim, whether or not purportedly on behalf of the Company,
or any Subsidiary, to which the Company, or any Subsidiary or any employee of
the Company or any Subsidiary is or may be named as a party or to which the
Company's, any Subsidiary's or any such person's property is or may be subject.
To the best of the Company's knowledge and belief, there is no basis for any
such action, suit, proceeding or claim, in which an unfavorable outcome, ruling
or finding in any such matter or for all such matters, taken as a whole, might
have a material adverse effect on the condition, financial or otherwise,
operations or prospects of the Company or any Subsidiary or on the Technology.
The Company and the Founders have no knowledge of any unasserted claim, the
assertion of which is likely and which, if asserted, will seek damages, an
injunction or other legal, equitable, monetary or nonmonetary relief which if
granted would have a material adverse effect on the condition, financial or
otherwise, operations or prospects of the Company or any Subsidiary.
3.11 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of the
Company or any Subsidiary, including and subject to the Company's reliance
on the accuracy of the representations of the Purchasers in Section 4 hereof,
qualification under applicable state securities laws of the offer and sale of
the Shares and of the issuance of the Conversion Shares, is required in
connection with the valid execution and delivery of this Agreement, the offer,
sale or issuance of the Shares, the conversion of the Series A Preferred into
Common Stock or the issuance of the Conversion Shares, or the consummation of
any other transaction contemplated on the Closing Date by this Agreement or any
of the Financing Documents, except the filing of the Certificate with the
Secretary of the State of Delaware, which filing has been made and is effective
as of the date hereof.
3.12 Title to Properties; Liens and Encumbrances. The Company and each
Subsidiary has good and marketable title to all its properties and assets, free
from all mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges, except as set forth on the Schedule of
Exceptions.
3.13 Franchises, Licenses, Trademarks, Patents and Other Rights.
(a) All (i) franchises, permits, licenses and other similar
authority, (ii) patents, patent applications, patent rights, service marks,
trademarks, trademark applications, trademark rights, trade names, trade
name rights and copyrights (whether registered or not), and (iii) know-how,
technology and trade secrets, which, in any case, are owned, possessed or used
by 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
business as now conducted or as planned to be conducted, have been duly and
validly transferred in full to the Company. The documents and instruments
evidencing such transfer are listed in the Schedule of Exceptions, and a copy
thereof has been delivered to special counsel for the Purchasers.
(b) The Company and each Subsidiary has all franchises, permits,
licenses and other similar authority, necessary for the conduct of its business
as now being conducted by it, except where the failure to have such franchises,
permits, licenses or other similar authority would not have a material adverse
effect on the Company or the Technology, and believes it can obtain any similar
authority necessary for the conduct of its business as planned to be conducted,
and it is not in violation, nor will the transactions contemplated by this
Agreement cause a violation of any material term or provision of any such
franchise, permit, license or other similar authority.
(c) The Schedule of Exceptions lists all patents, patent
applications, patent rights, trademarks, trademark applications, trademark
rights, trade names, trade name rights, service marks and copyrights (whether
registered or not) owned or possessed by the Company and each Subsidiary
(collectively, the "Listed Rights"). The Listed Rights comprise all the
patents, patent applications, patent rights, trademarks, trademark applications,
trademark rights, trade names, trade name rights, service marks and copyrights
(whether registered or not) necessary to the conduct of the Company's and each
Subsidiary's business as now being conducted, and the Company believes that the
Company and each Subsidiary can obtain any such rights necessary for the conduct
of its business as planned to be conducted. The Company and each Subsidiary has
and possesses the know-how, technology and trade secrets not included in the
Listed Rights (such know-how, technology and trade secrets being collectively
called the "Intellectual Property") which they believe to be necessary (i) to
conduct the Company's and each Subsidiary's business as now being conducted, and
(ii) with additional know-how, technology and trade secrets which the Company
and the Subsidiaries plan to develop, for the conduct of their business as
planned to be conducted. (The Listed Rights and the Intellectual Property
collectively constitute the "Technology"). There is neither pending, nor, to
the best of the Company's knowledge and belief, threatened, any claim or
litigation against the Company or any Subsidiary contesting the validity or
right to use any of the Listed Rights or any of the Intellectual Property, nor
is the Company or any Founder or any Subsidiary aware of any basis therefor, and
neither the Company nor any Subsidiary has received any notice of infringement
upon or conflict with any asserted right of others. To the best of the
Company's knowledge and belief, no person, corporation or other entity is
infringing or violating the Listed Rights or any of the Intellectual Property.
Except as described in the Schedule of Exceptions, the Company has no obligation
to compensate others for the use of any Listed Right or any Intellectual
Property, nor has the Company or any Subsidiary granted any license or other
right to use, in any manner, any of the Listed Rights or Intellectual Property,
whether or not requiring the payment of royalties. The Company has no
knowledge of any current or anticipated narrowing of the claims under any
of its patents.
3.14 Issuance Taxes. All taxes imposed by any state in connection with
the issuance, sale and delivery of the Shares shall have been fully paid, and
all laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
3.15 Offering. Within the past six (6) months, the Company has not,
either directly or through any agent, offered any of the Shares or the Warrants
or any security or securities similar to the Shares or the Warrants for sale
to, or solicited any offers to buy the Shares or the Warrants or any part
thereof or any such similar security or securities from, or otherwise approached
or negotiated in respect thereof with, any party or parties other than the
Purchasers or institutional or other sophisticated investors, each of which was
offered all or a portion of the Shares and Warrants at private sale for
investment.
Subject in part to the truth and accuracy of the Purchasers'
representations set forth in this Agreement, the offer, sale and issuance of the
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and all state securities laws, and neither the Company nor anyone acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
3.16 Compliance with Other Instruments. Neither the Company nor any
Subsidiary is in violation of any term of its Certificate of Incorporation or
By-Laws. Neither the Company, any Subsidiary or any of their property is in
violation of any term of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which the
Company, any subsidiary or any of such property is subject, a violation of which
would materially adversely affect the Company's condition, financial or
otherwise, or operations.
3.17 Employees.
(a) No employee of the Company or any Subsidiary and no Related
Party is, or is now expected to be, in violation of any term of any employment
contract, patent disclosure agreement, non-competition agreement, or any other
contract or agreement with any prior employer or any other person, corporation,
or other entity or any restrictive covenant in such an agreement, or any
obligation imposed by common law or otherwise, relating to the right of any such
employee or Related Party to be employed by the Company or companies similarly
situated because of the nature of the business conducted or to be conducted by
the Company, or any Subsidiary or companies similarly situated or relating to
the use of trade secrets or proprietary information of others, and the continued
employment of the Company's or any Subsidiary's employees and/or Related Parties
does not subject the Company, any Subsidiary or Purchaser to any liability for
any such violation.
(b) The Schedule of Exceptions sets forth a complete list of the
name and position of each person who has executed a Invention and Secrecy and
Agreement to the effect and in substantially the form set forth in Exhibit C
hereto. To the best of the Company's knowledge and belief, no employee or
former employee of the Company or any Subsidiary is, or to the best of the
Company's knowledge and belief now is expected to be, in violation of the terms
of the aforesaid agreement or of any other obligation relating to the use of
confidential or proprietary information of the Company or such Subsidiary. Each
of such Invention and Secrecy Agreements remains in full force and effect.
(c) The Schedule of Exceptions sets forth the current compensation
of each officer, director or employee of the Company and each Subsidiary being
paid (or to whom the Company or such Subsidiary has agreed to pay) compensation
at a rate of $50,000 per year or more.
(d) To the best knowledge of the Company, no officer or key employee
of the Company or any Subsidiary has any present intent of terminating such
officer's or key employee's employment with the Company or such Subsidiary.
(e) The Company and each Subsidiary is in full compliance with all
laws regarding employment, wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes. The Company and
each Subsidiary is in compliance with all applicable foreign, federal, state and
local laws and regulations regarding occupational safety and health standards
and has received no complaints from any foreign, federal, state or local agency
or regulatory body alleging violations of any such laws and regulations.
(f) Except as set forth on the Schedule of Exceptions hereto, the
employment of all persons and officers employed by the Company and each
Subsidiary is terminable at will without any penalty or severance obligation of
any kind on the part of the employer. All sums due for employee compensation
and benefits and all vacation time owing to any employees of the Company and
each Subsidiary have been duly and adequately accrued on the accounting records
of the Company. All employees of the Company and each Subsidiary are either
United States citizens or resident aliens specifically authorized to engage in
employment in the United States in accordance with all applicable laws.
(g) Neither the Company nor any Subsidiary has experienced, nor does
it know or have reasonable grounds to know of any basis for, any strike, labor
troubles or strife, work stoppages, slow downs, or other interference with or
impairment of its business. Neither the Company nor any Subsidiary has
experienced, nor does it know or have reasonable grounds to know of, any union
or collective bargaining organization efforts or negotiations, or requests for
negotiations, for any representation or any labor contract relating to any
employees of the Company or any Subsidiary.
3.18 Business of the Company. The Company has no knowledge or belief that
(i) there is pending or threatened any claim or litigation against or affecting
the Company or any Subsidiary contesting its right manufacture, sell or use any
product or service presently manufactured, sold or used or planned to be
manufactured, sold or used by the Company or any Subsidiary, (ii) there exists,
or there is pending or planned, any statute, rule, law, regulation, standard or
code which would materially adversely affect the condition, financial or
otherwise, the operations or the prospects of the Company or any Subsidiary, or
(iii) there is any other fact which in the future may materially adversely
affect the Company's or any Subsidiary's condition, financial or otherwise,
operations or prospects. The Company and each Subsidiary currently intends to
engage in the business of the general type described in the SEC Documents.
3.19 Use of Proceeds. The Company will use the proceeds of the offering
for general working capital purposes. The Company will not use the proceeds of
the offering for other business purposes. None of the transactions contemplated
in this Agreement (including, without limitation, the use of the proceeds from
the sale of the Shares) will violate or result in a violation of Section 7 of
the Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto, including, without limitation, Regulations G, T and X of the
Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11. The
Company does not own or intend to carry or purchase any "margin security" within
the meaning of said Regulation G, including margin securities originally issued
by it. None of the proceeds from the sale of the Shares will be used to
purchase or carry (or refinance any borrowing the proceeds of which were used to
purchase or carry) any "security" within the meaning of the Securities Act.
3.20 Applicability of, and Compliance with, Other Laws.
(a) Neither the Company nor any Subsidiary has or makes
contributions to any pension plans, defined benefit plans or defined
contribution plans for its employees which are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), except as set
forth on the Schedule of Exceptions. With respect to such plans, if any, listed
on the Schedule of Exceptions, the Company and each Subsidiary is in compliance
with the applicable provisions of ERISA in all material respects. Neither
the Company nor any Subsidiary has incurred any unremedied accumulated funding
deficiency within the meaning of ERISA or any unsatisfied liability to the
Pension Benefit Guaranty Corporation established under ERISA in connection with
any employee pension plan established or maintained by the Company or such
Subsidiary under the jurisdiction of ERISA. No Reportable Event or Prohibited
Transaction (as defined in Section 4043 of ERISA) has occurred with respect to
any plan administered by the Company or any Subsidiary.
(b) The Company's and each Subsidiary's employment practices and
policies are in compliance with (i) all applicable laws of the United States and
each applicable jurisdiction relating to equal employment opportunity, and any
rules, regulations, administrative orders and Executive Orders relating thereto,
and (ii) the applicable terms, relating to equal opportunity, of any contract,
agreement or grant the Company and each Subsidiary has with, from or relating
(by way of subcontract or otherwise) to any other contract, agreement or grant
of, any federal or state governmental unit. Neither the Company nor any
Subsidiary has been the subject of any charge of unfair labor practices,
employment discrimination made against it by the National Labor Relations Board,
the United States Equal Employment Opportunity Commission or any other
governmental unit, or is presently subject to any formal or informal proceedings
before, or investigations by, such Commission or governmental unit. To the
Company's knowledge, neither the Company, nor any Subsidiary, nor any employees
of the Company or of Subsidiaries, nor any Related Parties are presently under
investigation by any commission or governmental agency for purposes of security
clearance or otherwise.
(c) Neither the Company nor any Subsidiary or any property owned or
occupied by the Company or such Subsidiary is in violation of any Federal or
State Environmental Law of any sort or in violation of any Federal or State
"OSHA" law, so-called. The Schedule of Exceptions contains a list of all
environmental permits held by the Company and each Subsidiary which are material
to the Company or such Subsidiary. Without limiting the foregoing:
(i) Environmental Permits. The Company and each Subsidiary has
obtained all environmental, health and safety permits and governmental
authorizations (collectively, the "Environmental Permits") necessary for the
construction of their facilities (for any facility constructed by or at the
direction of the Company) or the conduct of their operations, and all such
Environmental Permits are in good standing and the Company and each Subsidiary
is in material compliance with all terms and conditions of the Environmental
Permits. To the Company's knowledge, no notice to, approval of or authorization
or consent from any governmental or regulatory authority is necessary for the
transfer of or modification to any Environmental Permit and the consummation of
the transactions contemplated by this Agreement will not violate, alter, impair
or invalidate, in any respect, any Environmental Permit.
(ii) Environmental Claims. There is no Environmental Claim
pending, or to the Company's knowledge, threatened or reasonably likely to
be threatened (i) against the Company or any Subsidiary, (ii) against any
person or entity whose liability for any Environmental Claim the Company or
any Subsidiary has or may reasonably be expected to have retained or assumed
either contractually or by operation of law, or (iii) against any real or
personal property or operations which are now or have been previously owned,
leased, operated or managed, in whole or in part, by the Company or any
Subsidiary.
(iii) Releases. There have been no Releases of any Hazardous
Materials that would be likely to form the basis of any Environmental Claim
against the Company, any Subsidiary or against any person or entity whose
liability for any Environmental Claim the Company or any Subsidiary has or
may have retained or assumed either contractually or by operation of law.
(iv) Environmental Assessments. There are no environmental
reports, audits, investigations or assessments of the Company, any Subsidiary,
or any real or personal property or operations which are now or have been
previously owned, leased, operated or managed, in whole or in part, by the
Company or such Subsidiary.
(d) Neither the Company nor any Subsidiary has violated any law or
any governmental law, rule, order or regulation or requirement which violation
through the date hereof has had or would reasonably be expected to have a
material adverse effect upon the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries and neither
the Company nor any Subsidiary has received notice of any such violation.
3.21 Condition of Properties. All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Company and
each Subsidiary are in good operating condition and repair, ordinary wear and
tear excepted, are reasonably fit and usable for the purposes for which they are
being used, are adequate and sufficient for the Company's and each Subsidiary's
businesses and conform in all material respects with all applicable ordinances,
regulations and laws.
3.22 Insurance Coverage. Neither the Company nor any Subsidiary has been
refused any insurance coverage sought or applied for, and the Company has no
reason to believe that it will be unable to obtain one or more policies of
insurance issued by insurers of recognized responsibility, insuring the Company,
its Subsidiary and their properties and business against such losses and risks,
and in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or similar business and similarly situated. The
Schedule of Exceptions sets forth each insurance policy (specifying the insurer,
the amount of coverage and the type of insurance) maintained by the Company and
each Subsidiary relating to its respective properties, assets, business or
personnel, and each inspection report or recommendation, if any, during the last
three years as to the conditions of the properties and assets owned, leased,
occupied or operated by it or the conduct of its business. Neither the Company
nor any Subsidiary is in default with respect to any provision contained in any
insurance policy, and neither the Company nor any Subsidiary has failed to give
any notice or present any presently existing claims under any insurance policy
in due and timely fashion.
3.23 Registration Rights. Other than under this Agreement or as listed in
the Schedule of Exceptions, the Company has not agreed to register under the
Securities Act any of its authorized or outstanding securities.
3.24 SEC Documents. The Company has filed all required reports,
schedules, forms, statements and other documents with the Securities and
Exchange Commission (the "SEC") (any of the foregoing are referred to herein as
the "SEC Documents") since March 7, 1996. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Documents,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any SEC Document has been revised or superseded by a later-filed
SEC Document, none of the SEC Documents contain any untrue statement of a
material fact if such statement were made as of the date hereof or omits to
state any material fact that would be required to be stated therein if filed as
of the date hereof, or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). All of the Company's SEC documents filed since March 7, 1996 have
been provided to the Purchasers.
3.25 Disclosure. Neither this Agreement, the Schedule of Exceptions, the
Balance Sheet, the Financial Statements nor the SEC Documents contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein or herein not misleading in
the light of the circumstances under which they were made. There is no fact
which the Company has not disclosed to the Purchasers in writing or in the SEC
Documents that materially adversely affects or, so far as the Company can now
foresee, will materially adversely affect the properties, business, prospects,
profits or condition (financial or otherwise) of the Company and the
Subsidiaries or the ability of the Company to perform this Agreement and the
Financing Documents or the other actions contemplated hereby. The forecasts,
projections, estimates and other forward-looking matters furnished to the
Purchasers were prepared in good faith on the basis of the Company's best
estimates. The Company does not have any reason to believe that any assumptions
or statements of opinion contained in such forecasts, projections, estimates or
other forward-looking matters are unreasonable or false.
SECTION 4
Representations and Warranties of Purchaser
Each of the Purchasers represents and warrants to the Company, as to itself
only, as follows:
4.1 Experience. It is experienced in evaluating and investing in
companies such as the Company.
4.2 Investment. It is acquiring the Shares and the Warrants for
investment for its own account and not with the view to, or for resale in
connection with, any distribution thereof. It understands that the Shares,
the Conversion Shares, the Warrants and the Warrant Shares have not been
registered under the Securities Act by reason of an exemption from the
registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of its investment intent as expressed
herein.
4.3 Rule 144. It acknowledges that the Shares, the Conversion Shares, the
Warrants and the Warrant Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act, which permits limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions (which conditions cannot presently be satisfied).
4.4 Access to Data. It has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management, and it
has been furnished with copies of documents which it has requested.
4.5 Accredited Investor. It is an Accredited Investor as defined in
Regulation D under the Securities Act.
4.6 Restrictions Under Securities Laws. It is aware (and its respective
employees, advisors, representatives and affiliates who are or who it currently
anticipates will be apprised of matters relating to this Agreement, or the
transactions contemplated hereby or thereby have been advised), that the United
States securities laws prohibit any person or entity who has material non-public
information about a company from purchasing or selling securities of such
company. It agrees that it shall not directly or indirectly, alone or with
others, in any manner acquire or attempt to acquire or dispose of or attempt to
dispose of any securities of the Company in violation of applicable securities
laws, and that it shall make best efforts to instruct its respective employees,
advisors, representatives and affiliates who are apprised of matters relating to
this Agreement, or the transactions contemplated hereby or thereby to comply
with such prohibitions.
SECTION 5
Conditions to Closing of Purchaser
The obligation of the Purchasers to purchase the Shares to be purchased by
them at the Closing is subject to the fulfillment to their satisfaction on or
prior to the Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all respects when made, and shall be true and correct in all respects on the
Closing Date and with respect thereto, after giving effect to the sale and
issuance of the Shares and the Warrants at the Closing.
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement (including those in Section 2.1) to be performed or complied
with by the Company on or prior to the Closing Date shall have been so performed
or complied with in all material respects.
5.3 Compliance Certificate. The Company shall have executed and delivered
to the Purchasers a certificate of the President of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement and such other matters as the
Purchasers may reasonably request.
5.4 Opinion of Company's Counsel. The Purchasers shall have received (a)
an opinion of counsel from 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.
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 hereunder shall be legally permitted by all
laws and regulations to which the Purchasers and the Company are subject.
SECTION 7
Covenants of the Company
The Company hereby covenants and agrees, so long as any Purchaser owns any
Shares, any Conversion Shares or any Exchange Notes or as otherwise provided in
this Article 7:
7.1 Basic Financial Information. The Company will furnish the following
reports to the Purchasers:
(a) As soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a consolidated
(and consolidating) balance sheet of the Company and its Subsidiaries, if any,
as at the end of such fiscal year, and consolidated (and consolidating)
statements of operations, accumulated earnings and cash flows of the Company and
its Subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail audited (without scope limitations imposed by the Company) and
certified by independent public accountants of recognized national standing
selected by the Company and satisfactory to the Purchasers.
(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and
in any event within thirty (30) days thereafter, a consolidated (and
consolidating) balance sheet of the Company and its Subsidiaries, if any, as of
the end of each such quarterly period, and consolidated (and consolidating)
statements of operations, accumulated earnings and cash flows of the Company and
its Subsidiaries, if any, for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from year-end audit adjustments, and setting forth any events which could
reasonably be expected to have an adverse effect upon the Company's or any
Subsidiary's finances or the results of its operations, all in reasonable detail
and certified by the principal financial or accounting officer of the Company.
(c) So long as the Company is subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
lieu of the financial information required pursuant to Sections 7.1(a) and (b),
but within the time periods required for the furnishing thereof, copies of all
SEC Documents filed by the Company, including, but not limited to, its reports
filed on Form 10-KSB, Form 10-QSB, Form 8-K or any successor form or forms.
(d) Each set of financial statements delivered to the Purchasers
pursuant to Section 7.1 will be accompanied by a certificate of the Chairman,
President or a Vice President and the Treasurer or an Assistant Treasurer of the
Company setting forth:
(i) Covenant Compliance - any information required in order to
establish whether the Company and its Subsidiaries were in compliance with
the requirements of this Section 7 during the period covered by the income
statement then being furnished; and
(ii) Event of Default - that the signers have reviewed the
relevant terms of this Agreement and have made, or caused to be made, under
their supervision, a review of the transactions and conditions of the Company
and its Subsidiaries, if any, from the beginning of the accounting period
covered by the income statements being delivered therewith to the date of the
certificate and that such review has not disclosed the existence during such
period of any condition or event which constitutes a breach or default under
this Agreement or any of the other agreements contemplated hereby or, if any
such condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Company has taken or proposes to take with
respect thereto.
7.2 Additional Information and Rights.
The Company will, for any Purchaser which owns any Shares or 10% or more of
the Conversion Shares, Warrant Shares or Exchange Notes:
(a) Permit such Purchaser (or its designated representative) to visit
and inspect any of the properties of the Company and its Subsidiaries, including
its books of account, and to discuss its affairs, finances and accounts with the
Company's and its Subsidiaries' officers and its independent public accountants,
all at such reasonable times and as often as any such party may reasonably
request. Any such Purchaser shall give not less than two (2) business days
notice of any such visitation or inspection and such visitation or inspection
shall be performed in a reasonable manner and with due regard to the proprietary
and confidential nature of any information received by it.
(b) Deliver the reports and data described below to such Purchaser:
(i) At such Purchaser's request, at such time as such
information is delivered to the Company's Board of Directors, all monthly
financial statements delivered to the Company's Board of Directors,
including, without limitation, a consolidated balance sheet of the Company
and its Subsidiaries, if any, as at the end of such month, and consolidated
statements of operations, accumulated earnings and cash flows of the
Company and its Subsidiaries, if any, for each month, prepared in
accordance with generally accepted accounting principles consistently
applied; provided that if the Company does not prepare the foregoing
financial statements within thirty (30) days after the end of any fiscal
month, the Company agrees to make its records available and to make Company
management available for consultation with the Purchasers and/or their
agents or consultants in order that the Purchasers shall be able, at their
own expense, to develop or complete such financial statements. In the
event that the Company wishes to use such financial statements developed by
the Purchasers, the Purchasers may charge the Company a reasonable
consulting fee therefor.
(ii) Make best efforts to deliver sixty (60) days or more before
the commencement of its fiscal year the Company's budget and its operating
plan (the "Annual Budget") approved by the Board indicating, among other
things, quarterly income statements, balance sheets and cash flow
statements for the next fiscal year, plans for incurring indebtedness and
projections regarding other sources of funds; any material changes in such
financial plan shall be submitted as promptly as practicable after such
changes have been approved by the Board; provided that if the Company does
not prepare an Annual Budget by 60 days before the commencement of its
fiscal year or notifies the Purchasers that it does not intend to do so,
the Company agrees to make the Company's records available and to make
Company management available for consultation with the Purchasers and/or
their agents or consultants in order that the Purchasers shall be able, at
their own expense, to develop or complete such Annual Budget. In the event
that the Company wishes to use such Annual Budget developed by the
Purchasers, the Purchasers may charge the Company a reasonable consulting
fee therefor.
(iii) As soon as available, information and data on any material
adverse changes in or any event or condition which materially adversely
affects or could materially adversely affect the business, operations,
properties or plans of the Company;
(iv) Immediately upon becoming aware of any condition or event
which constitutes a breach of this Agreement, the Financing Documents or
any agreement contemplated hereby or thereby, written notice specifying the
nature and period of existence thereof and what action the Company is
taking or proposes to take with respect thereto; and
(v) With reasonable promptness, such other information and data
with respect to the Company and its Subsidiaries as any such party may from
time to time reasonably request.
(c) Hold meetings of its Directors at least quarterly and provide ten
(10) days notice in writing of such meetings and in any event such Purchaser
shall receive notice no less favorable than any other outside director
(provided, however, that in the case of emergency, the Purchaser shall be given
no less than 2 hours notice and permitted to participate by telephone) and, if
such Purchaser does not have a representative on the Board of Directors and
holds at least 16,000 of the Shares or Exchange Notes received in exchange
therefor, will permit such Purchaser to send a representative (without voting
rights and subject to such representative executing a confidentiality agreement
in a form to be provided by the Company) to each meeting of the Board of
Directors of the Company and all committees of such Board.
7.3 Prompt Payment of Taxes, etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon
the income, profits, property or business of the Company or any
Subsidiary; provided, however, that any such tax, assessment, charge or
levy need not be paid if the validity thereof shall at the time be
contested in good faith by appropriate proceedings, and provided, further,
that unless otherwise approved by the Board, the Company will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor. Unless otherwise approved by the Board, the Company will
promptly pay or cause to be paid when due, or in conformance with customary
trade terms, all other obligations incident to its operations.
7.4 Maintenance of Properties and Leases. The Company and each Subsidiary
will keep its properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all needful
and proper, or legally required, repairs, renewals, replacements, additions
and improvements thereto; and the Company and each Subsidiary will at all
times comply with each provision of all leases to which it is a party or
under which it occupies, or has possession of, property if the breach of
such provision might have a material adverse effect on the condition,
financial or otherwise, or operations of the Company or any Subsidiary.
7.5 Insurance. The Company will keep its assets and those of its
Subsidiaries which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, extended
coverage and explosion in amounts sufficient to prevent the Company or any
Subsidiary from becoming a co-insurer and not in any event less than 80% of
the insurable value of the property insured. The Company will maintain for
itself and its Subsidiaries, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in similar
businesses similarly situated. All such policies of insurance shall be
occurrence policies with "tail coverage" so-called respecting all prior
"claims made" policies, all in a form reasonably satisfactory to the
Purchasers. The Company shall give prompt written notice to the Purchasers
and to insurers of loss or damage to the property and shall promptly file
proof of loss with insurers.
7.6 Key Person Life Insurance. The Company will use its best efforts to
maintain or cause to be maintained, with financially sound and reputable
insurers, term life insurance on the lives of 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.
7.7 Accounts and Records. The Company will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
7.8 Compliance with Requirements of Governmental Authorities. The Company
shall duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of its businesses or to its property or
assets the non-compliance with which would have a material adverse effect
on the Company. Without limiting the generality of the foregoing, the
Company will:
(a) Comply with all minimum funding requirements applicable to any
pension plans, employee benefit plans or employee contribution plans which
are subject to ERISA or to the Internal Revenue Code of 1986, as amended
(the "Code"), and comply in all other respects with the provisions of
ERISA and the provisions of the Code applicable to such plans;
(b) Comply with all applicable laws of the United States and of each
applicable jurisdiction relating to equal employment opportunity, any rules,
regulations, administrative orders and Executive Orders relating thereto and the
applicable terms, relating to equal employment opportunity, of any contract,
agreement or grant the Company has with, from or relating (by way of subcontract
or otherwise) to any other contract, agreement or grant of, any federal or state
governmental unit; and keep all records required to be kept, and file all
reports, affirmative action plans and forms required to be filed, pursuant to
any such applicable law or the terms of any such government contract; and
(c) So conduct its business that neither the Company nor any property
owned or occupied by the Company is in violation of any Federal or State
Environmental Law of any sort or in violation of any Federal or State "OSHA" Law
so-called.
7.9 Maintenance of Corporate Existence, etc. The Company shall:
(a) Maintain in full force and effect its corporate existence,
rights, government approvals and franchises and all licenses and other rights to
use patents, processes, licenses, trademarks, trade names or copyrights owned or
possessed by it and deemed by the Company to be necessary and material to the
conduct of its business.
(b) Not transfer, assign or license any of its Listed Rights or
Intellectual Property now owned or hereafter acquired by it without the
written consent of the Purchasers holding two-thirds of the Shares (or
Exchange Notes exchanged therefor), which consent the Purchasers may
withhold in their reasonable discretion.
7.10 Availability of Common Stock for Conversion and Warrant Exercise.
The Company will, from time to time, in accordance with the laws of the
state of its incorporation, increase the authorized amount of Common Stock
if at any time the number of shares of Common Stock remaining unissued and
available for issuance shall be insufficient to permit the conversion of
all the then outstanding shares of the Series A Preferred or the exercise
of the Warrants.
7.11 Invention and Secrecy Agreement.
(a) The Company will make best efforts to enter into an Invention
and Secrecy Agreement to the effect and in substantially the form of Exhibit C
hereto or as otherwise approved by the Board with each person currently and
hereafter employed by it with access to confidential information.
(b) The Company will cause all technological developments,
inventions, discoveries or improvements made by employees of the Company
and its Subsidiaries in the course of their employment with the Company to
be fully documented in engineering notebooks in accordance with the
prevailing industrial professional standards, and where possible and
appropriate, cause all employees to file and prosecute United States and
foreign patent applications relating to and protecting such developments.
7.12 Use of Proceeds. The Company will use the proceeds from the sale of
the Shares for the purposes described in Section 3.17 hereof.
7.13 Compliance by Subsidiaries. The Company will cause any Subsidiary
which it may now have and/or which it may organize or acquire in the future
to comply fully with all the terms and provisions of this Section 7 to the
same extent as if such Subsidiary or Subsidiaries were the "Company"
herein.
7.14 Expenses of Board Members. The Company agrees to reimburse each of
the directors elected to the Company's Board of Directors by the Purchasers
for their reasonable out-of-pocket travel and living expenses in connection
with attending Board of Directors' meetings and performing their respective
obligations and responsibilities as directors of the Company.
7.15 Securities Law Filings. The Company will make any filings necessary
to perfect in a timely fashion exemptions from (i) the registration and
prospectus delivery requirements of the Securities Act, and (ii) the
registration or qualification requirements of all applicable securities or
blue sky laws of any state or other jurisdiction, for the issuance of the
Shares to the Purchasers.
7.16 Pro-Forma Financial Statements. The Company will make best efforts
to furnish forecasts of hard orders and projected pro-forma financial
statements, including balance sheets, income statements and cash flow
statements, presented on a quarterly basis, on a twelve-month rolling
basis. Such projected pro-forma financial statements shall be in form and
substance acceptable to the holders of Series A Preferred. In the event
that the Company does not supply such forecasts and pro-forma financial
statements on a timely basis, the Company agrees to make the Company's
records available and to make Company management available for consultation
with the Purchasers and/or their agents or consultants in order that the
Purchasers shall be able, at their own expense, to develop or complete such
forecasts and financial statements. In the event that the Company wishes
to use such forecasts and financial statements developed by the Purchasers,
the Company and the Purchasers agree to negotiate in good faith with
respect to a reasonable consulting fee therefor, and if such fee cannot be
agreed upon, the Company agrees that it shall not make use of such
forecasts or financial statements without the consent of the Purchasers.
7.17 Exchange Note. If at any time twelve months from the date hereof,
the Average Market Price (as defined in the Certificate) of the Company's
Common Stock shall be less than two times the initial Conversion Price per
share, upon the request of any Purchaser, the shares of Series A Preferred
Stock held by such Purchaser (or any portion thereof as requested by the
Purchaser) shall be exchanged by the Company for a convertible promissory
note of the Company in the principal amount corresponding to the Purchaser's
purchase price for such shares plus an annualized return on such purchase price
from the date of purchase equal to 35%, plus all accrued dividends on such
shares, bearing interest at 10% per annum (each, an "Exchange Note"). Equal
payments of principal and interest shall be payable on the Exchange Notes
quarterly over a two year period, commencing six months from the issuance of
such Exchange Note. Any Exchange Note shall be convertible at the option of the
holder into such number Common Stock as calculated by dividing the principal
balance and accrued interest on such Exchange Note by the Conversion Price (as
defined in the Certificate). The Exchange Notes shall contain covenants and
terms of default no less favorable to such Purchaser than those typically found
in commercial loans to businesses presenting a similar risk as the Company, but
in no event shall such covenants be less favorable to the Purchaser than those
contained herein and in accordance with the rights and privileges of the Series
A Preferred Stock. All approval rights granted to the holders of the Series A
Preferred Stock shall be granted to the Purchaser as the holder of an Exchange
Note, including approval rights equivalent to the voting rights of the number of
shares of Series A Preferred Stock exchanged for the Exchange Note. The Company
shall covenant to ensure the continued election of the same number of members of
the Board of Directors designated by the Purchasers as the Purchasers were
entitled to prior to exercising their rights under this section. In the event
that (1) the Company's right or ability to manufacture or sell its product in
the United States, Europe or Japan is limited as a result of a determination
that the Company is infringing on the intellectual property rights of any other
person; (2) the claims under any of the patents listed on the Schedule of
Exceptions are materially narrowed or invalidated; or (3) the Company is unable
to obtain a line of credit of at least $650,000 from a commercial bank
acceptable to Telantis Venture Partners V, Inc. by October 31, 1998, then
regardless of the Average Market Price at the time of such occurrence, any
Purchaser shall have the right to exercise its rights under this section,
provided, however, that under such circumstance, the Exchange Notes issued shall
be payable on demand.
7.18 Line of Credit. The Company shall obtain a line of credit of not
less than $650,000 from a commercial bank acceptable to Telantis Venture
Partners V, Inc. by October 31, 1998.
SECTION 8
Negative Covenants
The Company agrees that, so long as any Purchaser is a Holder of Restricted
Securities or Exchange Notes the Company (and each of its Subsidiaries unless
the context otherwise requires) will not do any of the following without the
approval of 75% of the Board (unless such other requirement is set forth below):
8.1 Sale/Purchase of Assets; Merger. Without the written consent of the
holders of 50% in interest of the Restricted Securities and Exchange Notes,
hereafter:
(a) Sell or otherwise dispose of the capital stock of any Subsidiary
or of all or a substantial part of the Company's assets or business or of all or
a substantial part of the assets or business of any Subsidiary (whether by sale
of assets, exclusive license or otherwise);
(b) Purchase or otherwise acquire capital stock of any corporation or
equity interest in any other entity or lend money to any person or entity or
purchase a substantial part of the operating assets of any person or entity; or
(c) Consolidate with or merge into or with any other person or entity
or permit any other person or entity to consolidate with or merge into it
(except that a 100% Subsidiary may consolidate with or merge into the Company or
another 100% Subsidiary); provided that the foregoing restriction does not apply
to the merger of another corporation into the Company, if:
(i) The Company is the surviving corporation and more than 50%
of the outstanding common stock of the surviving corporation is owned by persons
who prior to such merger owned Common Stock of the Company;
(ii) After giving effect to the proposed merger or consolidation
the surviving corporation will be engaged in substantially the same lines of
business; and
(iii) Immediately after the consummation of the transaction, and
after giving effect thereto, no default under this Agreement or any Financing
Document would exist.
8.2 Future Registration Rights. Except as expressly permitted by this
Agreement and except for an underwriting agreement between the Company and
one or more professional underwriters of securities, the Company shall not
agree to register any Equity Securities under the Securities Act with any
rights senior to, or on a pari passu basis with, the Purchasers. Without
limiting the foregoing, if the Company, after receiving the approval required
under this section, grants registration rights to any other person, the Company
shall give notice thereof and provide a copy of the agreement containing such
registration rights to the Purchasers. If any Purchaser, in its sole
discretion, determines that the rights granted to the other person are senior to
the rights held by the Purchaser ("Senior Rights"), such Purchaser may elect the
Senior Rights by providing the Company with notice of such election within 30
days of its receipt of notice from the Company. Upon such notification, the
Company shall enter into an agreement with such Purchaser granting such
Purchaser the Senior Rights.
8.3 Private Offerings. Except in a public offering registered under the
Securities Act, issue or sell any Equity Security unless each issuer and
purchaser agrees in writing with the Company not to effect any public sale
or distribution of any such Equity Security during the ten (10) business
days prior to and the ninety (90) calendar days after the effectiveness of
any underwritten registration of securities of the Company, except as part
of such underwritten registration if otherwise permitted.
8.4 Changes in Type of Business. So long as any Shares or Exchange Notes
remain outstanding, make any substantial change in the character of its
business.
8.5 Loans, Guarantees. Make any loan or advance to any person or entity
in excess of $100,000 in the aggregate, including, without limitation, any
employee or director of the Company or any Subsidiary, except advances for
travel and entertainment expenses, relocation costs and similar expenditures in
the ordinary course of business or under the terms of an employee stock option
plan or stock purchase agreement approved by the Board; or guarantee, directly
or indirectly, any Indebtedness except for trade accounts of the Company or any
Subsidiary arising in the ordinary course of business.
8.6 Issuance of Equity Securities. Hereafter issue, sell, grant or award
or enter into any agreement or adopt any plan to issue, sell, grant or award any
Equity Security or option to acquire any Equity Security except to management,
directors and employees of, and consultants to, the Company in compliance with
Section 2.2 or Section 8.14 hereof. Without limiting the foregoing, if the
Company intends to sell any Equity Security to any other person, the Company
shall give notice thereof and provide a copy of the documents pertaining to the
sale and defining the rights and privileges of such Equity Security to the
Purchasers. If any Purchaser, in its sole discretion, determines that the terms
attendant to the sale of such Equity Security or the rights and privileges of
such Equity Security are preferable to the rights held by the Purchaser
("Preferred Securities"), such Purchaser may elect to exchange the securities
purchased hereunder for Preferred Securities, with all rights, privileges and
terms of sale attendant thereto, by providing the Company with notice of such
election within 30 days of its receipt of notice from the Company. Upon such
notification, the Company shall enter into all necessary agreements with such
Purchaser to exchange the securities purchased hereunder for such amount of
Preferred Securities as would have a sale price equivalent to the greater of (i)
the purchase price paid by the Purchaser hereunder or (ii) the Fair Market Value
of the securities purchased hereunder at the time of such exchange. The "Fair
Market Value" at any date of the securities purchased hereunder shall equal the
sum of (i) the Current Market Price (as defined in the Certificate) of one share
of Common stock multiplied by the sum of (w) the number of shares of Common
Stock into which the Shares held by the Purchaser are then convertible and (x)
the number of shares of Common Stock for which the Warrant held by the Purchaser
would be exercisable in a cashless exercise and (ii) the greater of (y) the
principal and accrued interest owing on any Exchange Note held by the Purchaser
or (z) the Current Market Price multiplied by the number of shares of Common
Stock into which such Exchange Note is then convertible.
8.7 Purchase of Equity Securities. Directly or indirectly redeem,
purchase or otherwise acquire, or permit any Subsidiary to redeem, purchase
or otherwise acquire, any of the Company's Equity Securities except as
permitted by this Agreement, the Shareholders' Agreement, the Certificate
or any agreement with management, directors and employees of, and consultants
to, the Company in accordance with Section 8.14.
8.8 Conflicting Agreements. Without the written consent of the holders of
75% in interest of the Restricted Securities and Exchange Notes, become subject
to, or permit any of its Subsidiaries to become subject to, any agreement or
instrument, which by its terms would (under any circumstances) restrict the
Company's right to perform any of its obligations pursuant to the terms of this
Agreement or any agreement contemplated hereby, the Certificate, the Financing
Documents, or the Company's By-laws (including, without limitation, all
obligations relating to payment of dividends on and making redemptions of the
Series A Preferred and conversions of the Series A Preferred).
8.9 Amendment of Charter Documents. Without the written consent of the
holders of 75% in interest of the Restricted Securities and Exchange Notes,
except as contemplated by this Agreement, make any amendment to the Company's
Certificate of Incorporation or By-laws, or file any resolution of the Board
with the Secretary of State of the State of Delaware containing any provisions
which would adversely affect or otherwise impair the rights of the holders of
the Series A Preferred, the Conversion Shares, the Warrants or the Warrant
Shares under this Agreement, the Certificate or the Company's By-laws.
8.10 Related Party Transactions. Enter into, or permit any Subsidiary to
enter into, any transaction with any Related Party or any of its or any
Subsidiary's Affiliates, except as otherwise expressly contemplated by this
Agreement or disclosed in the SEC Documents.
8.11 Subsidiaries. Establish or acquire (a) any Subsidiaries other than
wholly-owned Subsidiaries, or (b) any Subsidiaries organized outside of the
United States and its territorial possessions.
8.12 Business Plan. Adopt a new plan or make any material changes in the
plan or the Company's and its Subsidiaries operation of the Company's business
as set forth in the Confidential Information Memorandum and that certain Summary
Plan of Restructure and Growth dated April 30, 1998 (the "Restructuring
Memorandum").
8.13 Amendment of Other Agreements. Without the written consent of the
holders of 75% in interest of the Restricted Securities and Exchange Notes,
amend, modify or waive any provision of any of the Financing Documents, fail to
enforce the provisions of any of the Financing Documents or avail itself of all
rights and remedies thereunder.
8.14 Employee Stock Plans. Hereafter issue, sell, grant or award any
Equity Security or any option to acquire any Equity Security to employees,
consultants or advisors to the Company, provided, however, that the Company
may issue, sell grant or award any Equity Security or option to acquire any
Equity Security under the Company's Employee Stock Purchase Plan or the
Company's 1995 Stock Incentive Plan, in each case as existing on the date
hereof.
8.15 Liens. Create, assume or permit, or permit any Subsidiary to create,
assume or permit, any Lien upon any of its properties or assets, whether now
owned or hereafter acquired, except (a) Liens existing as of the date hereof as
disclosed in Section 3.7 hereof, (b) any Lien on any asset of a corporation
existing at the time such corporation is merged into or consolidated with the
Company and not created in contemplation of such event, (c) any Lien existing on
any asset prior to the acquisition thereof by the Company and not created in
contemplation of such event, (d) any Lien created on any real property or
equipment in connection with the leasing of such real property or equipment, (e)
Permitted Liens, and (f) such Liens as are approved by a majority of the Board.
8.16 Executive Compensation. (a) Pay or provide annual aggregate cash and
noncash compensation in excess of a base salary of $250,000 and incentive
compensation of $500,000 (including, in each case, any form of personal
benefit or property and including any compensation which has been earned by
payment or which has been deferred, but excluding compensation pursuant to
group life, health, hospitalization, medical or dental reimbursement or
relocation plans that do not discriminate in scope, terms or operation in
favor of officers, directors or key employees of the Company and that are
available generally to all salaried employees), or (b) otherwise fix the
compensation of, or grant compensation to, any key employee of the Company
or any Subsidiary.
8.17 Investments. Own, purchase or acquire any stock, obligations or
securities of, or any interest in, or make any capital contribution to, any
other Person, or own, purchase or acquire any property not used in the usual and
ordinary course of business, except that the Company or any Subsidiary may (a)
own, purchase or acquire certificates of deposit in or repurchase agreements
from United States commercial banks having capital resources in excess of
$100,000,000 and obligations of the United States Government or any agency
thereof and obligations guaranteed by the United States Government, (b) invest
in commercial paper rated at least Prime 1 by 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
(b) increase the compensation of any person listed in part 3.16 of
the Schedule of Exceptions and will not compensate any other officer, director
or employee at an annual rate of $50,000 per year or more.
8.19 Leases. Enter into any leases or other rental agreements (excluding
capitalized leases) that are not within the scope of an Annual Budget, except
for leases of personal property within the ordinary course of the Company's
business and not exceeding $25,000 in the aggregate. The Company shall obtain
the consent of the holders of 75% in interest of the Restricted Securities and
Exchange Notes held by the Purchasers if the value of such leases exceeds
$100,000 in the aggregate.
8.20 Indebtedness. Create, incur, issue, assume, guarantee or otherwise
become or remain directly or indirectly liable for, or permit any Subsidiary to
create, incur, issue, assume, guarantee or otherwise become or remain directly
or indirectly liable for, any Indebtedness in excess of $100,000 in the
aggregate (other than a credit line for trade receivables of up to $1,000,000
(the "Trade Receivables Credit Line"). The Company shall obtain the consent of
the holders of 75% in interest of the Restricted Securities and Exchange Notes
held by the Purchasers if the aggregate of any such additional indebtedness
(exclusive of the Trade Receivables Credit Line) exceeds $1,500,000 in the
aggregate.
8.21 Compliance by Subsidiaries. The Company will cause any Subsidiary
which it may now have and/or which it may organize or acquire in the future
to comply with all the terms and provisions of this Section 8 to the same
extent as if such Subsidiary were the "Company" herein.
SECTION 9
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
9.1 Restrictions on Transferability. None of the Shares, the Conversion
Shares, the Warrants or the Warrant Shares shall be transferable, except upon
the conditions specified in this Section 9, which conditions are intended to
insure compliance with the provisions of the Securities Act or, in the case of
Section 9.15 hereof, to assist in an orderly distribution of the Company's
securities. Each Purchaser will cause any proposed transferee of Shares,
Conversion Shares, Warrants or Warrant Shares held by such Purchaser to agree to
take and hold those securities subject to the provisions and upon the conditions
specified in this Section 9.
9.2 Certain Definitions. As used in this Section 9, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Restricted Securities" shall mean the securities of the Company required
to bear or bearing the legend set forth in Section 9.3 hereof.
"Registrable Securities" shall mean, from time to time (i) the Conversion
Shares and the Warrant Shares less any Conversion Shares and Warrant Shares
theretofore sold to the public, and (ii) any shares of Common Stock issued
as dividends on the Shares.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Sections 9.5, 9.6 and 9.7 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company and one special counsel for all Holders chosen by the
Holders of a majority of the securities included in such registration, blue sky
fees and expenses, and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, and all fees
and disbursements of counsel for any Holder.
"Holder" shall mean any holder of outstanding Shares or Registrable
Securities which have not been sold to the public or any transferee thereof,
where the transfer is made in compliance with the provision of Section 9.14.
"Initiating Holders" shall mean any Purchasers (or their assignees under
Section 9.14 hereof) who in the aggregate are Holders of not less than fifty
percent (50%) of the Registrable Securities, and, after any other Holder or
Holders have joined in a request by Initiating Holders, shall include such other
Holder or Holders.
"Other Shareholders" shall have the meaning set forth in Section 9.5(b).
9.3 Restrictive Legend. Each certificate representing (i) the Shares, or
(ii) Conversion Shares, or (iii) the Warrants, or (iv) the Warrant Shares,
or (v) any other securities issued in respect of the Series A Preferred or
the Conversion Shares, the Warrants or the Warrant Shares upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted or unless the securities evidenced
by such certificate shall have been registered under the Securities Act) be
stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required under applicable state securities
laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT.
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if with such request, the
Company shall have received either the opinion referred to in Section
9.4(a)(i) or the "no-action" letter referred to in Section 9.4(a)(ii), to
the effect that any transfer by such holder of the securities evidenced by
such certificate will not violate the Securities Act and applicable state
securities laws.
9.4 Notice of Proposed Transfers and Securities Act Compliance.
(a) The holder of Restricted Securities by acceptance thereof agrees
to comply in all respects with the provisions of this Section 9.4. Prior
to any proposed transfer of any Restricted Securities (other than under
circumstances described in Sections 9.5, 9.6 and 9.7 hereof), the holder
thereof shall give written notice (or oral notice in the case of
transactions in compliance with Rule 144) to the Company of such holder's
intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied (except in transactions in compliance with Rule 144 or
transfers to Affiliates) by either (i) a written opinion of Day, 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.
9.5 Requested Registration.
(a) Request for Registration. If at any time the Company shall
receive from Initiating Holders a written request that the Company effect a
registration with respect to all or a part of the Registrable Securities,
the Company will, without limiting any other rights under this Section 9:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its commercially reasonable best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the
Securities Act) as may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Registrable Securities
as are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request as
are specified in a written request given by such Holder or Holders within
thirty (30) days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 9.5 if the
request for registration does not request the registration of Registrable
Securities equal to not less than 25% of the number of the shares of Common
Stock issuable upon conversion of all of the Series A Preferred Stock issued
by the Company pursuant to this Agreement (including shares issued pursuant
to Section 2.2 hereof).
Subject to subsection 9.5(a)(ii), the Company shall file a registration
statement covering the Registrable Securities so requested to be registered
as soon as practicable after receipt of the request or requests of the
Initiating Holders.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of subsection 9.5(b) below, include
other securities of the Company which are held by officers or directors of
the Company or which are held by parties who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 9.5 and the Company shall include such information in the written
notice referred to in subsection 9.5(a)(i) above. The right of any Holder to
registration pursuant to this Section 9.5 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein.
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to this Section
9.5, or if holders of securities of the Company who are entitled, by contract
with the Company, to have securities included in such registration (the "Other
Shareholders") request such inclusion, the Initiating Holders shall, on behalf
of all Holders, offer to include the securities of such officers, directors and
Other Shareholders in the underwriting and may condition such offer on their
acceptance of all applicable provisions of this Section 9. The Company shall
(together with all Holders, officers, directors and Other Shareholders proposing
to distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 9.5, if the
representative of the underwriter or underwriters advises the Initiating
Holders in writing that marketing factors make it advisable to impose a
limitation on the number of shares to be underwritten, the securities of
the Company (other than Registrable Securities) held by officers or
directors of the Company and by Other Shareholders shall be excluded from
such registration to the extent so required by such limitation and if a
limitation of the number of shares is still required, the Initiating
Holders shall so advise all Holders of Registrable Securities whose
securities would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such Holders in
proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such persons at the time of filing the
registration statement. No Registrable Securities or any other securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration.
If any Holder of Registrable Securities, officer, director or Other
Shareholder above disapproves of the terms of the underwriting, such party
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The securities so withdrawn shall
also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or
other securities to be underwritten, the Company may include its securities
for its own account in such registration if the underwriter so agrees and
if the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
9.6 Company Registration.
(a) Notice of Registration. If the Company shall determine to
register any of its securities either for its own account or the account of
a security holder or holders exercising their respective demand registration
rights, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary sales, the
Company will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in subsection 9.6(b) below.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to subsection
9.6(a)(i). In such event, the right of any Holder to registration pursuant to
Section 9.6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company,
directors and officers and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company.
Notwithstanding any other provision of this Section 9.6, if the underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, the underwriter may (subject to the allocation priority set
forth below) exclude from such registration and underwriting some or all of the
Registrable Securities which would otherwise be underwritten pursuant hereto.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner: The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and Other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities held by such persons at the time of filing the
registration statement.
If any Holder of Registrable Securities or any officer, director or Other
Shareholder disapproves of the terms of any such underwriting, such party
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
9.7 Registration on Form S-2 or Form S-3. The Company shall use its best
efforts to qualify for the use of Form S-2 and Form S-3 or any comparable or
successor form or forms of the Commission; and to that end the Company shall
maintain its registration (whether or not required by law to do so) of the
Common Stock under the Exchange Act, in accordance with the provisions of the
Exchange Act. After the Company has qualified for the use of either Form S-2 or
Form S-3, or both, in addition to the rights contained in the foregoing
provisions of this Section 9, the Holders of Registrable Securities shall have
the right to request registrations on Form S-2 or Form S-3 (by written request
stating the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of such shares by such Holder or Holders),
subject only to the following:
(i) No request made under this Section 9.7 shall require a
registration statement requested therein to become effective (a) prior to
ninety (90) days after the effective date of a registration statement filed
by the Company covering a firm commitment underwritten public offering of
Common Stock, or (b) prior to ninety (90) days after the effective date of
a registration statement referred to in (a) above if the Company shall
theretofore have given written notice of such registration statement to the
Holders of Registrable Securities pursuant to subsection 9.5(a) or 9.6(a)
and shall have thereafter pursued the preparation, filing and effectiveness
of such registration statement with diligence; and
(ii) The Company shall not be required to effect a registration
pursuant to this paragraph 9.7 unless the Registrable Securities requested
to be registered pursuant to this paragraph 9.7 have a proposed public
offering price of $2,000,000 or more;
The Company shall give notice to all Holders of Registrable Securities of
the receipt of a request for registration pursuant to this Section 9.7 and
shall provide a reasonable opportunity for other Holders to participate in
the registration, and, if the intended method of disposition specified as
aforesaid is an underwritten public offering, participation by the Company
and other holders of Common Stock shall be on the basis set forth in
Section 9.5(b) above. Subject to the foregoing, the Company will use its
commercially reasonable efforts to effect promptly the registration of all
shares of Registrable Securities on Form S-2 or Form S-3 to the extent
requested by the Holder or Holders thereof for purposes of disposition.
9.8 Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Sections 9.5, 9.6 and 9.7 hereof.
All Selling Expenses shall be borne by the holders of the securities so
registered pro rata on the basis of the number of their shares so registered.
9.9 Registration Procedures. In the case of each registration effected by
the Company pursuant to this Section 9, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. Except as provided in Section 9.7, at its expense, the
Company will:
(a) keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs, provided, however, that such 120-day period shall
be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration in accordance
with the provisions of Section 9.15 hereof;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable
Securities under the securities or blue-sky laws of such jurisdictions as
any Holder may request; provided, however, that the Company shall not be
obligated to register or qualify such Registrable Securities in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in order to effect such registration,
qualification or compliance, unless the Company is already subject to
service in such jurisdiction and except as may be required by the
Securities Act or applicable rules or regulations thereunder.
9.10 Indemnification and Contribution.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 9, will indemnify and hold
harmless each Holder, each of its officers, directors and partners, and
each party controlling such Holder, and each underwriter, if any, and each
party who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of
its officers, directors and partners, and each party controlling such
Holder, each such underwriter and each party who controls any such
underwriter, for any legal and any other expenses incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises
out of or is based on any untrue statement or omission based solely upon
written information furnished to the Company by such Holder or underwriter,
as the case may be, and specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by such party are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each party who
controls the Company or such underwriter, each other such Holder and Other
Shareholder and each of their respective officers, directors and partners, and
each party controlling such Holder or Other Shareholder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders, Other
Shareholders, directors, officers, partners, parties, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document solely in reliance upon and in conformity with written information
furnished to the Company by such Holder or Other Shareholder and specifically
for use therein; provided, however, that the obligations of such Holders and
Other Shareholders hereunder shall be limited to the lesser of: (i) an amount
equal to the proceeds to each such Holder or Other Shareholder of securities
sold as contemplated herein, or (ii) an amount equal to the proportion of such
claims, losses, damages and liabilities as the proceeds to each such Holder or
Other Shareholder of securities sold pursuant to such offering bears to the
total proceeds of such offering.
(c) Each party entitled to indemnification under this Section 9.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case any such expense, to the extent it is reasonable, shall be paid by
the Indemnifying Party), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 9. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Securities exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9.10 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 9.10
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 9.10; then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such holder is responsible for the portion represented by the percentage
that the public offering price of its Restricted Securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
will be required to contribute any amount in excess of the public offering price
of all such Restricted Securities offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
9.11 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 9.
9.12 Limitations on Registration of Issues of Securities. From and after
the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company; provided that this Section
9.12 shall not limit the right of the Company to enter into any agreements with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder the right to require the Company, upon any
registration of any of its securities, to include, among the securities which
the Company is then registering, securities owned by such holder and provided
further that the Board may waive the requirement that the Company not enter into
any agreement giving a holder of any securities of the Company the right to
require the Company to initiate registration of any securities of the Company.
Any right given by the Company to any holder or prospective holder of the
Company's securities in connection with the registration of securities shall be
conditioned such that it shall be (i) consistent with the provisions of this
Section 9 and with the rights of the Holders provided in this Agreement, and
(ii) require the inclusion of Registrable Securities (within the meaning of this
Agreement) in any registration required by any such holder or prospective holder
on the same basis as securities of Other Shareholders are required to be
included in registrations effected pursuant to Sections 9.5 and 9.6 of this
Agreement.
9.13 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale
of the Restricted Securities to the public without registration, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) Use commercially reasonable efforts to file with the Commission
in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) So long as a Purchaser owns any Restricted Securities, furnish to
the Purchasers forthwith upon request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the first
registration statement in connection with an offering of its Securities to
the general public), and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed as a Purchaser may reasonably request
in availing itself of any rule or regulation of the Commission allowing a
Purchaser to sell any such securities without registration.
9.14 Transfer of Registration Rights. The rights to cause the Company to
register securities granted by the Company under this Section 9 may be
assigned by any Holder to a transferee or assignee, provided that the Company is
given written notice at the time of or within a reasonable time after said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned, and provided further that the transferee or assignee of such
rights is not deemed by the Board, in its reasonable judgment, to be a
competitor of the Company; and provided further that the transferee or assignee
of such rights assumes the obligations of such Purchaser under this Section 9.
SECTION 10
Definitions
As used in this Agreement or in the Financing Documents, capitalized terms
shall have the respective meanings set forth in this Agreement (including,
without limitation, in Section 9.2 hereof) or set forth below or in the
Section of this Agreement referred to below:
Additional Shares - Section 2.2.
Additional Warrants - Section 2.2.
Additional Purchasers - Section 2.2.
Affiliate shall mean any natural person, corporation, business trust,
association, company, partnership, joint venture or other entity or
government agency or political subdivision which directly or indirectly
controls, is controlled by or is under common control with each entity or
person.
Annual Budget- Section 7.2.
Balance Sheet - Section 3.6.
Board shall mean the entire Board of Directors of the Company.
Certificate - Section 1.1.
Closing - Section 2.1.
Closing Date - Section 2.1.
Code - Section 7.8.
Common Stock - Section 3.4.
Confidential Information Memorandum shall mean the Confidential Financing
Memorandum dated May 1998 and all attachments thereto, delivered to the
Purchasers prior to the date of this Agreement.
Conversion Shares shall mean at any time, shares of Common Stock, $.001 par
value, (i) issued and then outstanding upon the conversion of the Series A
Preferred, (ii) issuable upon the conversion of the Series A Preferred, and
(iii) issued and then outstanding or issuable in respect of the Common
Stock referred to in clause (i) of this definition upon any stock split,
stock dividend, recapitalization or similar event.
Environmental Claim shall mean any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of compliance or violation
(written or oral) by any person or entity (including any governmental
authority) alleging potential liability (including, without limitation,
potential liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a) the presence, or Release or
threatened Release into the environment, of any Hazardous Material at any
location, whether owned, operated, leased or managed by the Company or its
Subsidiaries, or (b) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law, or (c) any and all claims by
any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
Environmental Laws shall mean all laws or orders relating to the regulation
or protection of human health, safety or the environmental (including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata), including, without limitation, laws and regulations relating
to Releases or threatened Releases of Hazardous Materials, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, recycling or handling of Hazardous Materials.
Environmental Permits - Section 3.18.
Equity Securities shall mean any stock or similar security, including
without limitation securities containing equity features and securities
containing profit participation features, or any security convertible or
exchangeable, with our without consideration, into any stock or similar
security, or any security carrying any warrant or right to subscribe to or
purchase any stock or similar security, or any such warrant or right.
Erisa - Section 3.18.
Exchange Act - Section 7.1.
Exchange Note - Section 7.17.
Financing Documents shall mean collectively, the Certificate, the Warrants,
the Shareholders' Agreement and all other documents set forth in any other
schedules or exhibits hereto (other than Exhibit D), under which, upon its
execution thereof, the Company, any Subsidiary, any Founder or any Related
Party shall have an obligation to any Purchaser, all in the respective
forms thereof as executed and as amended from time to time.
Financial Statements - Section 3.6.
Hazardous Materials shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become
friable, above ground or underground storage tanks and compressors or other
equipment that contain polychlorinated biphenyls ("PCBs"), and (b) any
chemicals, materials or substances which are now defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," "pollutants," "contaminants" or
words of similar import, under any Environmental Law; and (c) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any environmental law.
Holder - Section 9.2.
Indebtedness shall mean any obligation of the Company or any Subsidiary,
contingent or otherwise, which under generally accepted accounting principles is
required to be shown on the balance sheet of the Company or such Subsidiary as a
liability. Any obligation secured by a Lien on, or payable out of the proceeds
of or production from, property of the Company or any Subsidiary shall be deemed
to be Indebtedness even though such obligation is not assumed by the Company or
Subsidiary.
Initial Public Offering shall mean the first underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offering and sale of Common Stock for the account of the
Company, on a firm commitment basis.
Intellectual Property - Section 3.12.
Invention and Secrecy Agreement - Section 3.16.
Listed Rights - Section 3.12.
Permitted Liens shall mean (a) Liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which
the validity thereof shall currently be contested in good faith by
appropriate proceedings conducted with due diligence and for the payment of
which the Company has furnished adequate security, (b) Liens in respect of
pledges or deposits under workers' compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's and similar
Liens, if the obligations secured by such Liens are not then delinquent or are
being contested in good faith by appropriate proceedings conducted with due
diligence and for the payment of which the Company has furnished adequate
security, (c) statutory Liens incidental to the conduct of the business of the
Company or any Subsidiary which were not incurred in connection with the
borrowing of money or the obtaining of advances or credits and which do not in
the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business, and (d) purchase money
liens or security interests securing the cost of acquisition of assets subject
to such liens or security interests.
Person shall include all natural persons, corporations, business trusts,
associations, companies, partnerships, joint ventures and other entities
and governments and agencies and political subdivisions.
Related Party shall mean any officer, director, employee or consultant of
the Company or any Subsidiary or any holder of 5% or more of any class of
capital stock of the Company or any Subsidiary or any member of the
immediate family of any such officer, director, employee, consultant or
shareholder or any entity controlled by any such officer, director,
employee, consultant or shareholder or a member of the immediate family of
any such officer, director, employee, consultant or shareholder.
Release shall mean any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, ground water or property.
Restricted Securities - Section 9.2.
SEC - Section 3.22.
SEC Documents - Section 3.22.
Securities Act - Section 3.14.
Series A Preferred - Section 1.1
Shareholders' Agreement - Section 5.11.
Shares - Section 1.1.
Subsidiary shall mean any corporation, partnership, joint venture,
association or other business entity at least 50% of the outstanding voting
stock or voting interests of which is at the time owned or controlled,
directly or indirectly, by the Company or by one or more of such Subsidiary
entities or both.
Technology - Section 3.12.
Warrant - Section 1.1.
Warrant Shares shall mean at any time, shares of Common Stock, $.001 par
value, (i) issued and then outstanding upon the exercise of the Warrants,
(ii) issuable upon the exercise of the Warrants, and (iii) issued and then
outstanding or issuable in respect of the Common Stock referred to in clause (i)
of this definition upon any stock split, stock dividend, recapitalization or
similar event.
SECTION 11
Miscellaneous
11.1 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware. The parties
agree that any legal or equitable suit, action or proceeding arising out of this
Agreement may be instituted and prosecuted in any state or federal court in the
State of Delaware and for the purposes of this Agreement, irrevocably submit to
the jurisdiction of any such court in any such suit, action or proceeding, and
hereby irrevocably name the Secretary of State of the State of Delaware an agent
for service of process.
11.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and shall
survive the Closing for such time as any Shares, Conversion Shares,
Warrants and Warrant Shares have not been registered under the Securities
Act or otherwise sold to the public.
11.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the Company may not assign its
rights hereunder. Without limiting the generality of the foregoing, all
representations, covenants and agreements benefiting the Purchasers shall
inure to the benefit of any and all subsequent holders from time to time of
the Shares, the Conversion Shares, the Warrants and the Warrant Shares.
11.4 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof. Except as
otherwise expressly provided herein, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the holders of seventy-five
percent (75%) or more of the Shares, Conversion Shares, Warrants and
Warrant Shares and Exchange Notes which have not been sold to the public,
but in no event shall this paragraph be amended or the obligation of any
Purchaser hereunder increased, except upon the written consent of such
Purchaser.
11.5 Notices, etc.
(a) All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first-class,
registered or certified mail, postage prepaid, or delivered either by hand
or by messenger, or sent via telex, telecopier, computer mail or other
electronic means, addressed (a) if to a Purchaser, at the address shown on
the Schedule of Purchasers, or at such other address as such Purchaser
shall have furnished to the Company in writing, with a copy sent to: 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.
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.
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:
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
SCHEDULE OF PURCHASERS
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>
EXHIBIT 4
THESE SECURITIES 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 LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT.
HELISYS, INC.
No. 2
Warrant to Subscribe for 500,000 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, TELANTIS VENTURE PARTNERS V,
INC. (the "Holder") is entitled to subscribe for and purchase from
HELISYS, INC., a Delaware corporation (hereinafter, the "Company"), Five
Hundred Thousand (500,000) 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.
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 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.
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 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
(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 (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 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, 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.
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., 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.
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
<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.
<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 ___
EXHIBIT 5
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 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 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.
(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 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 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 4.1. 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:
"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, 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.
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 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 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:
<PAGE>
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
EXHIBIT 6
AMENDED 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:
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 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 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
(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;
(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.
(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:
(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.
(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
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.
(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
(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.
(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).
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;
(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.
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
