U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
FORM 10-KSB/A
(Mark one)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-23279
CELERITY SYSTEMS, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 52-2050585
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Celerity Systems, Inc.
1400 Centerpoint Boulevard
Knoxville, Tennessee 37932
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (423) 539-5300
Securities registered under Section 12(b) of the Exchange Act:
- ------------------------------------ -----------------------------------------
Title of each Class Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of Class)
---------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of the Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year. $814,159
Aggregate market value of voting stock held by non-affiliates of
registrant as of March 26, 1999: $3,505,011
Shares of Common Stock outstanding as of April 28, 1999: 4,349,990
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable
Transitional Small Business Disclosure Format (check one): Yes|_|; No |X|
The Registrant hereby amends the Form 10-KSB for the fiscal year ended
1998, filed on April 12, 1999 to include the information required by Part III
pursuant to Form 10-KSB General Instruction E.3.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Kenneth D. Van Meter 52 President, Chief Executive Officer and Chairman
of the Board
Glenn West 36 Executive Vice-President, Director of Technology
and Director
William R. Chambers 47 Vice-President of Business Development and
Secretary
Mark C. Cromwell 45 Vice-President of Engineering
Dennis K. Smith 48 Vice-President of Operations
Fenton Scruggs(1) 61 Director
Donald Greenhouse(1)(2) 63 Director
Stephen Portch(1)(2) 48 Director
Mark Braunstein(2) 50 Director
- ----------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Kenneth D. Van Meter. Mr. Van Meter has been the President and Chief
Executive Officer of the Company since January 20, 1997. He was elected Chairman
of the Board on March 25, 1997. From May 1995 to January 1997, Mr. Van Meter
served as Sr. Vice President, Operations, for Tele-TV Systems, a limited
partnership owned by Bell Atlantic Corporation ("Bell Atlantic"), NYNEX, and
Pacific Telesis, which was engaged in providing systems, software, and services
for its three parents in the interactive digital services industry. From June
1994 to May 1995, Mr. Van Meter was President of Bell Atlantic Video Services
Interactive Multimedia Platforms, a wholly-owned subsidiary of Bell Atlantic.
From April 1993 to June 1994, Mr. Van Meter was Vice President of Bell Atlantic
Video Services. Prior to joining Bell Atlantic, from 1991 to 1993, Mr. Van Meter
was Vice President and General Manager for Thomas Cook Limited, a travel
services company. From 1989 to 1991, Mr. Van Meter was Group Vice President for
two divisions of National Data Corporation ("NDC"). From 1984 to 1989, Mr. Van
Meter was Director and General Manager of two businesses for Sprint Corp.,
United Business Communications (shared tenant services), and the Meeting Channel
(2-way digital video teleconferencing). Mr. Van Meter holds an
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MBA with highest honors in management and marketing from the University of
Georgia, and a B.S. with high honors in Chemistry from West Virginia University.
Glenn West. Mr. West, a founder of the Company, has served as Executive
Vice-President, Director of Technology and a member of the Board of Directors
since the Company's inception in 1993. Prior to founding the Company, from 1987
to 1993, Mr. West served as Senior Systems Engineer for Data Research and
Applications, a software company. Mr. West is on a voluntary leave of absence
from employment with the Company, but is providing consulting services to the
Company through the end of the term of his employment agreement. See Item 10.
Executive Compensation, Employment Agreements.
William R. Chambers. Mr. Chambers has been Vice President of Business
Development of the Company since April 1997 and Secretary since October 1997.
From June 1996 to April 1997, Mr. Chambers was Senior Counsel at Tele-TV
Systems. Prior to joining Tele-TV Systems, Mr. Chambers spent 20 years in
private law practice in the Washington, D.C. area at Verner, Liipfert, Bernhard,
MacPherson & Hand, from May 1995 to June 1996, and at Watt, Tieder & Hoffar,
from 1978 to 1995. Mr. Chambers also serves as Chief Counsel of the Company. Mr.
Chambers received a B.A. degree, with honors, in Economics from Princeton
University and a J.D., with honors, from the National Law Center, George
Washington University.
Mark C. Cromwell. Mr. Cromwell joined the Company as Vice President of
Engineering in August, 1997. Prior to joining the Company, Mr. Cromwell was Vice
President of Transmission Product Engineering with DSC Communications
Corporation, where he worked from July 1984 to August 1997. Mr. Cromwell also
held engineering positions with Mostek Corporation, the Electronics Division of
the Chrysler Corporation and General Dynamics. He holds an M.S. in Electrical
Engineering from Southern Methodist University and a B.S. in Physics from the
University of Tennessee, and has done postgraduate work in Management at the
University of Texas in Dallas.
Dennis K. Smith. Mr. Smith joined the Company and shortly thereafter was
elected Vice President of Operations in October 1997. Prior to joining the
Company, Mr. Smith was a Director of the Transmission Products Division of DSC
Communications Corporation, where he worked from 1995 to 1997. Mr. Smith was the
owner of DKS Systems, a consulting firm, from 1989 to 1995. Mr. Smith holds an
M.S. and B.S. in Electrical Engineering from the University of Texas at Austin
and has done post-graduate work in Computer Science at Southern Methodist
University in Dallas, Texas.
Fenton Scruggs. Dr. Scruggs, a founder of the Company, funded the initial
start-up of the Company, and has been a member of the Company's Board of
Directors since the Company's inception in 1993. Dr. Scruggs is a Board
Certified Pathologist from Chattanooga, Tennessee, who has been in private
practice since 1969. Dr. Scruggs received his undergraduate degree from the
University of Virginia in 1959 and his graduate degree from the University of
Tennessee in 1962. Dr. Scruggs completed his residency at Memphis Methodist
Hospital and was a General Medical Officer in the U.S. Air Force from 1963 to
1965.
Donald Greenhouse. Mr. Greenhouse has been a member of the Company's Board
of Directors
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since 1995. Mr. Greenhouse also served as interim Chief Executive Officer of the
Company from August 1996 until January 1997. Mr. Greenhouse is President and
Chief Executive Officer of Seneca Point Associates, Inc., a consulting firm
founded by him in November 1989. Mr. Greenhouse has approximately 40 years of
management experience in manufacturing, technology and service industries.
Seneca Point Associates, Inc. is a non-traditional consulting firm engaged by
clients nationally to fill full-time senior management positions.
Stephen Portch. Dr. Portch has been a member of the Company's Board of
Directors since December 1, 1997. Dr. Portch has been Chancellor of the
University System of Georgia since 1994. He oversees 30,600 employees, a $3.65
billion dollar budget and 206,000 students. Previously, Dr. Portch was Senior
Vice President of the University of Wisconsin System. Dr. Portch holds a Ph.D.
and M.A. from Pennsylvania State University, and he received his B.S., with
honors, from the University of Reading (England).
Mark Braunstein. Dr. Braunstein has been a member of the Company's Board
of Directors since January 8, 1998. Since February 1991, Dr. Braunstein has been
the Chairman and Chief Executive Officer of Patient Care Technologies, Inc.,
which is in the clinical information systems business.
Each director holds office until the Company's annual meeting of
stockholders and until his successor is duly elected and qualified. Officers are
elected by the Board of Directors and hold office at the discretion of the Board
of Directors. There are no family relationships between any of the directors or
executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
(the "Commission") initial reports of ownership and reports of changes in
ownership of Common Stock and the other equity securities of the Company.
Officers, directors, and persons who beneficially own more than ten percent of a
registered class of the Company's equities are required by the regulations of
the Commission to furnish the Company with copies of all Section 16(a) forms
they file. To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, during the fiscal year ended December 31,
1998, all Section 16(a) filing requirements applicable to its officers,
directors, and greater than ten percent beneficial owners were complied with,
except that Forms 5 were filed late by each of Mark Braunstein, William
Chambers, Mark Cromwell, Donald Greenhouse, Stephen Portch, Dennis Smith,
Kenneth Van Meter and Thomas Welch, and Fenton Scruggs has not yet filed a Form
5.
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Item 10. Executive Compensation.
Executive Compensation
The following table sets forth the annual and long-term compensation for
services in all capacities for the fiscal years ended December 31, 1998, 1997
and 1996 paid to Kenneth D. Van Meter, the Company's Chairman of the Board,
President, and Chief Executive Officer, Glenn West, the Company's Executive Vice
President and Director of Technology, William R. Chambers, the Company's Vice
President of Business Development and Secretary, Mark Cromwell, the Company's
Vice President of Engineering and Dennis Smith, the Company's Vice President of
Operations (Messrs. Van Meter, West, Chambers, Cromwell and Smith, together the
"Named Executive Officers"). No other executive officer received compensation
exceeding $100,000 during the fiscal years ended December 31, 1998, 1997 or
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------- -----------------------
Name and Principal Position Year Salary Bonus Restricted Securities
- --------------------------- ---- ------ ----- Stock Underlying All Other
Award(s) Options Compensation
-------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Van Meter 1998 $170,100(1) -- -- 413,200(6) --
Chairman of the Board, 1997 $154,731 71,810(5) -- 413,200 --
Chief Executive Officer, 1996 -- -- -- -- --
and President
Glenn West 1998 $148,954 -- -- -- --
Executive Vice President 1997 $148,954 -- -- -- --
and Director 1996 $134,372 -- -- -- --
William R. Chambers 1998 $131,250(2) -- -- 62,500(6) --
Vice President 1997 -- -- -- -- --
1996 -- -- -- -- --
Mark C. Cromwell 1998 $125,000(3) -- -- 36,500(6) --
Vice President 1997 -- -- -- -- --
1996 -- -- -- -- --
Dennis K. Smith 1998 $125,000(4) -- -- 36,500(6) --
Vice President 1997 -- -- -- -- --
1996 -- -- -- -- --
</TABLE>
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(1) Includes $70,875 voluntarily deferred in 1998.
(2) Includes $15,312.50 voluntarily deferred in 1998.
(3) Includes $14,583.34 voluntarily deferred in 1998.
(4) Includes $14,583.34 voluntarily deferred in 1998.
(5) Includes $17,864 paid in the first quarter of 1998, $26,973 which was due
to be paid on January 20, 1999, but has not been paid, and $26,973 to be
paid on January 20, 2000.
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(6) Options repriced on December 1, 1998.
The following table sets forth certain information concerning options
granted to the Named Executive Officers during the fiscal year ended December
31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Number of Percentage of
Securities Total Options
Underlying Granted to Exercise or
Options Individuals in Base Price Expiration
Name Granted Fiscal Year per Share Date
- ---- ------- ----------- --------- ----
Kenneth D. Van Meter 183,200(1) 26.4% $0.688 4/4/07
230,000(1) 33.2% $0.688 7/18/07
Glenn West -- -- -- --
William R. Chambers 20,000(1) 2.9% $0.688 7/24/07
10,000(1) 1.4% $0.688 6/18/07
10,000(1) 1.4% $0.688 4/4/07
10,000(2) 1.4% $0.688 1/26/08
12,500(2) 1.8% $0.688 11/25/08
Mark C. Cromwell 24,000(1) 3.5% $0.688 11/12/07
12,500(2) 1.8% $0.688 11/25/08
Dennis K. Smith 24,000(1) 3.5% $0.688 11/12/07
12,500(2) 1.8% $0.688 11/25/08
- ----------
(1) Options granted in 1997, and repriced on December 1, 1998.
(2) Options granted in 1998, and repriced on December 1, 1998.
The following table sets forth certain information concerning the number
and value of securities underlying exercisable and unexercisable stock options
as of the fiscal year ended December 31, 1998 by the Named Executive Officers.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Number of Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value December 31, 1998 December 31, 1998(1)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Van Meter -- -- 413,200 -0- $25,618 -0-
Glenn West -- -- -- -- -- --
William R. Chambers -- -- 43,334 19,166 $2,687 $1,188
Mark C. Cromwell -- -- 8,000 28,500 $496 1,767
Dennis K. Smith -- -- 8,000 28,500 $496 1,767
</TABLE>
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(1) Amount reflects the market value of the underlying shares of Common Stock
at the closing price reported on the Nasdaq SmallCap Market on December
31, 1998 ($0.75 per share), less the exercise price of each option.
Director Compensation
Beginning in 1998, the Company's policy is for each outside director to
receive nonqualified stock options for 20,000 shares in addition to $2,500 per
quarter. Directors did not receive compensation for the last two quarters of
fiscal 1998. This compensation is accruing and the Company intends to pay it to
the directors in the future.
Stock Option Plans
On August 10, 1995, the Board of Directors and stockholders adopted the
Company's 1995 Stock Option Plan (the "1995 Plan"). The 1995 Plan provides for
the grant of options to purchase up to 178,929 shares of Common Stock to
employees and officers of the Company. In August, 1997, the Board of Directors
and the stockholders adopted the Company's 1997 Stock Option Plan (the "1997
Plan," and, together with the 1995 Plan, the "Plans"). The 1997 Plan provides
for the grant of options to purchase up to 200,000 shares of Common Stock to
employees, directors, and officers of the Company. Options granted under the
Plans may be either "incentive stock options" within the meaning of Section 422A
of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified
options.
The Plans are administered by the Board of Directors which serves as the
stock option committee and which determines, among other things, those
individuals who receive options, the time period during which the options may be
partially or fully exercised, the number of shares of Common Stock issuable upon
the exercise of each option, and the option exercise price.
The exercise price per share of Common Stock subject to an incentive stock
option may not be less than the fair market value per share of Common Stock on
the date the option is granted. The per share exercise price of the Common Stock
subject to a non-qualified option may be established
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by the Board of Directors, but may not be less than 85% of the fair market value
of the Common Stock on the date of the grant. The aggregate fair market value
(determined as of the date the option is granted) of Common Stock for which any
person may be granted incentive stock options which first become exercisable in
any calendar year may not exceed $100,000. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to such
person, more than 10% of the total combined voting power of all classes of
capital stock of the Company (a "10% Stockholder") shall be eligible to receive
any incentive stock options under the Plan unless the exercise price is at least
110% of the fair market value of the shares of Common Stock subject to the
option, determined on the date of grant.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution and, during the lifetime of an optionee,
the option will be exercisable only by the optionee or a representative of such
optionee. In the event of termination of employment other than by death or
disability, the optionee will have no more than three months after such
termination during which the optionee shall be entitled to exercise the option,
unless otherwise determined by the stock option committee. Upon termination of
employment of an optionee by reason of death, such optionee's options remain
exercisable for one year thereafter to the extent such options were exercisable
on the date of such termination. Under the 1997 Plan, upon termination of
employment of an optionee by reason of total disability (as defined in the 1997
Plan) such optionee's options remain exercisable for one year thereafter.
Options under the 1995 Plan must be issued within 10 years from August 10,
1995, the effective date of the 1995 Plan. Options under the 1997 Plan must be
issued within 10 years from August 6, 1997, the effective date of the 1997 Plan.
Incentive stock options granted under the Plans cannot be exercised more than 10
years from the date of grant. Incentive stock options issued to a 10%
Stockholder are limited to five-year terms. Payment of the exercise price for
options granted under the Plans may be made in cash or, if approved by the Board
of Directors of the Company, by delivery to the Company of shares of Common
Stock already owned by the optionee having a fair market value equal to the
exercise price of the options being exercised, or by a combination of such
methods. Therefore, an optionee may be able to tender shares of Common Stock to
purchase additional shares of Common Stock and may theoretically exercise all of
such optionee's stock options with no additional investment other than the
purchase of the original shares.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan from which they were granted.
On November 25, 1998, the Board of Directors of the Company approved a
resolution which permitted the Company to reprice all outstanding options to
purchase Common Stock which were held by employees of the Company as of December
1, 1998, to a price equal to the closing of the Company's Common Stock reported
on the Nasdaq SmallCap Market on December 1, 1998. Such closing price on
December 1, 1998 was $.688 per share.
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<PAGE>
At December 31, 1998, options to purchase 71,400 shares of Common Stock
were outstanding under the 1995 Plan at exercise prices ranging from $0.10 to
$4.90 per share, although substantially all of such options are exercisable at
$0.10 per share. Of such optionees, William Chambers and Dennis Smith, officers
of the Company, have options to purchase 10,000 shares and 12,500 shares,
respectively, of Common Stock at $0.688 per share. On December 31, 1998, options
to purchase 187,520 shares of Common Stock were outstanding under the 1997 Plan
at exercise prices ranging from $0.688 to $2.938 per share, although a majority
of such options are exercisable at $0.688 per share. Options granted to
directors of the Company under the 1997 Plan consist of: (i) options granted to
Mark Braunstein, Donald Greenhouse and Fenton Scruggs to each purchase 20,000
shares of Common Stock, respectively, at an exercise price of $2.125 per share;
(ii) options granted to Stephen Portch to purchase 20,000 shares of Common Stock
at an exercise price of $2.625 per share; (iii) options granted to Mark
Braunstein and Fenton Scruggs to each purchase 851 shares of Common Stock,
respectively, at an exercise price of $2.938 per share; (iv) options granted to
Stephen Portch and Donald Greenhouse to each purchase 1,333 shares of Common
Stock, respectively, at an exercise price of $1.875; and (v) options granted to
Stephen Portch and Donald Greenhouse, Mark Braunstein and Fenton Scruggs to each
purchase 1,538 shares of Common Stock, respectively, at an exercise price of
1.625 per share. Options granted to officers of the Company under the 1997 Plan
consist of: (i) options granted to William Chambers to purchase 22,500 shares of
Common Stock at an exercise price of $0.688 per share; (ii) options granted to
Mark Cromwell to purchase 36,500 shares of Common Stock at an exercise price of
$0.688; and (iii) options granted to Dennis Smith to purchase 24,000 shares of
Common Stock at an exercise price of $0.688 per share.
Options Granted Outside The Plans
In addition to the options which have been granted under the Plans, the
Company has previously granted options to purchase an aggregate of 483,200
shares of Common Stock outside of the Plans, including: (i) options granted to
Donald Greenhouse, a director of the Company to purchase (x) 14,000 shares of
Common Stock at an exercise price of $0.10 per share and (y) 26,000 shares of
Common Stock at an exercise price of $1.38 per share; (ii) options granted to
Kenneth Van Meter to purchase 413,200 shares of Common Stock at an exercise
price of $0.688 per share; and (iii) options granted to William Chambers to
purchase 30,000 shares of Common Stock at an exercise price of $0.688 per share.
See Executive Compensation and Item 12: Certain Relationships and Related
Transactions.
401(k) Profit Sharing Plan
The Company has a 401(k) profit sharing plan (the "401(k) Plan"), pursuant
to which the Company, at its discretion each year, may make contributions to
such plan which match a certain percentage, as determined by the Company, of the
contributions made by each employee. The Company may elect not to make matching
contributions to the 401(k) Plan in any given year. The Company made matching
contributions in fiscal year 1997 (an aggregate of approximately $35,000) but
made no matching contributions in fiscal year 1998.
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Employment Agreements
The Company has entered into an employment agreement with Mr. Van Meter,
as amended, which expires January 20, 2000. Pursuant to his employment
agreement, Mr. Van Meter receives an annual base salary of $162,000. The
employment agreement provides for the annual review of Mr. Van Meter's salary;
Mr. Van Meter received a 5% raise as of January 20, 1998. Pursuant to his
employment agreement, Mr. Van Meter may, at the discretion of the Board of
Directors, receive an annual incentive bonus equal to up to 99% of Mr. Van
Meter's base salary if he and the Company reach certain milestones. Up to
two-thirds of such incentive bonus is to be awarded and paid within thirty days
following the end of each calendar year and up to the remaining one third of
such bonus is to be awarded at the end of each calendar year and vest in two
equal installments on the first and second anniversaries of the date of the
award. In July 1997, Mr. Van Meter purchased 15,000 shares of Common Stock for
nominal consideration plus the cancellation of certain anti-dilution rights and
received options to purchase 183,200 shares of Common Stock at $1.38 per share
and options to purchase 230,000 shares of Common Stock at $3.00 per share. Such
options were repriced on December 1, 1998 at an exercise price of $0.688 per
share. Additionally, during 1997, Mr. Van Meter received reimbursement of
approximately $37,272 for expenses incurred as a result of his relocation.
The Company has entered into an employment agreement with Mr. West which
expires on May 1, 2000. Pursuant to his employment agreement, Mr. West received
a base salary of $148,954 in 1998. Such base salary is subject to increase at
the discretion of the Board of Directors based upon, among other things, the
performance of the Company and the performance, duties, and responsibilities of
Mr. West. The employment agreement also provides that Mr. West will not compete
with the Company for two years after the termination of his employment. A state
court, however, may determine not to enforce such non-compete clause as against
public policy. The employment agreement is terminable by the Company for cause
upon the occurrence of certain events, or upon physical or mental disability or
incapacity. As of January 1, 1999, Mr. West's employment agreement was amended
to provide, among other things, for his taking a voluntary leave of absence from
his employment with the Company. Such leave of absence will continue through the
end of the term of his employment agreement. During his leave of absence, Mr.
West will not recieve compensation as an employee of the Company, but will be
available to provide consulting services to the Company for up to 20 hours per
month, for a monthly retainer of $2,500. The Company may require Mr. West to
provide consulting services for up to an additional 20 hours per month at a rate
of $200 per hour for such services.
Pursuant to employment agreements with the Company, William Chambers, Mark
Cromwell and Dennis Smith are each receiving salaries of $125,000 per annum.
Pursuant to Mr. Chambers' agreement with the Company, in 1997 and 1998, he
received reimbursement of approximately $20,600 for expenses incurred as a
result of his relocation and is eligible each year during his employment to
receive, at the discretion of the Board of Directors of the Company, a bonus of
up to twenty five percent (25%) of his annual salary. Mr. Chambers did not
receive a bonus for 1998. Pursuant to Mr. Cromwell's agreement with the Company,
in 1997 he received reimbursement of approximately $30,000 for expenses incurred
as a result of his relocation and is eligible each year
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<PAGE>
during his employment to receive at the discretion of the Board of Directors of
the Company, a bonus of up to twenty-five percent (25%) of his annual salary.
Mr. Cromwell did not receive a bonus for 1998. Pursuant to Mr. Smith's agreement
with the Company, in 1998 he received reimbursement of approximately $30,000 for
expenses incurred as a result of his relocation and is eligible each year during
his employment to receive, at the discretion of the Board of Directors, a bonus
of up to twenty five percent (25%) of his annual salary. Mr. Smith did not
receive a bonus for 1998. In connection with his employment, Mr. Chambers also
received options to purchase 20,000 shares of Common Stock at an exercise price
of $1.38 and options to purchase 20,000 shares of Common Stock at an exercise
price of $3.00 per share. In connection with their employment, each of Messrs.
Cromwell and Smith received options to purchase 24,000 shares of Common Stock at
an exercise price of $7.00 per share. All of such options were repriced on
December 1, 1998 to an exercise price of $0.688 per share. Messrs. Chambers',
Cromwell's and Smith's employment with the Company may be terminated by either
the employee or the Company at any time.
In November 1998, the Board of Directors of the Company resolved that in
the event of an acquisition of the Company, Messrs. Chambers, Cromwell and Smith
would be guaranteed their salaries for one year following the acquisition.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Principal Stockholders
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's voting securities as of
March 31, 1999 by (i) each person who is known by the Company to own of record
or beneficially more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors and the Named Executive Officers and (iii) all directors and
executive officers of the Company as a group. Unless otherwise indicated, each
of the stockholders listed in the table below has sole voting and dispositive
power with respect to the shares beneficially owned by such stockholder.
Number of Shares
Name of Beneficial Owner(1) Beneficially Owned Percent of Class(2)
- --------------------------- ------------------ -------------------
Kenneth D. Van Meter................. 573,228(3) 12.0%
Glenn West........................... 382,636 8.8%
William R. Chambers.................. 44,534(4) 1.0%
Mark C. Cromwell..................... 28,000(5) 1.0%
Dennis K. Smith...................... 9,200(6) 1.0%
Dr. Fenton Scruggs................... 286,582(7) 6.6%
Donald Greenhouse(8)................. 46,667(9) 1.1%
Stephen Portch....................... 6,667(10) 0.2%
Dr. Mark Braunstein.................. 6,667(11) 0.2%
All directors and executive
officers as a group (9 persons)
(3)(4)(5)(6)(7)(9)(10)(11)........... 1,384,181 28.3%
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(1) The address for Messrs. Van Meter, West, Chambers, Cromwell, Smith,
Greenhouse, Portch, and Drs. Braunstein and Scruggs is c/o Celerity
Systems, Inc., 1400 Centerpoint Boulevard, Knoxville, Tennessee 37932.
(2) Shares of Common Stock are deemed outstanding for purposes of computing the
percentage of beneficial ownership if such shares of Common Stock underlie
securities which are exercisable or convertible within 60 days of the date
of this Form 10-KSB .
(3) Includes 413,200 shares of Common Stock which are subject to currently
exercisable stock options. Does not include 10,000 shares of Common Stock
owned by Mr. Van Meter's adult children to which he disclaims beneficial
ownership.
(4) Includes 43,334 shares of Common Stock which are subject to currently
exercisable stock options.
(5) Includes 8,000 shares of Common Stock which are subject to currently
exercisable stock options.
(6) Includes 8,000 shares of Common Stock which are subject to currently
exercisable stock options.
(7) Includes 6,667 shares of Common Stock which are subject to currently
exercisable stock options. Does not include 60,000 shares of Common Stock
owned by Dr. Scruggs' adult children to which he disclaims beneficial
ownership.
(8) Mr. Greenhouse is the father of David Greenhouse who is the Vice President
of AWM Investment Company, Inc. Mr. Greenhouse disclaims beneficial
ownership of the shares owned by such fund.
(9) Includes 46,667 shares of Common Stock which are subject to currently
exercisable stock options.
(10) Represents 6,667 shares of Common Stock which are subject to currently
exercisable stock options.
(11) Represents 6,667 shares of Common Stock which are subject to currently
exercisable stock options.
Item 12. Certain Relationships and Related Transactions.
The Company was initially capitalized in January 1993, by Dr. Fenton
Scruggs, a founder and director of the Company, who contributed $155,000 in
capital from January to June 1993. In June 1993, Mahmoud Youssefi, a founder of
the Company and a principal officer until April 1997, loaned the Company $30,000
in the form of an unsecured loan bearing interest at the rate of 29.2% per
annum. The balance of the loan, together with accrued interest thereon, was paid
in full in December 1995.
In November 1994, the Company received an unsecured loan bearing interest
at a rate of 9% per annum from Dr. Scruggs in the principal amount of $75,000.
Dr. Scruggs converted the outstanding balance, including accrued interest
thereon, into 17,915 shares of the Company's Common Stock valued at $4.90 per
share on December 31, 1995. The Company believes that such issuance and sale was
exempt from registration pursuant to Section 4(2) of the Securities Act and/or
Rule 506 promulgated thereunder.
12
<PAGE>
In May 1995, the Company redeemed 17,364 shares of Common Stock from Glenn
West, the Company's Executive Vice President, Director of Technology and a
member of the Board of Directors, for an aggregate purchase price of $67,500. As
a founder of the Company, Mr. West had purchased, for nominal consideration, the
shares that were redeemed.
During the year ended December 31, 1997 the Company paid approximately
$47,000, in consulting fees to Seneca Point Associates, Inc., a management
consulting firm of which Donald Greenhouse, a member of the Board of Directors,
is President and Chief Executive Officer. Seneca Point Associates, Inc., does
not have an ongoing consulting arrangement with the Company. In addition, on
April 4, 1997, Donald Greenhouse, a director of the Company, was granted an
option to purchase 26,000 shares of Common Stock at an exercise price of $1.38
per share. The options were granted as compensation in consideration for Mr.
Greenhouse's service as Chief Executive Officer of the Company from mid-1996
until he was succeeded by Mr. Van Meter in January 1997.
In June and July 1996, the Company sold units in a private placement
offering to outside investors. The 60 units consisted of one 10% Note in the
principal amount of $50,000, 7,111 shares of Common Stock, and warrants to
purchase 2,625 shares of Common Stock. Hampshire Securities Corporation, the
underwriter (the "Underwriter"), acted as placement agent in the offering and
received sales commissions of $480,000 and $120,000 as reimbursement for certain
expenses. Additionally, the Underwriter received warrants to purchase 35,556
shares of Common Stock at $10.31 per share. In November 1996, the Company issued
an additional 867 warrants for each unit held by the outside investors in
connection with the Company's default on previously outstanding investor debt
and subsequent conversion of the principal to Common Stock. The warrants issued
to the Underwriter were increased to 38,852 in connection with the default and
the exercise price was decreased to $9.44.
In October and November 1998, the Company agreed to issue $86,024 in
Common Stock at a 20% discount. An additional 29 warrants were issued for each
unit and the exercise price was lowered to $8.39. All warrants issued in the
1996 placement will expire on the third anniversary of the closing of the IPO.
The warrants issued to the agent were further increased to 39,184 in connection
with the 1998 antidilution and the exercise price was decreased to $9.36. These
will expire five years from the date of grant.
On April 5, 1997, the Company entered into an agreement with Mr. Youssefi
pursuant to which Mr. Youssefi's employment as President of the Company was
terminated (the "Termination Agreement"). Pursuant to the Termination Agreement,
Mr. Youssefi agreed, among other things, (i) to not compete with the Company for
a three-year period (although such provision may be deemed unenforceable by a
state court), (ii) to waive all claims and rights against the Company, (iii) to
cooperate with the Company in its business endeavors and (iv) to assist with the
Company's efforts in an initial public offering. Under the Termination
Agreement, the Company agreed to pay Mr. Youssefi $4,000 in April 1997,
$11,458.33 for each month over a period of time from May 1997 through and
including April 1998, $7,458.33 on or before May, 1, 1998, and $11,458.33 for
each month over a period of time from June 1998 through May 1, 2000. The
Termination Agreement
13
<PAGE>
included a clause which conditioned certain of these obligations upon payment to
the Company of $2,000,000 on or prior to May 5, 1997 by En Kay Telecom Co., Ltd.
("En K"), a company that entered into agreements with the Company to obtain a
license to manufacture two of the Company's products in Korea. The Company did
not receive En K's May 5, 1997 payment and as a result, under the Termination
Agreement was only obligated to provide Mr. Youssefi the $11,458 monthly
payments from May 1997 through December 1997. The Company paid all sums due Mr.
Youssefi upon the consummation of the Bridge Financing in August 1997.
In August 1997, the Company completed a private placement of units, with
each unit consisting of $100,000 aggregate principal amount of 10% Notes, and
Warrants to purchase 16,000 Shares of Common Stock at an exercise price of $3.00
per share (the "Bridge Financing"). The Underwriter acted as placement agent in
such offering and received sales commissions of $200,000, as well as a
non-accountable expense allowance of $60,000.
As a condition to proceeding with the Bridge Financing and the IPO, the
Company deemed it necessary for it to repurchase a portion of its outstanding
Common Stock in order for the Common Stock to be sold in the IPO at the
appropriate valuation. Mr. Youssefi and Dr. Scruggs, who were in a position to
benefit substantially from the consummation of the IPO, agreed to sell 240,000
and 80,000 shares of Common Stock, respectively, to the Company at a purchase
price of $0.50 per share.
Pursuant to a letter agreement, dated July 15, 1997, between the Company
and Mr. Youssefi (the "Youssefi Repurchase Agreement"), Mr. Youssefi sold to the
Company 240,000 shares of the Company's Common Stock held by him at a purchase
price of $0.50 per share concurrently with the closing of the Bridge Financing.
Additionally, pursuant to the Youssefi Repurchase Agreement, in exchange for Mr.
Youssefi's execution of an agreement (the "Youssefi Lock-Up"), pursuant to which
he promised not to sell any securities of the Company owned by him for a period
of 18 months following the Company's IPO, the Company agreed to pay Mr. Youssefi
(i) upon the Company's receipt of the Youssefi Lock-Up, (a) $11,458.33 allegedly
owed to Mr. Youssefi at such time under the Termination Agreement and (b)
approximately $7,400 for reimbursable credit card and business expenses; (ii)
concurrently with the closing of the Bridge Financing, $53,291.65 as payment in
full (except for $15,458.33) for the Company's remaining obligations under the
Termination Agreement; and (iii) the remaining $15,458.33 [upon the earlier of
(a) 150 days after the closing of the Bridge Financing or (b) the closing of the
IPO]. Finally, the Company agreed, within 30 days following the closing of the
IPO, to pay off approximately $25,000 of leases guaranteed by Mr. Youssefi.
Pursuant to a letter agreement, dated July 15, 1997, between the Company
and Dr. Fenton Scruggs, Dr. Scruggs sold to the Company 80,000 shares of the
Company's Common Stock held by him at a purchase price of $0.50 per share
concurrently with the closing of the Bridge Financing.
In August 1998, Mr. Van Meter lent $55,000 to the Company for payroll, and
Dr. Scruggs lent $100,000 to the Company for general purposes. In October 1998,
the Company consumated a private placement (the "Royalty Private Placement") in
which holders who subscribed for notes bearing 7% interest were entitled to
receive royalties of $0.50 for each $100,000 invested (pro rated for lesser
investments) for each set top box sold over a period of five years or the total
notes placed. Thereafter, Dr. Scruggs converted his $100,000 short term note to
a $100,000 three-year term note in the Royalty Private Placement.
14
<PAGE>
private placements (the "Royalty Private Placement"), so as to be more
beneficial to the Company. The Royalty Private Placement entitled holders to
royalties of $0.50 for each $100,000 invested (pro rated for lesser investments)
for each set top box sold during a period of up to five years or the total noted
placed. Likewise, Mr. Van Meter converted $50,000 of his $55,000 short term note
in the Royalty Private Placement. The remaining $5,000 is due to Mr. Van Meter
as a note. Dennis Smith, who was owned $25,000 as part of his relocation,
elected to convert such amount in the Royalty Private Placement. William
Chambers elected to purchase a $50,000 note in the Royalty Private Placement.
In January 1999, Mr. Van Meter lent the Company $17,552.64 for payment of
certain payables of the Company.
The Company believes that each of the above referenced transactions was
made on terms no less favorable to the Company than could have been obtained
from an unaffiliated third party. Furthermore, any future transactions or loans
between the Company and officers, directors, principal stockholders or
affiliates and, any forgiveness of such loans, will be on terms no less
favorable to the Company than could be obtained from an unaffiliated third
party, and will be approved by a majority of the Company's directors, including
a majority of the Company's independent and disinterested directors who have
access at the Company's expense to the Company's legal counsel.
Item 13. Exhibits and Reports on Form 8-K.
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation of Celerity Systems, Inc.*
3.2 By laws of Celerity Systems, Inc.*
4.1 Form of Underwriter's Warrant*
4.2 1995 Stock Option Plan*
4.3 1997 Stock Option Plan*
4.4 Form of Stock Certificate*
4.5 Form of Bridge Warrant*
4.6 Form of 1996 Warrant*
4.7 Form of Hampshire Warrant*
4.8 Form of 1995 Warrant*
4.9 Letter Agreement dated July 15, 1997, between the Company and
Mahmoud Youssefi, including exhibits*
4.10 Letter Agreement, dated July 11, 1997, between the Company and Dr.
Fenton Scruggs*
4.11 Form of Convertible Debenture***
4.12 Form of 7% Promissory Note***
4.13 Form of Registration Rights Agreement, between the Company and each
of RNI Limited Partnership, First Empire Corporation, Greg A. Tucker
and Michael Kesselbrenner***
10.1 Employment Agreement, dated January 7, 1997, as amended, between the
Company and Kenneth D. Van Meter*
10.2 Employment, Non-Solicitation, Confidentiality and Non-Competition
Agreement, dated as of May 1, 1996, between the Company and Glenn
West*
15
<PAGE>
10.3 Termination Agreement, dated as of April 5, 1997, between the
Company and Mahmoud Youssefi*
10.4 [Reserved]
10.5 Letter Agreement, dated March 13, 1997, between the Company and
William Chambers*
10.6 Letter Agreement, dated July 24, 1997, between the Company and Mark.
C. Cromwell*
10.7 Exclusive OEM/Distribution Agreement, dated March 10, 1995, between
the Company and InterSystem Multimedia, Inc.*
10.8 Purchase Order Agreement, dated June 26, 1995, between Tadiran
Telecommunications Ltd. and the Company*
10.9 License Agreement, dated as of September 26, 1996, between the
Company and En Kay Telecom Co., Ltd.*
10.10 License Agreement, dated as of February 21, 1997, between the
Company and En Kay Telecom Co., Ltd.*
10.11 Remarketer Agreement, dated as of June 15, 1997, between the Company
and Minerva Systems, Inc.*
10.12 Memorandum of Understanding, dated April 25, 1996, between
Integrated Network Corporation and the Company*
10.13 Letter of Agreement, dated March 31, 1993, between the Company and
Herzog, Heine & Geduld, Inc. and Development Agreement attached
thereto*
10.14 Subcontract Agreement, dated June 26, 1997, between Unisys
Corporation and the Company*
10.15 Lease Agreement for Crossroad Commons, dated November 25, 1996, as
amended, between Lincoln Investment Management, Inc., as attorney in
fact for the Lincoln National Life Insurance Company, and the
Company*
10.16 Lease Agreement, dated November 25, 1997, between Centerpoint Plaza,
L.P. and the Company**
10.17 Letter Agreement, dated October 3, 1997, between Dennis Smith and
the Company**
10.18 Letter Agreement, dated January 8, 1998, between James Fultz and the
Company**
10.19 Amendment to Employment, Non-Solicitation, Confidentiality and
Non-Competition Agreement, dated January 1, 1999, between the
Company and Glenn West***
10.20 Form of Subscription Agreement, between the Company and each of RNI
Limited Partnership, First Empire Corporation, Greg A. Tucker and
Michael Kesselbrenner***
10.21 Form of Subscription Agreement, between the Company and each of
Donald Alexander, Leo Abbe, Centerpoint Plaza, L.P., William
Chambers, Fenton Scruggs, Dennis Smith, Kenneth Van Meter, George
Semb and Rodney Conard***
10.22 Form of Royalty Agreement, between the Company and each of Donald
Alexander, Leo Abbe, Centerpoint Plaza, LP, William Chambers, Fenton
Scruggs, Dennis Smith, Kenneth Van Meter, George Semb and Rodney
Conard***
11 Statement re: computation of per share earnings***
23 Consent of PricewaterhouseCoopers, LLP***
27 Financial Data Schedule***
- ----------
* Filed as an Exhibit to the Registration Statement on Form SB-2
(Registration No. 333-33509).
** Filed as an Exhibit to the Form 10-KSB for the year ended December 31,
1997.
*** Filed herewith.
16
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CELERITY SYSTEMS, INC.
/s/ Kenneth D. Van Meter President and
- ------------------------- Chief Executive Officer April 30, 1999
Kenneth D. Van Meter
In accordance with the Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
President, Chief Executive Officer April 30, 1999
/s/ Kenneth D. Van Meter and Chairman of the Board
- ------------------------- (Principal Executive Officer)
Kenneth D. Van Meter (Principal Financial Officer)
/s/ Glenn West Executive Vice President and April 30, 1999
- ------------------------- Director
Glenn West
/s/ Fenton Scruggs Director April 30, 1999
- -------------------------
Fenton Scruggs
/s/ Donald Greenhouse Director April 30, 1999
- -------------------------
Donald Greenhouse
/s/ Stephen Portch Director April 30, 1999
- -------------------------
Stephen Portch
/s/ Mark Braunstein Director April 30, 1999
- -------------------------
Mark Braunstein
<PAGE>
Exhibit Index
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation of Celerity Systems, Inc.*
3.2 By laws of Celerity Systems, Inc.*
4.1 Form of Underwriter's Warrant*
4.2 1995 Stock Option Plan*
4.3 1997 Stock Option Plan*
4.4 Form of Stock Certificate*
4.5 Form of Bridge Warrant*
4.6 Form of 1996 Warrant*
4.7 Form of Hampshire Warrant*
4.8 Form of 1995 Warrant*
4.9 Letter Agreement dated July 15, 1997, between the Company and
Mahmoud Youssefi, including exhibits*
4.10 Letter Agreement, dated July 11, 1997, between the Company and Dr.
Fenton Scruggs*
4.11 Form of Convertible Debenture***
4.12 Form of 7% Promissory Note***
4.13 Form of Registration Rights Agreement, between the Company and each
of RNI Limited Partnership, First Empire Corporation, Greg A. Tucker
and Michael Kesselbrenner***
10.1 Employment Agreement, dated January 7, 1997, as amended, between the
Company and Kenneth D. Van Meter*
10.2 Employment, Non-Solicitation, Confidentiality and Non-Competition
Agreement, dated as of May 1, 1996, between the Company and Glenn
West*
10.3 Termination Agreement, dated as of April 5, 1997, between the
Company and Mahmoud Youssefi*
10.4 [Reserved]
10.5 Letter Agreement, dated March 13, 1997, between the Company and
William Chambers*
10.6 Letter Agreement, dated July 24, 1997, between the Company and Mark.
C. Cromwell*
10.7 Exclusive OEM/Distribution Agreement, dated March 10, 1995, between
the Company and InterSystem Multimedia, Inc.*
10.8 Purchase Order Agreement, dated June 26, 1995, between Tadiran
Telecommunications Ltd. and the Company*
10.9 License Agreement, dated as of September 26, 1996, between the
Company and En Kay Telecom Co., Ltd.*
10.10 License Agreement, dated as of February 21, 1997, between the
Company and En Kay Telecom Co., Ltd.*
10.11 Remarketer Agreement, dated as of June 15, 1997, between the Company
and Minerva Systems, Inc.*
10.12 Memorandum of Understanding, dated April 25, 1996, between
Integrated Network Corporation and the Company*
10.13 Letter of Agreement, dated March 31, 1993, between the Company and
Herzog, Heine & Geduld, Inc. and Development Agreement attached
thereto*
10.14 Subcontract Agreement, dated June 26, 1997, between Unisys
Corporation and the Company*
17
<PAGE>
10.15 Lease Agreement for Crossroad Commons, dated November 25, 1996, as
amended, between Lincoln Investment Management, Inc., as attorney in
fact for the Lincoln National Life Insurance Company, and the
Company*
10.16 Lease Agreement, dated November 25, 1997, between Centerpoint Plaza,
L.P. and the Company**
10.17 Letter Agreement, dated October 3, 1997, between Dennis Smith and
the Company**
10.18 Letter Agreement, dated January 8, 1998, between James Fultz and the
Company**
10.19 Amendment to Employment, Non-Solicitation, Confidentiality and
Non-Competition Agreement, dated January 1, 1999, between the
Company and Glenn West***
10.20 Form of Subscription Agreement, between the Company and each of RNI
Limited Partnership, First Empire Corporation, Greg A. Tucker and
Michael Kesselbrenner***
10.21 Form of Subscription Agreement, between the Company and each of
Donald Alexander, Leo Abbe, Centerpoint Plaza, L.P., William
Chambers, Fenton Scruggs, Dennis Smith, Kenneth Van Meter, George
Semb and Rodney Conard***
10.22 Form of Royalty Agreement, between the Company and each of Donald
Alexander, Leo Abbe, Centerpoint Plaza, LP, William Chambers, Fenton
Scruggs, Dennis Smith, Kenneth Van Meter, George Semb and Rodney
Conard***
11 Statement re: computation of per share earnings***
23 Consent of PricewaterhouseCoopers, LLP***
27 Financial Data Schedule***
- ----------
* Filed as an Exhibit to the Registration Statement on Form SB-2
(Registration No. 333-33509).
** Filed as an Exhibit to the Form 10-KSB for the year ended December 31,
1997.
*** Filed herewith.
18
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CONVERTIBLE DEBENTURE DUE January , 1998
January , 2000
$
Number JAN -1998-101
FOR VALUE RECEIVED, CELERITY SYSTEMS, INC., a New York corporation (the
"Company"), hereby promises to pay _______________________________ or
registered assigns (the "Holder") on January 2000, (the "Maturity Date"),
the principal amount of __________HUNDRED THOUSAND Dollars ($ 00,000)
U.S., and to pay interest on the principal amount hereof, in such amounts,
at such times and on such terms and conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the rate of Nine Percent (9.0%) per year, payable
at the time of each conversion until the principal amount hereof is paid in full
or has been converted. Interest shall be computed on the basis of a 360 day year
of 12, 30 day months. Each payment shall be paid in cash or in freely trading
Common Stock of the Company, at the Company's option. If paid in Common Stock,
the number of shares of the Company's Common Stock to be received shall be
determined by dividing the dollar amount of the interest by the then applicable
Conversion Price as of the interest payment date. "Conversion Price" shall mean
the lesser of (a) 75% of the 5-day average closing bid prices, as reported by
Bloomberg, LP for the five (5)
1
<PAGE>
consecutive trading days immediately preceding the Conversion Date (as
hereinafter defined) or (b) four (4) times the 5-day average closing bid prices,
as reported by Bloomberg, LP for the five (5) consecutive trading days
immediately preceding the Closing Date (as hereinafter defined). If the interest
is to be paid in cash, the Company shall make such payment within 5 business
days of the date of conversion. If the interest is to be paid in Common Stock,
said Common Stock shall be delivered to the Holder, or per Holder's
instructions, within 8 business days of the date of conversion. The Debentures
are subject to automatic conversion at the end of two years from the date of
issuance at which time all Debentures outstanding will be automatically
converted based upon the formula set forth in Section 3.2. The closing shall be
deemed to have occurred on the date the funds are received by the Company or its
Counsel (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for the Holder
to receive payment of the principal amount hereof. The Company shall have the
option of paying the interest on this Debenture in United States dollars or in
common stock upon conversion pursuant to Article 1 hereof. The Company may draw
a check for the payment of interest to the order of the Holder of this Debenture
and mail it to the Holder's address as shown on the Register (as defined in
Section 7.2 below). Interest and principal payments shall be subject to
withholding under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option, to
convert it into shares of common stock, par value $0.001 per share, of the
Company ("Common Stock") at any time ninety (90) calendar days following the
Closing Date and which is before the close of business on the Maturity Date,
except as set forth in Section 3.1(c) below. The number of shares of Common
Stock issuable upon the conversion of this Debenture is determined pursuant to
Section 3.2 and rounding the result to the nearest whole share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains outstanding
on the second anniversary of the date hereof, the unconverted portion of such
Debenture will automatically be converted into shares of Common Stock on such
date in the manner set forth in Section 3.2.
2
<PAGE>
Section 3.2. Conversion Procedure.
(a) Debentures. Upon receipt by the Company or its designated attorney of
a facsimile or original of Holder's signed Notice of Conversion followed by
receipt of the original Debenture to be converted in whole or in part in the
manner set forth in 3.2(b) below, the Company shall instruct its transfer agent
to issue one or more Certificates representing that number of shares of Common
Stock into which the Debenture is convertible in accordance with the provisions
regarding conversion set forth in Exhibit A hereto. The Seller's transfer agent
shall act as Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Debenture.
(b) Conversion Procedures. The face amount of this Debenture may be
converted anytime ninety (90) calendar days following the Closing Date. Such
conversion shall be effectuated by surrendering to the Company at its address
for notice pursuant to Article 8 hereof, this Debenture to be converted together
with a facsimile or original of the signed Notice of Conversion which evidences
Holder's intention to convert the Debenture indicated. The date on which the
Notice of Conversion is effective ("Conversion Date") shall be deemed to be the
date on which the Holder has delivered to the Company at its address for notice
pursuant to Section 10(c) of the Subscription Agreement a facsimile or original
of the signed Notice of Conversion. The original Debenture(s) to be converted
shall be delivered to the Company at such address within 3 business days
thereafter.
(c) Common Stock to be Issued. Upon the conversion of any Debentures and
upon receipt by the Company of a facsimile or original of Holder's signed Notice
of Conversion Seller shall instruct Seller's transfer agent to issue Stock
Certificates without restrictive legend or stop transfer instructions, if at
that time the Registration Statement has been deemed effective (or with proper
restrictive legend if the Registration Statement has not as yet been declared
effective), in the name of Holder (or its nominee) and in such denominations to
be specified at conversion representing the number of shares of Common Stock
issuable upon such conversion, as applicable. The certificates shall be
delivered to the address specified in the Conversion Notice or, if no such
address is specified, to the address set forth pursuant to Section 10(c) of the
Subscription Agreement. Seller warrants that no instructions, other than these
instructions, have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely transferable on the books and records
of Seller, except as may be set forth herein.
Notwithstanding any other provision contained herein, the parties agree that in
no event shall the Company be required to issue more than 19.99% of the number
of shares of Common Stock outstanding on the date of closing of the purchase and
sale of the Debentures upon the conversion of the Convertible Debentures, unless
the shareholders of the Company approve the issuance of additional Common Shares
or NASDAQ waives the requirement of Market Place Rule 4460(i)(1)(D).
3
<PAGE>
The Company agrees to use commercially reasonable efforts to obtain such
approval or waiver on or prior to the 90th day following the date that more than
19.99% of the Common Stock is issuable by scheduling a shareholders meeting as
soon as practicable after the Closing Date. For every 30 day period following
such 90th day, the Company shall pay 1% liquidated damages until approval (or
waiver) is received. Such damages shall only be payable as long as more than
19.99% of the outstanding Common Stock is issuable.
The Company acknowledges that its failure to obtain said shareholder approval
within 90 days following the date that more than 19.99% of the Common Stock is
issuable will cause the Holder to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to quantify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Agreement.
(d) (i) Conversion Rate. Holder is entitled, at its option to convert the
face amount of this Debenture, plus accrued interest on the portion of the
Debenture being converted, anytime beginning ninety (90) calendar days following
the Closing Date, at the Conversion Price as defined in Article 1 hereof. No
fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded up or down, as
the case may be, to the nearest whole share. The Debentures are subject to a
mandatory, 24 month conversion feature at the end of which all Debentures
outstanding will be automatically converted, upon the terms set forth in this
section ("Mandatory Conversion Date").
(e) Nothing contained in this Debenture shall be deemed to establish or
require the payment of interest to the Holder at a rate in excess of the maximum
rate permitted by governing law. In the event that the rate of interest required
to be paid exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically reduced to the
maximum rate permitted under the governing law and such excess shall be returned
with reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all necessary actions
and to bear all such costs to issue the Certificate for the Common Stock
issuable upon conversion of the Debenture as provided herein, including the
responsibility and cost for delivery of an opinion letter to the transfer agent,
if so required. The person in whose name the certificate of Common Stock is to
be registered shall be treated as a shareholder of record on and after the
conversion date. Upon surrender of any Debentures that are to be converted in
part, the Company shall
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<PAGE>
issue to the Holder a new Debenture equal to the unconverted amount, if so
requested in writing by Holder.
(g) Within eight (8) business days after receipt of the documentation
referred to above in Section 3.2(b), the Company shall deliver a certificate, in
accordance with Section 3.2(c) for the number of shares of Common Stock issuable
upon the conversion. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock as
provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Holder a new Debenture equal
to the unconverted amount, if so requested in writing by Holder.
In the event the Company does not make delivery of the Common Stock, as
instructed by Holder, within 8 business days after delivery of this original
Debenture, then in such event the Company shall pay to Holder an amount, in
cash, in immediately available funds or shares of Common Stock (calculated on
the basis of the Conversion Rate on such 8th business day), at the rate
applicable to the Conversion Default Payments set forth below until the date of
delivery of the Common Stock.
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after receipt of the documentation referred to above in
Section 3.2(b) will cause the Holder to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Debenture a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to qualify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Debenture.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3.2(g) shall not
apply but instead the provisions of Section 3.2(h) shall apply. In no event
shall the Company be required to make payments under both this Section 3.2(g)
and Section 3.2(h) with respect to any failure to issue or deliver certificates
representing Common Stock.
The Company shall make any payments incurred under this Section 3.2(g) by
the fifth business day of the calendar month following the calendar month in
which such payment was incurred.
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(h) The Company shall at all times reserve and have available all Common
Stock necessary to meet conversion of the Debentures by all Holders of the
entire amount of Debentures then outstanding. If, at any time Holder submits a
Notice of Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock (or alternative shares of Common Stock as may be
contributed by stockholders) available to effect, in full, a conversion of the
Debentures (a "Conversion Default", the date of such default being referred to
herein as the "Conversion Default Date"), the Company shall issue to the Holder
all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted (the
"Unconverted Debentures"), upon Holder's sole option, may be deemed null and
void. The Company shall provide notice of such Conversion Default ("Notice of
Conversion Default") to all existing Holders of outstanding Debentures, by
facsimile, within three (3) business day of such default (with the original
delivered by overnight or two day courier), and the Holder shall give notice to
the Company by facsimile within five business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight or two
day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or at the Company's option, in Common
Stock (at the Conversion Rate on the date of the Conversion Default) on or prior
to the fifth business day of the calendar month following the calendar month in
which the Conversion Default occurred and any subsequent calendar month in which
the Conversion Default is continuing.
The Company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of the Debentures will cause the Holder to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that it is appropriate
to include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to quantify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
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<PAGE>
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Debenture.
(i) The Holder is limited in the amount of this Debenture it may
convert and own. Other than the Mandatory Conversion provisions contained in
this Debenture which are not limited by the following, in no other event shall
the Holder be entitled to convert any amount of Debentures in excess of that
amount upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debenture), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures with respect to which the
determination of this provision is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock of the Company (after taking into account the shares to
be issued to the Holder upon such conversion). For purposes of this provision to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such provision. The Holder further agrees that if the Holder
transfers or assigns any of the Debentures to a party who or which would not be
considered such an affiliate, such assignment shall be made subject to the
transferees or assignees specific agreement to be bound by the provisions of
this Section as if such transferee or assignee were a signatory to the
Subscription Agreement.
(j) Redemption. The Company reserves the right, at its sole option, to
call a mandatory redemption of any percentage of the balance on the Debentures
as follows: In the event the Company exercises such right of redemption up to
and including the 90th calendar day following the Closing Date, it shall pay the
Holder, in U.S. currency One Hundred Fifteen (115%) of the face amount of the
Debentures to be redeemed, plus accrued interest. In the event the Company
exercises such right of redemption at anytime during the 91st through the 180th
calendar day following the Closing Date it shall pay the Holder, in U.S.
currency One Hundred Twenty (120%) of the face amount of the Debentures to be
redeemed, plus accrued interest. In the event the Company exercises such right
of redemption at anytime during the 181st calendar day following the Closing
Date through the expiration of the two year conversion period it shall pay the
Holder, in U.S. currency One Hundred Twenty-five (125%) of the face amount of
the Debentures to be redeemed, plus accrued interest. The date by which the
Debentures must be delivered to the Escrow Agent shall not be later than 5
business days following the date the Company notifies Holder by facsimile of the
redemption. The Company shall give the Holder at least 5 business day's notice
of its intent to redeem.
Section 3.3. Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon
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the conversion of this Debenture. Instead, the Company shall round up or down,
as the case may be, to the nearest whole share.
Section 3.4. Taxes on Conversion. The Company shall pay any documentary,
stamp or similar issue tax due on the issue of shares of Common Stock upon the
conversion of this Debenture. However, the Holder shall pay any such tax which
is due because the shares are issued in a name other than its name.
Section 3.5. Company to Reserve Stock. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon the terms set
forth in Section 3(a) of the Subscription Agreement, to permit the conversion of
this Debenture subject to certain options granted to the Company and referred to
in Section 3(a) of the Subscription Agreement. All shares of Common Stock which
may be issued upon the conversion hereof shall upon issuance be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon the
conversion thereof may only be offered or sold pursuant to registration under or
an exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or consolidates with
another corporation and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then this Debenture shall automatically be converted into Common Stock upon the
terms and conditions set forth in this Article 3, except that the Conversion
Date shall be deemed to be the date of the consummation of the merger.
Thereafter the Holder shall be entitled to receive the kind and amount of stock,
securities or property receivable upon such merger or consolidation, as would
any other Common Stock holder of the Company.
Article 4. Mergers and Adjustments
Section 4.1 Mergers. The Company shall not consolidate or merge into any
person, unless such person assume in writing the obligations of the Company
under this Debenture pursuant to Section 3.7. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Section 4.2 Adjustments. The number of shares of Common Stock purchasable
upon the conversion of this Debenture shall be subject to adjustments as
follows:
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(a) In case the Company shall (i) pay a dividend on Common Stock in Common
Stock or securities convertible into, exchangeable for or otherwise entitling a
holder thereof to receive Common Stock, (ii) declare a dividend payable in cash
on its Common Stock and at substantially the same time offer its shareholders a
right to purchase new Common Stock (or securities convertible into, exchangeable
for or other entitling a holder thereof to receive Common Stock) from the
proceeds of such dividend (all Common Stock so issued shall be deemed to have
been issued as a stock dividend), (iii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iv) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, or (v) issue by reclassification, reorganization or recapitalization of
its Common Stock any shares of Common Stock or other securities of the Company,
the number of shares of Common Stock issuable upon conversion of this Debenture
immediately prior thereto shall be adjusted so that the Holder of this Debenture
shall be entitled to receive after the happening of any of the events described
above that number and kind of shares as the Holder would have received had this
Debenture been converted immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this
subdivision shall become effective immediately after the close of business on
the record date in the case of a stock dividend and shall become effective
immediately after the close of business on the effective date in the case of a
stock split, subdivision, combination or reclassification.
(b) In case the Company shall distribute, without receiving consideration
therefor, to all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends other than as described in Section 4.2(a)), or
rights, options or warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock, then in such
case, the number of shares of Common Stock thereafter issuable upon conversion
of this Debenture shall be determined by multiplying the number of shares of
Common Stock theretofore issuable upon conversion of this Debenture, by a
fraction, of which the numerator shall be the closing bid price per share of
Common Stock on the record date for such distribution, and of which the
denominator shall be the closing bid price of the Common Stock less the then
fair value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights, options or warrants,
or of such convertible or exchangeable securities applicable to one share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock issuable
hereunder otherwise required to be made by this Section 4.2 will not have to be
adjusted if such adjustment would not require an increase or decrease in one
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<PAGE>
percent (1%) or more in the number of shares of Common Stock issuable upon
conversion of this Debenture. No adjustment in the number of shares of Common
Stock issuable upon conversion of this Debenture will be made for the issuance
of shares of capital stock to directors, employees or independent contractors
pursuant to the Company's or any of its subsidiaries' stock option, for the
purpose of the Company's Common Stock warrants issued, issuable or to be issued
for services rendered by others to the Company, stock ownership or other benefit
plans or arrangements or trusts related thereto or for issuance of any shares of
Common Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock under such plan.
Article 5. Reports
The Company will mail to the Holder hereof at its address as shown on the
Register a copy of any annual, quarterly or other report or proxy statement that
it gives to its shareholders generally at the time such report or statement is
sent to shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment, other than a payment of principal, for a period
of 5 business days thereafter, (c) the Company fails to comply with any of its
other agreements in this Debenture (other than any such failure to comply for
which liquidated damages are payable) and such failure continues for the period
and after the notice specified below, (d) the Company pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a
voluntary case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors or (v) a court
of competent jurisdiction enters an order or decree under any Bankruptcy Law
that: (A) is for relief against the Company in an involuntary case; (B) appoints
a Custodian of the Company or for all or substantially all of its property or
(C) orders the liquidation of the Company, and the order or decree remains
unstayed and in effect for 60 days, (e) the Company's Common Stock is no longer
listed on any recognized exchange including electronic over-the-counter bulletin
board. As used in this Section 6.1, the term "Bankruptcy Law" means Title 11 of
the United States Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law. A default under clause (c) above
is not an Event of Default until the holders of at least 25% of the aggregate
principal amount of the Debentures outstanding notify the Company of such
default and the Company does not cure it within fifteen (15) business days after
the receipt of such notice, which must
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specify the default, demand that it be remedied and state that it is a "Notice
of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture to be due and payable. Upon such
declaration, the remaining principal amount shall be due and payable
immediately.
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and date of
issuance thereof and as to any restriction on the transfer thereof in order to
comply with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures". The Debentures shall be issued in whole
multiples of $5,000.
Section 7.2. Record Ownership. The Company, or its attorney, shall
maintain a register of the holders of the Debentures (the "Register") showing
their names and addresses and the serial numbers and principal amounts of
Debentures issued to or transferred of record by them from time to time. The
Register may be maintained in electronic, magnetic or other computerized form.
The Company may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this Debenture is
the person exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture, convert it into
Common Stock and otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. Registration of Transfer. Transfers of this Debenture may be
registered on the books of the Company maintained for such purpose pursuant to
Section 7.2 above (i.e., the Register). Subject to Section 3.6 above, transfers
shall be registered when this Debenture is presented to the Company with a
request to register the transfer hereof and the Debenture is duly endorsed by
the appropriate person, reasonable assurances are given that the endorsements
are genuine and effective, and the Company has received evidence satisfactory to
it that such transfer is rightful and in compliance with all applicable laws,
including tax laws and state and federal securities laws. When this Debenture is
presented for transfer and duly transferred hereunder, it shall be canceled and
a new Debenture showing the name of the transferee as the record holder thereof
shall be issued in lieu hereof. When this Debenture is presented to the Company
with a reasonable request to exchange it for an equal principal amount of
Debentures of other denominations, the Company shall make such exchange and
shall cancel this Debenture and issue in lieu thereof Debentures having a total
principal amount equal to this Debenture in such denominations as agreed to by
the Company and Holder.
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Section 7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company, at
Celerity Systems, Inc., 1400 Centerpoint Boulevard, Knoxville, Tennessee 37932,
Attn: William R. Chambers, (p) 423-539-5300, (f) 423-539-3590 with a copy by
facsimile and mail to Kenneth R. Koch, Esq., Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, 551 Fifth Avenue, New York, NY 10176 (p) 212-661-6500 (f)
212-697-6686. The time when such notice is sent shall be the time of the giving
of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in New York are not required or allowed to be
closed.
Article 10. Waivers
The holders of a majority in principal amount of the Debentures may waive
a default or rescind the declaration of an Event of Default and its consequences
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except for a default in the payment of principal or conversion into Common
Stock.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this Debenture shall
be governed and construed by the provisions hereof and in accordance with the
laws of the State of Delaware applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of Delaware.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of New York located in New York County. The Company
hereby expressly and irrevocably submits to the exclusive jurisdiction of the
state and federal courts of the State of New York located in New York County for
the purpose of any such litigation as set forth above and irrevocably agrees to
be bound by any final judgment rendered thereby in connection with such
litigation. The Company further irrevocably consents to the service of process
by registered mail, postage prepaid, or by personal service within or without
the State of New York. The Company hereby expressly and irrevocably waives, to
the fullest extent permitted by law, any objection which it may have or
hereafter may have to the laying of venue of any such litigation brought in any
such court referred to above and any claim that any such litigation has been
brought in any inconvenient forum. To the extent that the Company has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution or otherwise) with respect to itself or its
property, the Company hereby irrevocably waives such immunity in respect of its
obligations under this agreement and the other loan documents.
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(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above.
CELERITY SYSTEMS, INC.
By_______________________________________
its CEO duly authorized
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Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debentures.)
The undersigned hereby irrevocably elects, as of ______________, 199_ to
convert $_________________ of the Debentures into Shares of Common Stock (the
"Shares") of CELERITY SYSTEMS, INC. (the "Company") according to the conditions
set forth in the Subscription Agreement dated _________________,1998.
Date of Conversion______________________________________________________________
Applicable Conversion Price_____________________________________________________
Number of Shares Issuable upon this conversion__________________________________
Signature_______________________________________________________________________
[Name]
Address_________________________________________________________________________
________________________________________________________________________________
Phone______________________ Fax_______________________________________________
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Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________________
(name, address and SSN or EIN of assignee)
Dollars ($ )
________________________________________________________________________________
(principal amount of Debenture, $5,000 or integral multiples of $5,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date:_____________Signed:_______________________________________________________
(Signature must conform in all
respects to name of Holder shown
of face of Debenture)
Signature Guaranteed:
16
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS, AND NEITHER THIS NOTE, THE PAYEE'S
ROYALTY RIGHTS (AS DEFINED BELOW) NOR ANY INTEREST HEREIN OR THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE AND THE PAYEE'S ROYALTY RIGHTS MAY
BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
CELERITY SYSTEMS, INC.
7% PROMISSORY NOTE
[Initial Term of One Year]
_______________, 1998 $______________
Knoxville, Tennessee
FOR VALUE RECEIVED, Celerity Systems, Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the payee identified below or its
registered assigns (the "Payee"), the principal sum of ______________________
Dollars ($_______________). The outstanding principal sum shall bear interest at
the rate of seven percent (7%) per annum (compounded annually, if this Note is
extended, as provided below) from the date hereof until paid in full. Principal
and accrued interest shall be due and payable, in full, on the first anniversary
of the date of this Note, unless extended as provided below. All payments of
principal and interest shall be paid to the Payee, at the address for the Payee
as set forth below or at such other address as the Payee shall designate by
written notice to the Company. The Company may, at its option, prepay all or any
part of the principal of this Note without payment of any premium or penalty.
All payments on this Note shall be applied first to accrued interest hereon and
the balance to the payment of principal hereof.
If the Note is not theretofore prepaid in full, the Payee shall have the
right to extend the date required for payment of the principal of, and accrued
interest on, this Note for up to two additional one year periods. If the Payee
elects to so extend this Note, it shall give written notice to that effect to
the Company at least 30 days prior to the first anniversary of the date of this
Note, and in such written notice the Payee shall state whether it is electing to
extend the Note for one year or two years. If the Payee initially elects to
extend the Note for one year, it may subsequently elect, by written notice to
the Company given at least 30 days prior to the second anniversary of the date
of this Note, to thereafter extend the Note for the second one year period.
Extension of the date required for payment of the Note will not affect the
Company's right to prepay the Note prior to or following such extension;
however; such extension will affect certain rights of the Payee to receive
<PAGE>
royalty payments from the Company, as described in the Royalty Agreement entered
into on the date hereof between the Company and the Payee, a copy of which is
attached hereto as Exhibit 1 (the "Royalty Agreement"). The Payee's rights and
obligations under the Royalty Agreement are sometimes herein referred to as the
"Royalty Rights." As a condition to the issuance by the Company of this Note,
the Payee has executed and delivered to the Company a Subscription Agreement
(the "Subscription Agreement"). This Note, the Royalty Agreement and the
Subscription Agreement collectively constitute the entire agreement between the
Company and the Payee with respect to the subject matter hereof and may be
amended only by a written instrument executed by the Company and the Payee.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
delivery or courier service or delivered (in person or, if receipt is confirmed
orally or in writing, by telecopy or similar telecommunications equipment)
against receipt to the party to whom it is to be given, (i) if to the Company,
as follows: Celerity Systems, Inc., Attention: President, 1400 Centerpoint
Boulevard, Knoxville, Tennessee 37932, (ii) if to the Payee, at the Payee's
address set forth below, or (iii) in either case, to such other address as the
party shall have furnished by notice in accordance with the provisions of this
paragraph. Any such notice shall be deemed given at the time of receipt thereof.
Any Notes issued upon the transfer of this Note shall be numbered and
shall be registered in a note register (the "Note Register") as they are issued.
The Company shall be entitled to treat the registered holder of any Note on the
Note Register as the owner in fact thereof (and as the Payee) for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Note on the part of any other person, and shall not be liable for any
registration or transfer of Notes which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the actual knowledge of such
facts that its participation therein amounts to bad faith. This Note shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Payee or by the duly authorized attorney or representative of
the Payee, or accompanied by proper evidence of succession, assignment, or
authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his, her or its authority shall be produced. Upon any registration
of transfer, the Company shall deliver a new Note or Notes to the person
entitled thereto. This Note may be exchanged, at the option of the Payee
thereof, for another Note, or other Notes of different denominations, of like
tenor and representing in the aggregate a like principal amount, upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person, unless (i) the Royalty Rights are simultaneously assigned to the
transferee of this Note and (ii) such transfer is in compliance with the terms
of this Note, including, without limitation, the legend set forth in the first
paragraph of this Note.
The Payee acknowledges that the Payee has been advised by the Company that
this Note has not been registered under the Act, that this Note is being issued
on the basis of the statutory exemption provided by Section 4(2) of the Act or
Regulation D promulgated thereunder, or both,
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relating to transactions by an issuer not involving any public offering, and
that the Company's reliance thereon is based in part upon the representations
made by the original Payee in the original Payee's Subscription Agreement. The
Payee acknowledges that the Payee has been informed by the Company of, or is
otherwise familiar with, the nature of the limitations imposed by the Act and
the rules and regulations thereunder on the transfer of securities. In
particular, the Payee agrees that no sale, assignment or transfer of this Note
or the Royalty Rights shall be valid or effective, and the Company shall not be
required to give any effect to any such sale, assignment or transfer, unless (i)
the sale, assignment or transfer of this Note and, if required, the Royalty
Rights, is registered under the Act and applicable state securities laws, it
being understood that neither this Note nor the Royalty Rights are currently
registered for sale and that the Company has no obligation or intention to so
register the Notes or the Royalty Rights, or (ii) such sale, assignment, or
transfer is exempt from registration under the Act and applicable state
securities laws.
This Note shall be governed by and shall be construed in accordance with
the laws of the State of Delaware, without regard to the conflicts of laws
principles of such State. The Company and the Payee each irrevocably consent to
the jurisdiction of, and venue in, the courts of the State of Delaware, and of
the federal courts located in the State of Delaware, in connection with any
action or proceeding arising out of or relating to this Note, any document or
instrument delivered pursuant to, in connection with or simultaneously with this
Note, or a breach of this Note or any such document or instrument.
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered as of the day and year first above written.
ATTEST:
CELERITY SYSTEMS, INC.
_______________________________ By:___________________________________
Secretary
Title:________________________________
PAYEE:________________________________
________________________________
Print Name
ADDRESS OF PAYEE:
______________________________________
______________________________________
______________________________________
______________________________________
3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of _____ 1999, ("this
Agreement"), is made by and between CELERITY SYSTEMS, INC. a Delaware
corporation (the "Company"), and the persons named on the signature page hereto
(the "Initial Investors").
WITNESSETH:
WHEREAS, upon the terms and subject to the conditions of the Subscription
Agreement, dated as of _______, 1999, between the Initial Investors and the
Company (the "Subscription Agreement"), the Company has agreed to issue and sell
to the Initial Investors 9% Convertible Debentures of the Company (the
"Debentures"), which will be convertible into shares of the common stock, $.001
par value (the "Common Stock"), of the Company (the "Conversion Shares") upon
the terms and subject to the conditions of such Debentures; and
WHEREAS, to induce the Initial Investors to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investors hereby agrees as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Closing Date" means the date funds are received by the Company or its
designated attorney pursuant to the Subscription Agreement.
(ii) "Investor" means the Initial Investors and any transferee or assignee
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
(iii) "Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis
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("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iv) "Registrable Securities" means the Conversion Shares.
(v) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than forty-five (45) calendar days after the Closing Date, a
Registration Statement covering a sufficient number of shares of Common Stock
for the Initial Investors into which the $_________ of Debentures, plus accrued
interest, in the total offering would be convertible within five business days
prior to the filing of such Registration Statement. In the event the
Registration Statement is not filed within forty-five (45) calendar days after
the Closing Date, then in such event the Company shall pay the Investor 1% of
the face amount of each Debenture for each 30 day period, pro-rated for any
portion thereof, after forty-five (45) calendar days following the Closing Date
that the Registration Statement is not filed. The Investor is also granted
additional Piggy-back registration rights on any other Registration Statement
filings made by the Company. Such Registration Statement shall state that, in
accordance with the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable to prevent dilution
resulting from Stock splits, or stock dividends). If at any time the number of
shares of Common Stock into which the Debenture(s) may be converted exceeds the
aggregate number of shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of written notice from any Investor,
either (i) amend the Registration Statement filed by the Company pursuant to the
preceding sentence, if such Registration Statement has not been declared
effective by the SEC at that time, to register all shares of Common Stock into
which the Debenture(s) may be converted, or (ii) if such Registration Statement
has been declared effective by the SEC at that time, file with the SEC an
additional Registration Statement on such form as is applicable or a
post-effective amendment to the Registration Statement to register the shares of
Common Stock into which the Debenture may be converted that exceed the aggregate
number of shares of Common Stock already registered. The above damages shall
continue until the obligation is fulfilled and shall be paid within 5 business
days after each 30 day period, or portion thereof, until the Registration
Statement
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<PAGE>
is filed. Failure of the Company to make payment within said 5 business days
shall be considered a default.
The Company acknowledges that its failure to file with the SEC, said
Registration Statement no later than forty-five (45) calendar days after the
Closing Date will cause the Initial Investors to suffer damages in an amount
that will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision set forth in
this section represents the parties' good faith effort to qualify such damages
and, as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
(b) Payment by the Company. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective within ninety (90) calendar days following
the Closing Date, then the Company shall pay the Initial Investors 1% of the
purchase price paid by the Initial Investors for the Registrable Securities
pursuant to the Subscription Agreement for every thirty day period, pro-rated
for any portion thereof, following the ninety (90) calendar day period until the
Registration Statement is declared effective. Notwithstanding the foregoing, the
amounts payable by the Company pursuant to this provision shall not be payable
to the extent any delay in the effectiveness of the Registration Statement
occurs because of an act of, or a failure to act or to act timely by any of the
Initial Investors or their counsel. The above damages shall continue until the
obligation is fulfilled and shall be paid within 5 business days after each 30
day period, or portion thereof, until the Registration Statement is declared
effective. Failure of the Company to make payment within said 5 business days
shall be considered a default.
The Company acknowledges that its failure to have the Registration
Statement declared effective within said ninety (90) calendar day period, will
cause the Initial Investors to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to quantify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
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<PAGE>
3. Obligation of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within forty-five (45) days of
the Closing Date, a Registration Statement with respect to not less than the
number of Registrable Securities provided in Section 2(a), above, and thereafter
use its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective the earlier of (i) five business days
after notice from the Securities and Exchange Commission that the Registration
Statement may be declared effective, or (b) ninety (90) days after the Closing
Date, and keep the Registration Statement effective at all times until the
earliest (the "Registration Period") of (i) the date that is two years after the
Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 or (iii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in
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<PAGE>
those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualification in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions: provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (B) subject itself
to general taxation in any such jurisdiction, (C) file a general consent to
service of process in any such jurisdiction, (D) provide any undertakings that
cause more than nominal expense or burden to the Company or (E) make any change
in its articles of incorporation or by-laws or any then existing contracts,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and uses its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of any notice of effectiveness or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on the national securities exchange, if any, on which securities of the
same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange, or (ii) secure the quotation of the Registrable Securities on The
Nasdaq Small Cap Market or if, despite the Company's commercially reasonable
efforts to satisfy the preceding clause (i) or (ii), the Company is unsuccessful
in doing so, to secure NASD authorization and quotation for such Registrable
Securities on the over-the-counter bulletin board and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National
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<PAGE>
Association of Securities Dealers, Inc. ("NASD") as such with respect to such
registrable securities;
(h) Provide a transfer agent for the Registrable Securities not later than
the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registration in such names as the Investors may request; and, within
five (5) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) a form of appropriate
instruction and opinion of such counsel, if required by the Company's transfer
agent, acceptable for use for each conversion; and
(j) Take all other reasonable actions necessary to expedite and facilitate
distribution to the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations;
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely execute such
documents in connection with such registration as the Company may reasonably
request. At least five (5) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
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<PAGE>
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting or broker's discounts, commissions and fees and transfer taxes
incurred in connection with registrations, filing or qualifications pursuant to
Section 3, but including, without limitation, all registration, listing, and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, shall be borne by the Company, provided that the
Company shall not be required to pay the fees and expenses of more than one
counsel for all of the Initial Investors
6. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations of the
Registration Statement or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or any prospectus included therein or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue
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<PAGE>
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). The Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) shall not
(i) apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(b) hereof; (ii) with respect to
any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (iii) be available to the extent such Claim is
based on a failure of the Investor to deliver or cause to be delivered the
prospectus made available by the Company; or (iv) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Each
Investor will indemnify the Company, its officers, directors and agents
(including Counsel) against any claims arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information furnished in
writing to the Company, by or on behalf of such Investor, expressly for use in
connection with the preparation of the Registration Statement, subject to such
limitations and conditions as are applicable to the Indemnification provided by
the Company to this Section 6. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified
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Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees, at all times when the Registration Statement
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<PAGE>
is no longer effective and any of the Initial Investors still hold Registrable
Securities that are not salable with Rule 144(k), to use its reasonable best
efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of fifty
(50%) percent or more of the Registrable Securities (including for this purpose
any registrable securities underlying any debentures) only if: (a) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (b) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (i) the name and
address of such transferee or assignee and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein, and (e) unless such transfer or assignment
is pursuant to the Registration Statement, the Company receives an opinion of
counsel reasonable acceptable to the Company, in form and substance reasonably
acceptable to the Company, to the effect that such transfer or assignment is in
compliance with federal and applicable state securities laws. In the event of
any delay in filing or effectiveness of the Registration Statement as a result
of such assignment, the Company shall not be liable for any damages arising from
such delay, or the payments set forth in Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either
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<PAGE>
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and investors who
hold a majority in interest of the Registrable Securities (including for this
purpose any registrable securities underlying any debentures). Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company received conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company, at
Celerity Systems, Inc., 1400 Centerpoint Boulevard, Knoxville, Tennessee 37932,
Attn: William R. Chambers, (p) 423-539-5300, (f) 423-539-3590 with a copy by
facsimile and mail to Kenneth R. Koch, Esq., Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, 551 Fifth Avenue, New York, NY 10176 (p) 212-661-6500 (f)
212-697-6686 and (ii) if to the Initial Investors, at the address set forth
under its name in the Subscription Agreement, with a copy to its designated
attorney and (iii) if to any other Investor, at such address as such Investor
shall have provided in writing to the Company, or at such other address as each
such party furnishes by notice given in accordance with this Section 11(b), and
shall be effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) business days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware. Each of the parties consents to the exclusive
jurisdiction of the state and federal courts of the State of New York located in
New York County in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be
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<PAGE>
deemed an original. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not effect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CELERITY SYSTEMS, INC.
By:
--------------------------
Name:
Title: Its CEO duly authorized
------------------------------
(Name of Initial Investor)
By:
--------------------------
Name:
Title:
13
AMENDMENT TO
EMPLOYMENT, NON-SOLICITATION, CONFIDENTIALITY
AND NON-COMPETITION AGREEMENT
THIS AMENDMENT is made and entered into effective as of the 1st day of
January, 1999, by and between Celerity Systems, Inc., a Delaware corporation
(hereinafter the "Company") and Glenn West (hereinafter the "Executive"). This
Amendment amends the Employment, Non-solicitation, Confidentiality and
Non-competition Agreement (the "Agreement") entered into between the parties as
of May 1, 1995. Except to the extent that the Agreement is specifically amended
hereby, the Agreement shall remain in full force and effect.
Recitals
A. The Executive is currently the Executive Vice President of Research and
Architecture of the Company and in that capacity his principal
responsibility is the development of new products for the Company.
B. The Company is in the process of refining and adapting its existing
products for specific sales opportunities and does not expect, for several
months, to engage in significant new product development activities. As
such, several employees that were a part of the Research and Architecture
department have been reassigned to the Engineering department.
C. As a result of the matters set forth in paragraphs A. and B. above, the
Executive desires to take a temporary leave of absence from his employment
with the Company to pursue certain other personal and professional
interests and the Company has determined that such a leave of absence
would be appropriate and would not jeopardize the interests of the
Company.
Terms and Conditions
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto do hereby agree as follows:
1 The Executive will take a voluntary leave of absence from his employment
with the Company, effective as of January 1, 1999, and continuing through
the end of the term of the Agreement (April 30, 2000). In the event that
the Executive desires to return to employment with the Company prior to
such time, he may do so provided that he shall give the Company written
notice at least 30 days prior to the date on which the Executive intends
to return to such employment. In the event that the Company desires to
have the Executive return to employment prior to April 30, 2000, it may
elect to do so provided that it gives the Executive written notice at
least 60 days prior to the date that the Executive is to return to such
employment.
2 The entire period of the leave of absence will be counted under the
Agreement and will not extend the term of the Agreement.
<PAGE>
3 During the leave of absence, the Executive will provide consulting
services to the Company for up to 20 hours per month on such projects as
the Company assigns to the Executive. The Company and the Executive will
cooperate, in good faith, to determine the specific times when such
services will be provided. The Executive acknowledges, however, that such
services may be requested with respect to time sensitive projects and he
will use his best efforts to be available to provide such services so as
to enable the Company to meet required deadlines.
4 In consideration for the consulting services to be provided pursuant to
Section 3 above, the Company shall pay the Executive a monthly retainer of
$2,500 payable on the ______ day of each month. The parties acknowledge
and agree that, except for such additional amounts as may be due pursuant
to Sections 5 and 6 below, this payment constitutes the only payment due
to the Executive for such consulting services and the Executive will not
be entitled to salary, benefits, expenses, options, bonuses, vacation or
any other form of compensation pursuant to the Agreement during the period
of his leave of absence.
5 The Company may require the Executive to provide consulting services in
addition to the services set forth in Section 3 above for up to 20
additional hours per month on such projects as the Company determines and
at such times as the Company reasonably requests. The Company shall pay
the Executive $200 per hour for such additional services, provided,
however, that (i) the Executive shall not perform such additional
consulting services without the prior written authorization of the
Company, (ii) the Executive shall provide the Company with an accounting
of and invoice for the additional hours worked, and (iii) if the Company
has authorized a maximum numbers of hours to be worked by the Executive,
he shall not invoice the Company and the Company shall not be responsible
for payment of any amounts in excess of such maximum number without the
Company's express written consent.
6 In the event that the Company requires consulting services from the
Executive in excess of 40 hours in any one month period during the period
of the leave of absence, the Executive shall use reasonable efforts to
provide such services and the Executive shall be compensated for such
services on the same terms as are set forth in Section 5 above, including
the terms relating to authorization to perform work, accounting and
invoicing.
7 The Executive agrees to remain as a member of the Board of Directors of
the Company during the leave of absence. Such agreement by the Executive
does not prevent the Company from removing the Executive from the Board of
Directors or failing to nominate him for future election in accordance
with the laws and bylaws governing the Company. In addition, in the event
that the leave of absence continues for more than ___ days, the Executive
agrees to resign from the Board of Directors upon written request from the
Company.
8 The Executive specifically acknowledges and agrees that the provisions of
Section 7 of the Agreement remain in full force and effect, with such
changes as are set forth below in this Section 8, during the period of the
leave of absence. Section 7 of the Agreement is amended to provide that
the "Restricted Period" as defined in Section 7.4 of the Agreement shall
begin on January 1, 1999, and the Agreement is further amended to provide
that "Company
-2-
<PAGE>
Business" as defined in Section 7.3 of the Agreement includes, but is not
limited to, development, manufacture, license and sale of T 6000 set top
boxes and all products related to or derived from the T 6000 set top box.
9 The parties agree that the Company may issue an announcement or other
public statement addressing the leave of absence taken by the Executive.
The Executive shall not issue any general public statement regarding the
leave of absence and all statements made by the Executive relating to the
leave of absence shall be consistent with the provisions of this
Amendment.
10 Upon the conclusion of the leave of absence and the return of the
Executive to the full time employment of the Company, this Amendment shall
terminate and the original terms of the Agreement shall govern the
employment relationship of the parties through the remaining term of the
Agreement, if any.
WITNESS the execution hereof as of the day and year first above written.
CELERITY SYSTEMS, INC. EXECUTIVE:
By:_________________________ _______________________
Glenn West
Title:_____________________
-3-
----------------------------------
CELERITY SYSTEMS, INC.
----------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Maximum Offering: $800,000
This offering consists of not more than $800,000 of Convertible Debentures of
Celerity Systems, Inc.
----------------------------------
SUBSCRIPTION AGREEMENT
----------------------------------
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<PAGE>
SUBSCRIPTION PROCEDURES
Convertible Debentures of CELERITY SYSTEMS, INC.. (the "Company") are
being offered in an aggregate amount not to exceed $800,000 The Debentures will
be transferable to the extent that any such transfer is permitted by law. This
offering is being made in accordance with the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended (the "Act") and Rule 506
of Regulation D promulgated under the Act (the "Regulation D Offering").
The Investor Questionnaire is designed to enable the Investor to
demonstrate the minimum legal requirements under federal and state securities
laws to purchase the Debentures. The Signature Page for the Investor
Questionnaire and the Subscription Agreement contain representations relating to
the subscription.
Also included is an Internal Revenue Service Form W-9: "Request for
Taxpayer Identification Number and Certification" for U.S. citizens
or residents of the U.S. for U.S. federal income tax purposes only.
(Foreign investors should consult their tax advisors regarding the
need to complete Internal Revenue Service Form W-9 and any other
forms that may be required).
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you may submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer as provided below:
Immediately available funds should be sent via wire transfer to the escrow
account stated below and the completed subscription documents should be
forwarded to the Escrow Agent. Your subscription funds will be deposited into a
non-interest bearing escrow account of Joseph B. LaRocco, Esq., Escrow Agent, at
First Union Bank of Connecticut, Stamford, Connecticut. In the event of a
termination of the Regulation D Offering or the rejection of this subscription,
all subscription funds will be returned without interest. The wire instructions
are as follows:
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<PAGE>
First Union Bank of Connecticut
Executive Office
300 Main Street, P. O. Box 700
Stamford, CT 06904-0700
ABA #: 021101108
Swift #: FUNBUS33
Account #: 20000-2072298-4
Acct.Name: Joseph B. LaRocco, Esq. Trustee Account
3
<PAGE>
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
To: Celerity Systems, Inc.
This Subscription Agreement is made between Celerity Systems, Inc.,
("Company" or "Seller") a Delaware corporation, and the undersigned prospective
purchaser ("Purchaser") who is subscribing hereby for the Company's Convertible
Debentures (the "Debentures"). The Debentures being offered will be separately
transferable, to the extent that any such transfer is permitted by law. The
conversion terms of the Debentures are set forth in Section 4. This subscription
is submitted to you in accordance with and subject to the terms and conditions
described in this Subscription Agreement together with any Exhibits thereto,
relating to an offering (the "Offering") of up to $800,000 of Debentures. This
Offering is comprised of an offering of the Debentures to accredited investors
(the "Regulation D Offering") in accordance with the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and
Rule 506 of Regulation D promulgated under the Act ("Regulation D").
1. SUBSCRIPTION.
(a) The undersigned hereby irrevocably subscribes for and agrees to
purchase $________________ of the Company's Debentures. The Debentures shall pay
cumulative interest at the rate of 9% per annum, payable in cash or in freely
trading Common Stock of the Company, at the Company's option, at the time of
each Conversion, with respect to the principal amount of the Debenture being
converted. If paid in Common Stock, the number of shares of the Company's Common
Stock to be received shall be determined by dividing the dollar amount of the
interest by the then applicable Conversion Price, as of the interest payment
date. "Conversion Price" shall mean the lesser of (a) 75% of the 5-day average
closing bid price, as reported by Bloomberg, LP, for the five
4
<PAGE>
(5) consecutive trading days immediately preceding the Conversion Date (as
hereinafter defined) or (b) four (4) times the 5-day average closing bid price,
as reported by Bloomberg, LP, for the five (5) consecutive trading days
immediately preceding the Closing Date (as hereinafter defined). If the interest
is to be paid in cash, the Company shall make such payment within 5 business
days of the date of conversion. If the interest is to be paid in Common Stock,
said Common Stock shall be delivered to the Purchaser, or per Purchaser's
instructions, within 8 business days of the date of conversion. The Debentures
are subject to automatic conversion at the end of two years from the date of
issuance at which time all Debentures outstanding will be automatically
converted based upon the formula set forth in Section 4(d). The closing shall be
deemed to have occurred on the date the funds are received by the Company or its
designated attorney (the "Closing Date").
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased the Debentures so purchased will be forwarded by the
Escrow Agent, Joseph B. LaRocco, to the Purchaser and the name of such Purchaser
will be registered on the Debenture transfer books of the Company as the record
owner of such Debentures. The Escrow Agent shall not be liable for any action
taken or omitted by him in good faith and in no event shall the Escrow Agent be
liable or responsible except for the Escrow Agent's own gross negligence or
willful misconduct. The Escrow Agent has made no representations or warranties
in connection with this transaction and has not been involved in the negotiation
of the terms of this Agreement or any matters relative thereto. Seller and
Purchaser each agree to indemnify and hold harmless the Escrow Agent from and
with respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action brought
which in any way arises out of or is related to this Agreement except the Escrow
Agent's own gross negligence or willful misconduct. The Escrow Agent is not
rendering securities advice to anyone with respect to this proposed transaction;
nor is the Escrow Agent opining on the compliance of the proposed transaction
under applicable securities law.
2. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
(a) The undersigned has been furnished with, and has carefully read the
applicable form of Debenture included herein as Exhibit A and the form of
Registration Rights Agreement annexed hereto as Exhibit B (the "Registration
Rights Agreement"), and is familiar with and understands the terms of the
Offering. With respect to tax and other economic considerations involved in his
investment, the undersigned is not relying on the Company. The undersigned has
carefully considered and has, to the extent the undersigned believes such
5
<PAGE>
discussion necessary, discussed with the undersigned's professional legal, tax,
accounting and financial advisors the suitability of an investment in the
Company, by purchasing the Debentures, for the undersigned's particular tax and
financial situation and has determined that the investment being made by the
undersigned is a suitable investment for the undersigned.
(b) The undersigned acknowledges that the Form 10-KSB for the fiscal year
ended December 31, 1997 and Form 10-QSB for the quarters ended March 31, 1998,
June 30, 1998, and September 30, 1998 and the "Risk Factors" in the form annexed
as Exhibit C to this Agreement (the "Disclosure Documents") have been made
available for inspection by the undersigned.
(c) The undersigned has had a reasonable opportunity to ask questions of
and receive answers from a person or persons acting on behalf of the Company
concerning the Offering and all such questions have been answered to the full
satisfaction of the undersigned.
(d) The undersigned will not sell or otherwise transfer the Debentures
without registration under the Act or applicable state securities laws or an
exemption therefrom. The Debentures have not been registered under the Act or
under the securities laws of any states. The Common Stock underlying the
Debentures is to be registered by the Company pursuant to the terms of the
Registration Rights Agreement attached hereto as Exhibit B and incorporated
herein and made a part hereof. Without limiting the right to convert the
Debentures and sell the Common Stock pursuant to the Registration Rights
Agreement, the undersigned represents that the undersigned is purchasing the
Debentures for the undersigned's own account, for investment and not with a view
to resale or distribution except in compliance with the Act. The undersigned has
not offered or sold any portion of the Debentures being acquired nor does the
undersigned have any present intention of dividing the Debentures with others or
of selling, distributing or otherwise disposing of any portion of the Debentures
either currently or after the passage of a fixed or determinable period of time
or upon the occurrence or non-occurrence of any predetermined event or
circumstance in violation of the Act. Except as provided in the Registration
Rights Agreement, the Company has no obligation to register the Common Stock
issuable upon conversion of the Debentures.
(e) The undersigned recognizes that an investment in the Debentures
involves substantial risks, including loss of the entire amount of such
investment. Further, the undersigned has carefully read and considered the
Disclosure Documents.
(f) Legends.
(i) The undersigned acknowledges that each certificate representing
the Debentures unless registered pursuant to the
6
<PAGE>
Registration Rights Agreement, shall be stamped or otherwise imprinted
with a legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE,
RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) IF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NOTWITHSTANDING THE FOREGOING, THE COMMON STOCK INTO WHICH THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE ARE ALSO
SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN EACH OF THAT CERTAIN
SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS AGREEMENT BY AND
BETWEEN THE HOLDER HEREOF AND THE COMPANY, A COPY OF EACH IS ON FILE
AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICE.
(ii) The Common Stock issued upon conversion shall contain the
following legend if converted prior to effectiveness of Registration
Statement:
"NO SALE, OFFER TO SELL OR TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE SHALL BE MADE UNLESS A REGISTRATION STATEMENT UNDER
THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO SUCH
SECURITIES IS THEN IN EFFECT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENT OF SUCH ACT IS THEN IN FACT APPLICABLE TO SUCH
SECURITIES."
(iii) Common Stock issued upon conversion and while the Registration
Statement (pursuant to which shares underlying conversion are registered)
is effective shall not bear any restrictive legend.
(g) If this Subscription Agreement is executed and delivered on
behalf of a corporation, (i) such corporation has the full legal right and power
and
7
<PAGE>
all authority and approval required (a) to execute and deliver, or authorize
execution and delivery of, this Subscription Agreement and all other instruments
(including, without limitation, the Registration Rights Agreement) executed and
delivered by or on behalf of such corporation in connection with the purchase of
the Debentures and (b) to purchase and hold the Debentures: (ii) the signature
of the party signing on behalf of such corporation is binding upon such
corporation; and (iii) such corporation has not been formed for the specific
purpose of acquiring the Debentures, unless each beneficial owner of such entity
is qualified as an accredited investor within the meaning of Rule 501(a) of
Regulation D and has submitted information substantiating such individual
qualification.
(h) The undersigned shall indemnify and hold harmless the Company and each
stockholder, executive, employee, representative, affiliate, officer, director,
agent (including Counsel) or control person of the Company, who is or may be a
party or is or may be threatened to be made a party to any threatened, pending
or contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any actual or
alleged misrepresentation or misstatement of facts or omission to represent or
state facts made or alleged to have been made by the undersigned to the Company
or omitted or alleged to have been omitted by the undersigned, concerning the
undersigned or the undersigned's subscription for and purchase of the Debentures
or the undersigned's authority to invest or financial position in connection
with the Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the undersigned, against
losses, liabilities and expenses for which the Company, or any stockholder,
executive, employee, representative, affiliate, officer, director, agent
(including Counsel) or control person of the Company has not otherwise been
reimbursed (including attorneys' fees and disbursements, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the Company, or
such officer, director stockholder, executive, employee, agent (including
Counsel), representative, affiliate or control person in connection with such
action, suit or proceeding.
(i) The undersigned is not subscribing for the Debentures as a result of,
or pursuant to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting.
(j) The undersigned or the undersigned's representatives, as the case may
be, has such knowledge and experience in financial, tax and business matters so
as to enable the undersigned to utilize the information made available to the
undersigned in connection with the Offering to evaluate the merits and risks of
an investment in the Debentures and to make an informed investment decision with
respect thereto.
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<PAGE>
(k) The Purchaser is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution thereof.
Purchaser is neither an underwriter of, nor a dealer in, the Debentures or the
Common Stock issuable upon conversion thereof and is not participating in the
distribution or resale of the Debentures or the Common Stock issuable upon
conversion thereof.
(l) There has never been represented, guaranteed, or warranted to the
undersigned by any broker, the Company, its officers, directors or agents, or
employees or any other person, expressly or by implication (i) the percentage of
profits and/or amount of or type of consideration, profit or loss to be
realized, if any, as a result of the Company's operations or an investment in
the Debentures or the Common Stock; and (ii) that the past performance or
experience on the part of the management of the Company, or of any other person,
will in any way result in the profitable operations of the Company.
(m) The Purchaser represents that neither it nor any person controlling,
controlled by or under the common control with it (each, an "affiliate") has
during the 45 days prior to the date hereof engaged in, and agrees that
following the date of this Agreement it will not, and will cause its affiliates
not to engage in any short sales, swaps, purchasing of puts, or other hedging
activities with respect to the Common Stock or any activity that involves the
direct or indirect use of Common Stock to hedge its investment in the Debentures
until the expiration of the two year conversion period of the Debentures.
3. SELLER REPRESENTATIONS.
(a) Concerning the Securities. The issuance, sale and delivery of the
Debentures have been duly authorized by all required corporate action on the
part of Seller, and when issued, sold and delivered in accordance with the terms
hereof and thereof for the consideration expressed herein and therein, will be
duly and validly issued and enforceable in accordance with their terms, subject
to the laws of bankruptcy and creditors' rights generally. At least 200% of the
number of shares of Common Stock issuable upon conversion of all the Debentures
issued pursuant to this Offering on the date of the consummation of the Offering
have been duly and validly reserved for issuance, and upon issuance shall be
duly and validly issued, fully paid, and non-assessable (the "Reserved Shares").
From time to time, the Company shall keep such additional shares of Common Stock
reserved so as to allow for the conversion of all the Debentures issued pursuant
to this offering.
Prior to conversion of all the Debentures, if at anytime the conversion of
all the Debentures outstanding would result in an insufficient number of
authorized shares of Common Stock being available to cover all the conversions,
then in such event, the Company will move to call and hold a shareholder's
meeting within 60 days of such event for the purpose of authorizing additional
shares of Common
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<PAGE>
Stock to facilitate the conversions. In such an event the Company shall
recommend to all shareholders to vote their shares in favor of increasing the
authorized number of shares of Common Stock. Seller represents and warrants that
under no circumstances will it deny or prevent Purchaser's right to convert the
Debentures as permitted under the terms of this Subscription Agreement or the
Registration Rights Agreement. Nothing in this Section shall limit the
obligation of the Company to make the payments set forth in Section 4(h).
Notwithstanding the foregoing, the Company will not issue shares
constituting, together with all other shares issued upon conversion of the
Debentures issued in the Offering, in excess of 19.99% of the outstanding Common
Stock, unless such issuance is approved by the shareholders of the Company.
(b) Authority to Enter Agreement. This Agreement has been duly authorized,
validly executed and delivered on behalf of Seller and is a valid and binding
agreement in accordance with its terms, subject to general principles of equity
and to bankruptcy or other laws affecting the enforcement of creditors' rights
generally.
(c) Non-contravention. The execution and delivery of this Agreement by the
Company, the issuance of the Debentures, and the consummation by the Company of
the other transactions contemplated by this Agreement, and the Debentures do not
and will not conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default under, the (i) certificate of
incorporation or by-laws of the Company, (ii) any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, other than the
"anti-dilution" provisions of certain Warrants and Warrant agreements made by
the Company (iii) any material existing applicable law, rule, or regulation or
any applicable decree, judgment, or (iv) order of any court, United States
federal or state regulatory body, administrative agency, or other governmental
body having jurisdiction over the Company or any of its properties or assets,
except such conflict, breach or default which would not have a material adverse
effect on the transactions contemplated herein.
(d) No Default. Except as may be set forth in the Disclosure Documents,
the Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it or its property is bound, and neither the execution of,
nor the delivery by the Company of, nor the performance by the Company of its
obligations under, this Agreement or the Debentures, other than the conversion
provision thereof, will conflict with or result in the breach or violation of
any of the terms or provisions of, or constitute a default or result in the
creation or imposition of any lien or charge on any assets or properties of the
Company under, (i) any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or
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instrument to which the Company is a party or by which it is bound, (ii) any
statute applicable to the Company or its property, (iii) the Certificate of
Incorporation or By-Laws of the Company, (iv) any decree , judgment, order, rule
or regulation of any court or governmental agency or body having jurisdiction
over the Company or its properties, or (v) the Company's listing agreement for
its Common Stock.
(e) Pending Litigation. There is (i) no action, suit or proceeding before
or by any court, arbitrator or governmental body now pending or, to the
knowledge of the Company, threatened or contemplated to which the Company or any
of its subsidiaries is or may be a party or to which the business or property of
the Company or any of its subsidiaries is or may be bound or subject, (ii) no
law, statute, rule, regulation, order or ordinance that has been enacted,
adopted or issued by any Governmental Body or adversely affecting the Company or
any of its subsidiaries, (iii) no injunction, restraining order or order of any
nature by a federal, state or foreign court or Governmental Body of competent
jurisdiction to which the Company or any of its subsidiaries is subject issued
that, in the case of clauses (i), (ii) and (iii) above, is reasonably likely,
singly or in the aggregate, to result in a material adverse effect on the
business, condition, (financial or otherwise), operations, earnings,
performance, properties or prospects of the Company, and its subsidiaries taken
as a whole.
(f) Issuance of the Debentures. No action has been taken and no law,
statute, rule, regulation, order or ordinance has been enacted, adopted or
issued by any Governmental Body (other than the rules and regulations
promulgated by the NASD) that prevents the issuance of the Debentures or the
Common Stock issuable upon conversion or exercise thereof; no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has been issued that prevents the issuance of the
Debentures or the Common Stock issuable upon conversion or exercise thereof or
suspends the sale of the Debentures or the Common Stock issuable upon conversion
thereof in any jurisdiction; and no action, suit or proceeding is pending
against or, to the best knowledge of the Company, threatened against or
affecting, the Company, any of its subsidiaries or, to the best knowledge of the
Company, before any court or arbitrator or any Governmental Body that, if
adversely determined, would prohibit, materially interfere with or adversely
affect the issuance or marketability of the Debentures or the Common Stock
issuable upon conversion or exercise thereof or would be reasonable likely to
render the Subscription Agreement or the Debentures, or any portion thereof,
invalid or unenforceable.
(g) The Company shall indemnify and hold harmless the Purchaser and each
stockholder, executive, employee, representative, affiliate, officer, director
or control person of the Purchaser, who is or may be a party or is or may be
threatened to be made a party to any threatened, pending or contemplated action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of or arising from any actual or alleged misrepresentation or
misstatement of facts or omission to represent or state facts made or alleged to
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have been made by the Company to the Purchaser or omitted or alleged to have
been omitted by the Company, concerning the Offering, including, without
limitation, any such misrepresentation, misstatement or omission of the Company
contained in this Subscription Agreement, the Questionnaire or any other
document submitted by the Company, against losses, liabilities and expenses for
which the Purchaser, or any stockholder, executive, employee, representative,
affiliate, officer, director or control person of the Purchaser has not
otherwise been reimbursed (including attorneys' fees and disbursements,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred by the Purchaser, or such officer, director, stockholder, executive,
employee, representative, affiliate or control person in connection with such
action, suit or proceeding.
(h) No Change. Other than filings required by the Blue Sky or federal
securities laws and/or NASD rules and regulations, no consent, approval or
authorization of or designation, declaration or filing with any governmental or
other regulatory authority on the part of the Company is required in connection
with the valid execution, delivery and performance of this Agreement. Any
required qualification or notification under applicable federal securities laws
and state Blue Sky laws of the offer, sale and issuance of the Debentures, has
been obtained on or before the date hereof or will have been obtained within the
allowable period thereafter, and a copy thereof will be forwarded to Counsel for
the Purchaser.
(i) True Statements. This Agreement does not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements contained herein not misleading in the light of the circumstances
under which such statements are made. There exists no fact or circumstances
which, to the knowledge of the Company, materially and adversely affects the
business, properties or assets, or conditions, financial or otherwise, of the
Company, which has not been set forth in this Subscription Agreement or
disclosed in the Disclosure Documents.
(j) The Purchaser has been advised that the Company has not retained any
independent professionals to review or comment on this Offering or otherwise
protect the interests of the Purchaser. Although the Company has retained its
own counsel, neither such counsel nor any other firm, including Joseph B.
LaRocco, Esq., has acted on behalf of the Purchaser, and the Purchaser should
not rely on the Company's legal counsel or Joseph B. LaRocco, Esq. with respect
to any matters herein described.
(k) Prior Shares Issued Under Regulation S or Regulation D. In the past
twelve months the Company raised $400,000 and there are no shares of Common
Stock that remain to be issued under any such offering.
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(l) Current Authorized Shares. As of December 23, 1998 there were
15,000,000 authorized shares of Common Stock of which approximately 5,800,000
shares of Common Stock were deemed issued and outstanding on a fully diluted
basis.
(m) Disclosure Documents. The Disclosure Documents are all the documents
(other than preliminary materials) that the Company has been required to file
with the SEC from March 31, 1998, to the date hereof. As of their respective
dates, and/or dates of amended filings with respect thereto, none of the
Disclosure 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, and no material event has occurred since the
Company's initial filing on Form 10-KSB for the fiscal year ended December 31,
1997, which could make any of the disclosures contained therein (as subsequently
amended and restated) misleading. The financial statements of the Company
included in the Disclosure Documents have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the audit adjustments) the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
changes in financial position for the periods then ended.
(n) Delivery Instructions. On the Closing Date the Debentures being
purchased hereunder shall be delivered to Joseph B. LaRocco, Esq. as Escrow
Agent, who will simultaneously wire to the Company or the Company's counsel the
funds being held in escrow, less a placement fee and escrow fee, at which time
the Escrow Agent shall then have the Debentures delivered to the Purchaser, per
the Purchaser's instructions.
(o) Use of Proceeds. The Company represents that the net proceeds of this
offering will be used for working capital.
(p) The Purchaser has been advised that the Company has entered into an
agreement with May Davis Group, Inc. pursuant to which it will pay a placement
fee of 10% and non-accountable expenses of 2% of the gross proceeds raised in
this Offering and the escrow agent will receive an escrow fee of $7,500, all of
which fees and expenses shall be paid out of the gross proceeds upon closing.
4. TERMS OF CONVERSION.
(a) Debentures. Upon receipt by the Company or its designated attorney of
a facsimile or original of Purchaser's signed Notice of Conversion followed by
receipt of the original Debenture to be converted in whole or in part (within 5
business days as indicated in 4(b) below), the Company shall instruct its
transfer
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agent to issue one or more Certificates representing that number of shares of
Common Stock into which the Debenture is convertible in accordance with the
provisions regarding conversion set forth in Exhibit D hereto. The Seller's
transfer agent shall act as Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture.
(b) Conversion Procedures. The face amount of each Debenture may be
converted anytime ninety (90) calendar days following the Closing Date. Such
conversion shall be effectuated by surrendering to the Company at its address
for notice pursuant to Article 8 of the Debentures to be converted together with
a facsimile or original of the signed Notice of Conversion which evidences
Purchaser's intention to convert those Debentures indicated. The date on which
the Notice of Conversion is effective ("Conversion Date") shall be deemed to be
the date on which the Purchaser has delivered to the Company at its address for
notice pursuant to Section 10(c) a facsimile or original of the signed Notice of
Conversion. The original Debentures to be converted shall be delivered to the
Company at such address within 3 business days thereafter.
(c) Common Stock to be Issued. Upon the conversion of any Debentures and
upon receipt by the Company of a facsimile or original of Purchaser's signed
Notice of Conversion (see Exhibit D) Seller shall instruct Seller's transfer
agent to issue stock certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement is effective (or with
proper restrictive legend if the Registration Statement has not as yet been
declared effective), in the name of Purchaser (or its nominee) and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable. The certificates
shall be delivered to the address specified in the Conversion Notice or, if no
such address is specified, to the address set forth in Section 10(c). In no
event shall the Company be liable for non-delivery as a result of Purchaser's
failure to specify a correct or current address. Seller warrants that no
instructions, other than these instructions, have been given or will be given to
the transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Seller, except as may be set forth
herein.
Notwithstanding any other provision contained herein, the parties agree
that in no event shall the Company be required to issue more than 19.99% of the
number of shares of Common Stock outstanding on the date of closing of the
purchase and sale of the Debentures upon the conversion of the Convertible
Debentures, unless the shareholders of the Company approve the issuance of
additional Common Shares or NASDAQ waives the requirement of Market Place Rule
4460(i)(1)(D). The Company agrees to use commercially reasonable efforts to
obtain such approval or waiver on or prior to the 90th day following the date
that more than 19.99% of the Common Stock is issuable by scheduling a
shareholders meeting as soon as practicable after the Closing Date. For every 30
day period following such 90th day, the Company shall pay 1% liquidated damages
until
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approval (or waiver) is received. Such damages shall only be payable as long as
more than 19.99% of the outstanding Common Stock is issuable.
The Company acknowledges that its failure to obtain said shareholder
approval within 90 days following the date that more than 19.99% of the Common
Stock is issuable will cause the Purchaser to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision set forth in
this section represents the parties' good faith effort to quantify such damages
and, as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Agreement.
(d) Conversion Rate. Purchaser is entitled, at its option, to convert the
face amount of each Debenture, plus accrued interest on the portion of the
Debenture being converted, anytime beginning ninety (90) calendar days following
the Closing Date, at the Conversion Price as beginning defined in Section 1(a)
hereof. No fractional shares or scrip representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded up or
down, as the case may be, to the nearest whole share. The Debentures are subject
to a mandatory, 24 month conversion feature at the end of which all Debentures
outstanding will be automatically converted, upon the terms set forth in this
section ("Mandatory Conversion Date").
(e) Nothing contained in this Subscription Agreement shall be deemed to
establish or require the payment of interest to the Purchaser at a rate in
excess of the maximum rate permitted by governing law. In the event that the
rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the Purchaser to the
Company.
(f) It shall be the Company's responsibility to take all necessary actions
and to bear all such costs to issue the Certificate for the Common Stock
issuable upon conversion of the Debenture as provided herein, including the
responsibility and cost for delivery of an opinion letter to the transfer agent,
if so required. The person in whose name the certificate of Common Stock is to
be registered shall be treated as a shareholder of record on and after the
conversion date. Upon surrender of any Debentures that are to be converted in
part, the Company shall issue to the Purchaser a new Debenture equal to the
unconverted amount, if so requested in writing by Purchaser.
(g) Within eight (8) business days after receipt of the documentation
referred to above in Section 4(b), the Company shall deliver a certificate in
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accordance with Section 4(c) for the number of shares of Common Stock issuable
upon the conversion. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock as
provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Purchaser a new Debenture
equal to the unconverted amount, if so requested in writing by Purchaser.
In the event the Company does not make delivery of the Common Stock, as
instructed by Purchaser, within 8 business days after delivery of the original
Debenture, then in such event the Company shall pay to Purchaser an amount, in
cash in immediately available funds or shares of Common Stock (calculated on the
basis of the Conversion Rate on such 8th business day) at the rate applicable to
the Conversion Default Payments set forth below until the date of delivery of
the Common Stock.
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after receipt of the documentation referred to above in
Section 4 (b) will cause the Purchaser to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that it is appropriate
to include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to qualify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 4(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 4(g) shall not
apply but instead the provisions of Section 4(h) shall apply. In no event shall
the Company be required to make payments under both this Section 4(g) and
Section 4(h) with respect to any failure to issue or deliver certificates
representing Common Stock. The Company shall make any payments incurred under
this Section 4(g) by the fifth (5th) business day of the calendar month
following the calendar month in which such payment was incurred.
(h) The Company shall at all times reserve and have available all Common
Stock necessary to meet conversion of the Debentures by all Purchasers of the
entire amount of Debentures then outstanding. If, at any time Purchaser submits
a Notice of Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock (or alternative shares of Common Stock as may be
contributed by stockholders) available to effect, in full, a conversion of the
Debentures (a "Conversion Default", the date of
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such default being referred to herein as the "Conversion Default Date"), the
Company shall issue to the Purchaser all of the shares of Common Stock which are
available, and the Notice of Conversion as to any Debentures requested to be
converted but not converted (the "Unconverted Debentures"), upon Purchaser's
sole option, may be deemed null and void. The Company shall provide notice of
such Conversion Default ("Notice of Conversion Default") to all existing
Purchasers of outstanding Debentures, by facsimile, within three (3) business
day of such default (with the original delivered by overnight or two day
courier), and the Purchaser shall give notice to the Company by facsimile within
five business days of receipt of the original Notice of Conversion Default (with
the original delivered by overnight or two day courier) of its election to
either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all Purchasers of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Purchaser where N = the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company authorizes a sufficient number of shares of Common Stock
to effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Purchaser of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Purchaser's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or at the Company's option, in Common
Stock (at the Conversion Rate on the date of the Conversion Default) on or prior
to the fifth business day of the calendar month following the calendar month in
which the Conversion Default occurred and any subsequent calendar month in which
the Conversion Default is continuing.
The Company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of the Debentures will cause the Purchaser to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision set forth in
this section represents the parties' good faith effort to quantify such damages
and, as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Agreement.
(i) Redemption: The Company reserves the right, at its sole option, to
call a mandatory redemption of any percentage of the balance on the Debentures
as follows: In the event the Company exercises such right of redemption up to
and including the 90th calendar day following the Closing Date, it shall pay the
Purchaser, in U.S. currency One Hundred Fifteen (115%) of the face amount of the
Debentures to be redeemed, plus accrued interest. In the event the Company
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exercises such right of redemption at anytime during the 91st through the 180th
calendar day following the Closing Date it shall pay the Purchaser, in U.S.
currency One Hundred Twenty (120%) of the face amount of the Debentures to be
redeemed, plus accrued interest. In the event the Company exercises such right
of redemption at anytime during the 181st calendar day following the Closing
Date through the expiration of the two year conversion period it shall pay the
Purchaser, in U.S. currency One Hundred Twenty-five (125%) of the face amount of
the Debentures to be redeemed, plus accrued interest. The date by which the
Debentures must be delivered to the Escrow Agent shall not be later than 5
business days following the date the Company notifies the Purchaser by facsimile
of the redemption. The Company shall give the Purchaser at least 5 business
day's notice of its intent to redeem.
5. LIMITS ON AMOUNT OF CONVERSION AND OWNERSHIP.
Notwithstanding the provisions hereof or of the Debenture(s), shall the
Purchaser be entitled to convert any Debentures to the extent that, after such
conversion, the sum of (1) the number of shares of Common Stock beneficially
owned by the Purchaser and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the unconverted
portion of the Debentures), and (2) the number of shares of Common Stock
issuable upon the conversion of the Debentures with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Purchaser and its affiliates of more than 4.99% of the
outstanding shares of Common Stock (after taking into account the shares to be
issued to the Purchaser upon such conversion). For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such proviso.
The Purchaser further agrees that if the Purchaser transfers or assigns any of
the Debentures to a party who or which would not be considered such an
affiliate, such assignment shall be made subject to the transferee's or
assignee's specific agreement to be bound by the provisions of this Section as
if such transferee or assignee were a signatory to the Subscription Agreement.
6. DELIVERY INSTRUCTIONS.
Prior to or on the Closing Date the Company shall deliver to the Escrow
Agent an opinion letter signed by counsel for the Company and a copy of the
Board Resolution authorizing this Offering. Also, prior to or on the Closing
Date the Company shall deliver to the Escrow Agent a signed Registration Rights
Agreement in the form attached hereto as Exhibit B. The Debentures being
purchased hereunder shall be delivered to Joseph B. LaRocco, Esq. as Escrow
Agent, who will hold them in escrow until funds have been wired to the Company
or its Counsel at which time the Escrow Agent shall then have the Debentures
delivered to the Purchaser, per the Purchaser's instructions.
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7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company as
follows:
FOR ALL SUBSCRIBERS:
(a) This Subscription may be rejected, in whole or in part, by the Company
in its sole and absolute discretion at any time before the date set for closing
unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement.
(b) No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures.
(c) The representations, warranties and agreements of the undersigned and
the Company contained herein and in any other writing delivered in connection
with the transactions contemplated hereby shall be true and correct in all
material respects on and as of the date of the sale of the Debentures, and as of
the date of the conversion and exercise thereof, as if made on and as of such
date and shall survive the execution and delivery of this Subscription Agreement
and the purchase of the Debentures.
(d) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE DEBENTURES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF ANY
MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
(e) The Regulation D Offering is intended to be exempt from registration
under the Securities Act by virtue of Section 4(2) of the Securities Act and the
provisions of Regulation D thereunder, which is in part dependent upon the
truth, completeness and accuracy of the statements made by the undersigned
herein and in the Questionnaire.
(f) It is understood that in order not to jeopardize the Offering's exempt
status under Section 4(2) of the Securities Act and Regulation D, any transferee
may, at a minimum, be required to fulfill the investor suitability requirements
thereunder.
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(g) NEITHER THE DEBENTURES NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION THEREOF MAY BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED OF EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
THE COMPANY, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, AN
EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
(h) NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933 AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
9. Litigation.
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of New York located in New York City. The Company hereby
expressly and irrevocably submits to the jurisdiction of the state and federal
courts of the State of New York located in New York County for the purpose of
any such litigation as set forth above and irrevocably agrees to be bound by any
final judgment rendered thereby in connection with such litigation. The Company
further irrevocably consents to the service of process by registered mail,
postage prepaid, or by personal service within or without the State of New York.
The Company hereby expressly and irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter
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may have to the laying of venue of any such litigation brought in any such court
referred to above and any claim that any such litigation has been brought in any
inconvenient forum. To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, the Company
hereby irrevocably waives such immunity in respect of its obligations under this
agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
10. MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Subscription Agreement nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled, except
by an instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Company, at Celerity Systems, Inc., 1400 Centerpoint Boulevard, Knoxville,
Tennessee 37932, Attn: William R. Chambers, (p) 423-539-5300, (f) 423-539-3590
with a copy by facsimile and mail to Kenneth R. Koch, Esq., Squadron, Ellenoff,
Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, NY 10176 (p) 212-661-6500
(f) 212-697-6686 and (ii) if to the undersigned, at the address for
correspondence set forth in the Questionnaire, or at such other address as may
have been specified by written notice given in accordance with this paragraph
10(c).
(d) This Subscription Agreement shall be enforced, governed and construed
in all respects in accordance with the laws of the State of Delaware, as such
laws are applied by Delaware courts to agreements entered into, and to be
performed in, Delaware by and between residents of Delaware, and shall be
binding upon the undersigned, the undersigned's heirs, estate, legal
21
<PAGE>
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statue or rule of
law, then such provisions shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof that may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) This Subscription Agreement, together with Exhibits A, B, C and D
attached hereto and made a part hereof, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by both parties hereto. In the event of any conflict
between the terms of this Agreement and the Registration Rights Agreement or the
Debenture, as the case may be, the terms of such other documents shall govern.
An executed facsimile copy of the Subscription Agreement shall be effective as
an original.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
CELERITY SYSTEMS, INC.
CORPORATION QUESTIONNAIRE
Investor Name: _______________
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S Subscription to
purchase the Debentures described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Debentures
is exempt from registration under the Securities Act of 1933, as amended.
Further, the undersigned CORPORATION understands that the offering is required
to be reported to the Securities and Exchange Commission, NASDAQ and to various
state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, THE UNDERSIGNED CORPORATION
MUST COMPLETE FORM W-9 ATTACHED HERETO.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES TO THE CORPORATION.
|_|
1. The undersigned CORPORATION: (a) has total assets in excess of
$5,000,000; (b) was not formed for the specific purpose of acquiring
the Debentures and (c) has its principal place of business in
___________.
|_|
2. Each of the shareholders of the undersigned CORPORATION is able
to certify that such shareholder meets at least one of the following
three conditions:
(a) the shareholder is a natural person whose individual net
worth* or joint net worth with his or her spouse exceeds
$1,000,000; or
(b) the shareholder is a natural person who had an
individual income* in excess of $200,000 in each of 1996
and 1997 and who reasonably expects an individual income
in excess of $200,000 in 1998; or
23
<PAGE>
(c) Each of the shareholders of the undersigned CORPORATION
is able to certify that such shareholder is a natural
person who, together with his or her spouse, has had a
joint income in excess of $300,000 in each of 1996 and
1997 and who reasonably expects a joint income in excess
of $300,000 during 1998; and the undersigned CORPORATION
has its principal place of business in ______________.
* For purposes of this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In determining income, an investor should
add to his or her adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to IRA or Keogh retirement plan,
alimony payments and any amount by which income from long-term capital gains has
been reduced in arriving at adjusted gross income.
|_|
3. The undersigned CORPORATION is:
(a) a bank as defined in Section 3(a)(2) of the Securities
Act; or
(b) a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; or
(c) a broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934; or
(d) an insurance company as defined in Section 2(13) of the
Securities Act; or
(e) An investment company registered under the Investment
Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of the Investment Company Act of
1940; or
(f) a small business investment company licensed by the U.S.
Small Business Administration under Section 301 (c) or (d) of
the Small Business Investment Act of 1958; or
(g) a private business development company as defined in
Section 202(a) (22) of the Investment Advisors Act of 1940.
24
<PAGE>
II. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) That the CORPORATION'S purchase of the Debentures will be solely for
the CORPORATION'S own account and not for the account of any other person
or entity; and
(b) that the CORPORATION'S name, address of principal place of business,
place of incorporation and taxpayer identification number as set forth in
this Questionnaire are true, correct and complete.
III. GENERAL INFORMATION
(a) PROSPECTIVE PURCHASER (THE CORPORATION)
Name:
Principal Place of Business: __________________________________________________
________________________________________________________________________________
Address for Correspondence (if different): SAME
______________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number:_______________________________________________________________
(Area Code) Number)
Jurisdiction of Incorporation:__________________________________________________
Date of Formation:______________________________________________________________
Taypayer Identification Number:_________________________________________________
Number of Shareholders:_________________________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION.
Name:___________________________________________________________________________
Position or Title:______________________________________________________________
25
<PAGE>
CELERITY SYSTEMS, INC.
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the agreement
by the Purchaser to be bound by the Questionnaire and the Subscription
Agreement.
1. The undersigned hereby represents that (a) the information contained in
the Questionnaire is complete and accurate and (b) the Purchaser will notify
CELERITY SYSTEMS, INC. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned Purchaser's
subscription and will promptly send CELERITY SYSTEMS, INC. written confirmation
of such change.
2. The undersigned officer of the Purchaser hereby certifies that he has
read and understands this Subscription Agreement.
3. The undersigned officer of the Purchaser hereby represents and warrants
that he has been duly authorized by all requisite action on the part of the
Corporation to acquire the Debentures and sign this Subscription Agreement on
behalf of _______________ and, further, that ____________________ has all
requisite authority to purchase the Debentures and enter into this Subscription
Agreement.
___________________________________ ________________________________________
Amount of Debentures subscribed for Date
________________________________________
(Purchaser)
By: ________________________________________
(Signature)
Name: ______________________________________
(Please Type or Print)
Title: _____________________________________
(Please Type or Print)
THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS SUCH SECURITIES ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT.
26
<PAGE>
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted
and agreed to this ____ day of __________, 1998
CELERITY SYSTEMS, INC.
BY______________________________________
, its CEO duly authorized
27
<PAGE>
Exhibit D
NOTICE OF CONVERSION
(To be Executed by the Registered owner in order to Convert
the Debentures
The undersigned hereby irrevocably elects, as of ______________, 199_ to
convert $__________ of Convertible Debentures into Common Stock of CELERITY
SYSTEMS, INC. (the "Company") according to the conditions set forth in the
Subscription Agreement dated December ____, 1998.
Date of Conversion______________________________________________________________
Applicable Conversion Price_____________________________________________________
Number of Shares Issuable upon this conversion__________________________________
Signature_______________________________________________________________________
[Name]
Address_________________________________________________________________________
________________________________________________________________________________
Phone______________________ Fax_______________________________________________
28
SUBSCRIPTION AGREEMENT
-----------------------------------
CELERITY SYSTEMS, INC.
-----------------------------------
7 % Promissory Notes, each in a principal amount equal to an
integral multiple of $50,000, together with the accompanying
Royalty Agreements
-----------------------------------
To: CELERITY SYSTEMS, INC.
This Subscription Agreement is made between CELERITY SYSTEMS, INC., a
Delaware corporation (the "Company"), and the undersigned prospective purchaser
who is subscribing hereby for $____________ aggregate principal amount of the 7
% Promissory Notes being offered by the Company to subscribers in this Offering
(the "Notes"). Each Purchaser (as hereinafter defined) will also enter into a
Royalty Agreement (the "Royalty Agreement") with the Company, a form of which is
attached hereto as Exhibit A, pursuant to which the Company will pay a royalty
to each Purchaser with respect to certain sales of the Company's T 6000 digital
set top box. The purchase price for each Note (together with the rights under
the related Royalty Agreement) shall be equal to the aggregate principal amount
of such Note. This subscription is submitted to you in accordance with and
subject to the terms and conditions described in this Subscription Agreement and
the Confidential Private Placement Memorandum dated September 28, 1998, together
with any supplements or amendments thereto (the "Memorandum"), relating to an
offering (the "Offering") of the Notes.
In consideration of the Company's agreement to sell the Notes to, and
enter into the Royalty Agreement with, the undersigned upon the terms and
conditions contained herein, the undersigned agrees and represents as follows:
<PAGE>
A. SUBSCRIPTION.
(1) The undersigned hereby irrevocably subscribes for and agrees to
purchase the aggregate principal amount of the Notes indicated on the signature
page hereto (and to enter into the Royalty Agreement) for a purchase price equal
to such aggregate principal amount. The undersigned encloses herewith a check
payable to "Celerity Systems, Inc." (or has made payment by wire transfer of
funds in accordance with instructions from the Company) in the full amount of
the purchase price of the Notes for which the undersigned is subscribing (the
"Payment").
(2) The undersigned understands that all Payments by check as provided in
paragraph 1 above shall be delivered to the Company and, thereafter, each such
Payment will be deposited as soon as practicable in a segregated bank account
maintained by the Company for the benefit of the undersigned and the other
subscribers in the Offering. If the undersigned's subscription is rejected, or
if the Offering is withdrawn or terminated, the Payment (or, in the case of
rejection of a portion of the undersigned's subscription, the part of the
Payment relating to such rejected portion) will be returned promptly, without
interest, on the basis described in the Memorandum. The Company expects to hold
an initial closing of the Offering (the "Initial Closing") at any time after
subscriptions for a minimum of $400,000 aggregate principal amount of Notes have
been accepted, to occur no later than the final closing date (the "Final Closing
Date"), which is expected to occur on or before November 27, 1998, unless
extended by the Company in its sole discretion for up to 30 additional days, on
the basis described in the Memorandum. The Company may hold additional interim
closings after the Initial Closing. Any such interim closing, together with the
Initial Closing are each hereinafter referred to as an "Interim Closing" and
shall occur on one or more dates each hereinafter referred to as an "Interim
Closing Date." Upon receipt by the Company of the requisite payment for all
Notes to be purchased by the subscribers whose subscriptions are accepted (each,
a "Purchaser") at any Interim Closing and on the Final Closing Date, the Notes
so purchased will be issued to each such Purchaser, and the name of such
Purchaser will be registered on the books of the Company as the record owner of
the Notes.
(3) The undersigned hereby acknowledges receipt of a copy of the
Memorandum, and hereby agrees to be bound thereby upon the execution and
delivery to the Company of the signature page to the undersigned's completed
questionnaire (if applicable) submitted by the undersigned (the "Questionnaire")
and this Subscription Agreement.
(4) The undersigned agrees that the Company may, in its sole and absolute
discretion, reduce the undersigned's subscription to any aggregate principal
amount of Notes in an integral multiple of $50,000 that does not exceed the
aggregate principal amount of the Notes hereby applied for without any prior
notice to or further consent by the undersigned. The undersigned hereby
irrevocably constitutes and appoints the Company and each officer of the
Company, each of the foregoing acting singly, in each case with full power of
substitution, the true and lawful agent and attorney-in-fact of the undersigned,
with full power and authority in the undersigned's name, place and stead, to
amend this Subscription Agreement, the Royalty Agreement and the Questionnaire,
including in each case the undersigned's signature page thereto, to effect any
of the foregoing provisions of this paragraph 4.
1
<PAGE>
B. REPRESENTATIONS AND WARRANTIES
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
(1) The undersigned has been furnished with and has carefully read the
Memorandum (including, without limitations all Appendices thereto), and is
familiar with and understands the terms of the Offering, including the terms of
the Notes and the Royalty Agreement. In evaluating the suitability of an
investment in the Offering, the undersigned has not relied upon any
representation or other information (whether oral or written) from the Company
(or any agent or representative thereof) other than as set forth in the
Memorandum. With respect to individual or partnership tax and other tax or
economic considerations involved in this investment, the undersigned has
carefully considered and has, to the extent the undersigned believes such
discussion necessary, discussed with the undersigned's professional legal, tax,
accounting and financial advisers the suitability of an investment in the
Offering for the undersigned's particular tax and financial situation and has
determined that the Note and the related Royalty Agreement being subscribed for
by the undersigned are a suitable investment for the undersigned.
(2) The undersigned acknowledges that (i) the undersigned is aware of the
right to request copies of any documents, records and books pertaining to this
investment and (ii) such documents, records, and books pertaining to this
investment which the undersigned requested (including, without limitation, the
Memorandum) have been made available for inspection by the undersigned, and the
undersigned's attorney, accountant or adviser(s).
(3) The undersigned and/or the undersigned's adviser(s) has/have had a
reasonable opportunity to ask questions of and receive answers from a person or
persons acting on behalf of the Company concerning the Offering, and all such
questions have been answered to the full satisfaction of the undersigned.
(4) The undersigned is not subscribing for a Note or entering into the
Royalty Agreement as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar or
meeting.
(5) The undersigned either: (i) has a pre-existing business relationship
with the Company or one of its officers, directors or controlling persons or
(ii) by reason of the undersigned's business or financial experience or the
business or financial experience of the undersigned's representatives who are
unaffiliated with and who are not compensated by the Company or any affiliate
thereof, directly or indirectly, the undersigned or such representatives can be
reasonably assumed to have the capacity to protect the undersigned's interests
in connection with an investment in a Note.
(6) If the undersigned is a natural person, the undersigned has reached
the age of majority in the state or other jurisdiction in which the undersigned
resides, has adequate means of providing for the undersigned's current financial
needs and contingencies, is able to bear the substantial economic risks of an
investment in a Note (and the related Royalty Agreement) for an indefinite
period of time, has no need for liquidity in such investment and, at the present
time, could afford a complete loss of such investment.
2
<PAGE>
(7) The undersigned or the undersigned's purchaser representative, as the
case may be, has such knowledge and experience in financial, tax and business
matters so as to enable the undersigned to utilize the information made
available to the undersigned in connection with the Offering to evaluate the
merits and risks of an investment in a Note (and the related Royalty Agreement)
and to make an informed investment decision with respect thereto.
(8) The undersigned will not sell or otherwise transfer any Note (and the
related Royalty Agreement) without registration of such securities under the
Securities Act of 1933, as amended (the "Securities Act") and any applicable
state or provincial securities laws or an exemption therefrom. Such securities
have not been registered under the Securities Act or under the securities laws
of any state. The undersigned represents that the undersigned is purchasing a
Note (and the related Royalty Agreement) for the undersigned's own account, for
investment and not with a view to resale or distribution except in compliance
with the Securities Act and such laws. The undersigned has not offered or sold
any portion of the Note (or the related Royalty Agreement) being acquired nor
does the undersigned have any present intention of dividing such Note (or the
related Royalty Agreement) with others or of selling, distributing or otherwise
disposing of any portion of such Note (or the related Royalty Agreement) either
currently or after the passage of a fixed or determinable period of time or upon
the occurrence or non-occurrence of any predetermined event or circumstance in
violation of the Securities Act. THE UNDERSIGNED IS AWARE THAT AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PURSUANT TO RULE 144
PROMULGATED THEREUNDER IS NOT PRESENTLY AVAILABLE; AND, THE COMPANY HAS NO
OBLIGATION TO REGISTER THE NOTE SUBSCRIBED FOR HEREUNDER, OR TO MAKE AVAILABLE
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS PURSUANT TO SUCH RULE 144 OR ANY
SUCCESSOR RULE FOR RESALE OF THE NOTE.
(9) The undersigned recognizes that investment in a Note (and the related
Royalty Agreement) involves substantial risks, including loss of the entire
amount of such investment. Further, the undersigned has carefully read and
considered the matters set forth under the caption "Risk Factors" in the
Memorandum, and has taken full cognizance of and understands all of the risks
related to the purchase of the Note and entering into the Royalty Agreement.
(10) The undersigned acknowledges that each Note shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND NEITHER
THIS NOTE, THE PAYEE'S ROYALTY RIGHTS (AS DEFINED BELOW) NOR ANY
INTEREST HEREIN OR THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED
OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL
TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE AND THE PAYEE'S ROYALTY
RIGHTS MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED
3
<PAGE>
OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS.
(11) The undersigned is an "accredited investor" as that term is defined
in Rule 501(a) of Regulation D promulgated under the Securities Act ("Regulation
D").
(12) If this Subscription Agreement is executed and delivered on behalf of
a partnership, corporation, trust or estate: (i) such partnership, corporation,
trust or estate has the full legal right and power and all authority and
approval required (a) to execute and deliver, or authorize execution and
delivery of, this Subscription Agreement and all other agreements and
instruments (including, without limitation, the Royalty Agreement) executed and
delivered by or on behalf of such partnership, corporation, trust or estate in
connection with the purchase of its Note; (b) to delegate authority pursuant to
a power of attorney; and (c) to purchase and hold such Note and to enter into
the related Royalty Agreement; (ii) the signature of the party signing on behalf
of such partnership, corporation, trust or estate is binding upon such
partnership, corporation, trust or estate; and (iii) such partnership,
corporation or trust has not been formed for the specific purpose of acquiring
such Note or the rights under the related Royalty Agreement, unless each
beneficial owner of such entity is qualified as an accredited investor within
the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act.
(13) If the undersigned is a retirement plan or is investing on behalf of
a retirement plan, the undersigned acknowledges that investment in a Note (and
the related Royalty Agreement) poses additional risks including the inability to
use losses generated by such an investment to offset taxable income; and
(14) The undersigned shall indemnify and hold harmless the Company, and
each officer, director or control person thereof, who is or may be a party or is
or may be threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made or alleged to have been made by the undersigned to the Company (or
any agent or representative thereof) or omitted or alleged to have been omitted
by the undersigned, concerning the undersigned or the undersigned's authority to
invest or financial position in connection with the Offering, including, without
limitation, any such misrepresentation, misstatement or omission contained in
the Subscription Agreement, the Questionnaire or any other document submitted by
the undersigned, against losses, liabilities and expenses for which the Company
or any officer, director or control person thereof has not otherwise been
reimbursed (including attorneys' fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by the Company or such officer,
director or control person in connection with such action, suit or proceeding.
C. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company as
follows:
(1) Except as set forth in paragraphs C(12) and C(15) below, the
undersigned hereby acknowledges and agrees that the subscription hereunder is
irrevocable by the undersigned, that, except as required by law, the undersigned
is not entitled to cancel, terminate or revoke this
4
<PAGE>
Subscription Agreement or any agreements of the undersigned hereunder and that
this Subscription Agreement and such other agreements shall survive the death or
disability of the undersigned and shall be binding upon and inure to the benefit
of the parties and their heirs, executors, administrators, successors, legal
representatives and permitted assigns. If the undersigned is more than one
person, the obligations of the undersigned hereunder shall be joint and several
and the agreements, representations, warranties and acknowledgments herein
contained shall be deemed to be made by and be binding upon each such person and
his/her heirs, executors, administrators, successors, legal representatives and
permitted assigns.
(2) No federal or state agency has made any finding or determination as to
the accuracy or adequacy of the Memorandum or as to the fairness of the terms of
this Offering for investment nor any recommendation or endorsement of the Note
(or the Royalty Agreements).
(3) The Offering is intended to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act and the
provisions of Regulation D thereunder, which is in part dependent upon the
truth, completeness and accuracy of the statements made by the undersigned
herein and in the Questionnaire.
(4) There is no public market for the Notes (or the Royalty Agreements)
and no such public or other market may ever develop. There can be no assurance
that the undersigned will be able to sell or dispose of the Note (or the related
Royalty Agreement). It is understood that in order not to jeopardize the
Offering's exempt status under Section 4(2) of the Securities Act and Regulation
D thereunder, any transferee may, at a minimum, be required to fulfill the
investor suitability requirements thereunder.
(5) The undersigned acknowledges that the information contained in the
Memorandum or otherwise made available to the undersigned is confidential and
non-public and agrees that all such information shall be kept in confidence by
the undersigned and neither used by the undersigned for the undersigned's
personal benefit (other than in connection with this Subscription) nor disclosed
to any third party for any reason; provided, however, that this obligation shall
not apply to any such information that (i) is part of the public knowledge or
literature and readily accessible at the date hereof, (ii) becomes part of the
public knowledge or literature and readily accessible by publication (except as
a result of a breach of this provision) or (iii) is received from third parties
(except third parties who disclose such information in violation of any
confidentiality agreements or obligations, including, without limitation, any
Subscription Agreement entered into with the Company).
(6) The representations, warranties and agreements of the undersigned
contained herein and in any other writing delivered in connection with the
transactions contemplated hereby shall be true and correct in all respects on
and as of the date of the sale of a Note to the undersigned as if made on and as
of such date and shall survive the execution and delivery of this Subscription
Agreement, the purchase of a Note and the entering into a Royalty Agreement.
(7) Insofar as indemnification for liabilities under the Securities Act
may be permitted to directors, officers or controlling persons of the Company,
the Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in such
Act and is therefore unenforceable to such extent.
5
<PAGE>
(8) IN MAKING AN INVESTMENT DECISION PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE NOTES AND THE ROYALTY AGREEMENTS HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THE MEMORANDUM OR THIS SUBSCRIPTION
AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(9) THE NOTES AND THE ROYALTY AGREEMENTS MAY NOT BE TRANSFERRED, RESOLD OR
OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION, ORDER OR EXEMPTION
THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
E. MISCELLANEOUS.
(1) Capitalized terms used in this Subscription Agreement, if not
otherwise defined herein, shall have the respective meanings attributed to such
terms in the Memorandum. All pronouns and any variations thereof used herein
shall be deemed to refer to the masculine, feminine, impersonal, singular or
plural, as the identity of the person or persons may require.
(2) Except as set forth in paragraphs C(12) and C(15) herein, neither this
Subscription Agreement nor any provision hereof shall be waived, modified,
changed, discharged, terminated, revoked or canceled except by an instrument in
writing signed by the party effecting the same against whom any change,
discharge or termination is sought.
(3) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Company, at Celerity Systems, Inc., 1400 Centerpoint Boulevard, Knoxville,
Tennessee 37932, Attention: Secretary, at the address contained on page (iii)
hereof or (ii) if to the undersigned, at the address for correspondence set
forth in the Questionnaire, or at such other address as may have been specified
by written notice given in accordance with this paragraph.
(4) Failure of any party to exercise any right or remedy under this
Subscription Agreement or any other agreement between them, or otherwise, or
delay by any party in exercising such right or remedy, will not operate as a
waiver thereof. No waiver by any party will be effective unless and until it is
in writing and signed by such party.
(5) This Subscription Agreement shall be governed by and shall be
construed in accordance with the laws of the State of Delaware, without regard
to the conflicts of laws principles of such State. The Company and the Payee
each irrevocably consent to the jurisdiction of, and venue in, the courts of the
State of Delaware, and of the federal courts located in the State of Delaware,
in connection with any action or proceeding arising out of or relating to this
Subscription Agreement, any document or instrument delivered pursuant to, in
connection with or simultaneously with this Subscription Agreement, or a breach
of this Subscription Agreement or any such document or instrument. This
Subscription Agreement shall be binding upon the
6
<PAGE>
undersigned, the undersigned's heirs, estate, legal representatives, successors
and assigns and shall inure to the benefit of the Company, its successors and
assigns. If any provision of this Subscription Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision hereof.
(6) This Subscription Agreement, the Note purchased by the undersigned and
the related Royalty Agreement constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by both parties hereto.
F. EXECUTION OF AGREEMENT BY POWER OF ATTORNEY.
THE UNDERSIGNED ACKNOWLEDGES THAT THE UNDERSIGNED HAS SIGNED THIS
SUBSCRIPTION AGREEMENT ON THE UNDERSIGNED'S OWN BEHALF, AND NOT BY POWER OF
ATTORNEY, UNLESS SUCH POWER OF ATTORNEY EXPRESSLY PROVIDES FOR THE FURTHER
DELEGATION OF SUCH POWER OF ATTORNEY BY THE HOLDER THEREOF AND, IN SUCH EVENT,
THE UNDERSIGNED REPRESENTS THAT ATTACHED HERETO IS A TRUE AND COMPLETE COPY OF
SUCH POWER OF ATTORNEY.
G. SIGNATURE
The signature of this Subscription Agreement is contained as part of the
applicable Subscription Package, entitled "Signature Page." Signature of such
"Signature Page" constitutes the signature of this Subscription Agreement.
7
<PAGE>
A. CELERITY SYSTEMS, INC.
INDIVIDUAL INVESTOR QUESTIONNAIRE
-----------------------------------------------
IMPORTANT: Investor Name: ________________________________
Please Complete
Memorandum No. ________________________________
(from the cover of this Subscription Booklet)
-----------------------------------------------
To: Celerity Systems, Inc. (the "Company")
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned's subscription to purchase a Note
(and to enter into the related Royalty Agreement) described in the Confidential
Private Placement Memorandum may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned understands, however, that the Company may
present this Questionnaire to such parties as it deems appropriate if called
upon to establish that the proposed offer and sale of the Notes and the Royalty
Agreements are exempt from registration under the Securities Act of 1933, as
amended, and meet the requirements of applicable state securities or "blue sky"
laws. Further, the undersigned understands that the offering is required to be
reported to the Securities and Exchange Commission and to various state
securities or "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE (PAGE A-5), YOU MUST COMPLETE
FORM W-9 FOUND AT SECTION F AT THE END OF THIS SUBSCRIPTION PACKAGE.
- --------------------------------------------------------------------------------
IF YOU ARE PURCHASING NOTES WITH YOUR SPOUSE, YOU MUST BOTH SIGN THE
SIGNATURE PAGE (PAGE A-4).
- --------------------------------------------------------------------------------
A-1
<PAGE>
I. PLEASE INDICATE DESIRED TYPE OF OWNERSHIP OF PROMISSORY NOTES.
o Individual
o Joint Tenants (rights of survivorship)
o Tenants in Common (no rights of survivorship)
II. PLEASE CHECK ANY OF THE STATEMENTS 1-4 BELOW THAT APPLIES TO YOU.
o 1. I have an individual net worth* or joint net worth with my spouse
in excess of $1,000,000.
o 2. I have had an individual income* in excess of $200,000 in each of
1996 and 1997, and I reasonably expect an individual income in
excess of $200,000 for 1998. NOTE: IF YOU ARE BUYING JOINTLY WITH
YOUR SPOUSE, YOU MUST EACH HAVE AN INDIVIDUAL INCOME IN EXCESS OF
$200,000 IN EACH OF THESE YEARS IN ORDER TO CHECK THIS BOX.
o 3. My spouse and I have had a joint income in excess of $300,000 in
each of 1996 and 1997, and I reasonably expect a joint income in
excess of $300,000 for 1998.
o 4. I am a director or executive officer of the Company.
III. OTHER CERTIFICATIONS.
By signing the Signature Page, I certify the following (or, if I am
purchasing Notes with my spouse as co-owner, each of us certifies the
following):
(a) that I am at least 21 years of age;
(b) that my purchase of a Note (and entering into the related Royalty
Agreement) will be solely for my own account and not for the account
of any other person (other than my spouse, if co-owner); and
(c) that the name, residence address, and social security or taxpayer
identification number as set forth in this Questionnaire are true,
correct, and complete.
- ----------
* For purposes of this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In determining income, an investor
should add to his or her adjusted gross income any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion, contributions to
IRA or Keogh retirement plan, alimony payments and any amount by which
income from long-term capital gains has been reduced in arriving at
adjusted gross income.
A-2
<PAGE>
IV. GENERAL INFORMATION.
(a) PURCHASER.
Name:___________________________________________________________________________
Social Security or Taxpayer Identification Number:______________________________
Residence Address:______________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Residence Telephone Number:_____________________________________________________
(Area Code) (Number)
Business Name and Address:______________________________________________________
(Name of Business)
________________________________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Business Telephone Number:______________________________________________________
(Area Code) (Number)
I prefer to have correspondence sent to: o Residence o Business
A-3
<PAGE>
(b) SPOUSE, IF CO-OWNER.
Name:___________________________________________________________________________
Social Security or Taxpayer Identification Number:______________________________
Residence Address
(if different from Purchaser's):________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Residence Telephone Number
(if different from
Purchaser's):___________________________________________________________________
(Area Code) (Number)
Business Name and Address
(if different from
Purchaser's):___________________________________________________________________
(Business Name)
________________________________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Business Telephone Number
(if different from
Purchaser's):___________________________________________________________________
(Area Code) (Number)
I prefer to have correspondence sent to: o Residence o Business
A-4
<PAGE>
CELERITY SYSTEMS, INC.
INDIVIDUAL SIGNATURE PAGE
Your signature on this Individual Signature Page evidences your
agreement to be bound by the Questionnaire and the Subscription Agreement.
The undersigned represents that (a) he/she has read and understands
this Subscription Agreement, (b) the information contained in this Questionnaire
is complete and accurate and (c) he/she will telephone the Company (contact by
collect call at the telephone number contained on page iii hereof) immediately
if any material change in any of this information occurs before the acceptance
of his/her subscription and will promptly send the Company written confirmation
of such change.
__________________________________________ ________________________________
Maximum Principal Amount of the Date
Note Applied For
________________________________
Signature
________________________________
Name (Please Type or Print)
________________________________
Signature of Spouse if Co-Owner
________________________________
Name of Spouse if Co-Owner
(Please Type or Print)
- --------------------------------------------------------------------------------
IF YOU ARE PURCHASING A NOTE WITH YOUR SPOUSE, YOU MUST BOTH SIGN THE SIGNATURE
PAGE (PAGE A-5).
- --------------------------------------------------------------------------------
THE NOTES (AND ROYALTY AGREEMENTS) HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD, OR OTHERWISE TRANSFERRED UNLESS THE NOTES (AND, IF REQUIRED, THE ROYALTY
AGREEMENTS) ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
CONCURRED IN BY COUNSEL TO THE COMPANY, HAS BEEN DELIVERED TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
A-5
<PAGE>
B. CELERITY SYSTEMS, INC.
CORPORATION QUESTIONNAIRE
-----------------------------------------------
IMPORTANT: Investor Name: ________________________________
Please Complete
Memorandum No. ________________________________
(from the cover of this Subscription Booklet)
-----------------------------------------------
To: Celerity Systems, Inc. (the "Company")
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S subscription to
purchase a Note (and to enter into the related Royalty Agreement) described in
the Confidential Private Placement Memorandum may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Notes and
the Royalty Agreements are exempt from registration under the Securities Act of
1933, as amended, and meet the requirements of applicable state securities or
"blue sky" laws. Further, the undersigned CORPORATION understands that the
offering is required to be reported to the Securities and Exchange Commission
and to various state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE (PAGE B-4), THE UNDERSIGNED
CORPORATION MUST COMPLETE FORM W-9 FOUND AT SECTION F AT THE END OF THIS
SUBSCRIPTION PACKAGE.
I. PLEASE CHECK ANY OF STATEMENTS 1-4 BELOW THAT APPLIES TO THE CORPORATION.
o 1. The undersigned CORPORATION: (a) has total assets in excess of
$5,000,000; and (b) was not formed for the specific purpose of
acquiring a Note and/or entering into a Royalty Agreement.
o 2. Each of the shareholders of the undersigned CORPORATION is able
to certify that such shareholder meets at least one of the following
two conditions:
a. the shareholder is a natural person whose individual net
worth* or joint net worth with his or her spouse exceeds
$1,000,000; or
- ----------
* For purposes of this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In determining income, an investor
should add to his or her adjusted gross income any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion, contributions to
IRA or Keogh retirement plan, alimony payments and any amount by which
income from long-term capital gains has been reduced in arriving at
adjusted gross income.
B-1
<PAGE>
b. the shareholder is a natural person who had an individual
income* in excess of $200,000 in each of 1996 and 1997 and who
reasonably expects an individual income in excess of $200,000
in 1998.
o 3. Each of the shareholders of the undersigned CORPORATION is able
to certify that such shareholder is a natural person who, together
with his or her spouse, has had a joint income in excess of $300,000
in each of 1996 and 1997 and who reasonably expects a joint income
in excess of $300,000 during 1998.
o 4. The undersigned CORPORATION is:
a. a bank as defined in Section 3(a)(2) of the Securities Act; or
b. a savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in
its individual or fiduciary capacity; or
c. a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; or
d. an insurance company as defined in Section 2(13) of the
Securities Act; or
e. an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in
Section 2(a)(48) of the Investment Company Act of 1940; or
f. a small business investment company licensed by the U.S. Small
Business Administration under Section 301 (c) or (d) of the
Small Business Investment Act of 1958; or
g. a private business development company as defined in Section
202(a) (22) of the Investment Advisers Act of 1940.
- --------------------------------------------------------------------------------
IF YOU CHECKED STATEMENT 2 OR STATEMENT 3 IN SECTION I AND DID NOT CHECK
STATEMENT 1, YOU MUST PROVIDE A LETTER SIGNED BY AN OFFICER OF THE UNDERSIGNED
CORPORATION LISTING THE NAME OF EACH SHAREHOLDER AND THE REASON (UNDER STATEMENT
2 OR STATEMENT 3) WHY SUCH SHAREHOLDER QUALIFIES AS AN ACCREDITED INVESTOR (ON
THE BASIS OF NET WORTH, INDIVIDUAL INCOME, OR JOINT INCOME) OR EACH SHAREHOLDER
MUST PHOTOCOPY AND COMPLETE SECTION II BELOW.
- --------------------------------------------------------------------------------
II. IF YOU CHECKED STATEMENT 2 OR STATEMENT 3 IN I ABOVE, EACH SHAREHOLDER
MUST CHECK ANY OF THE STATEMENTS 1-4 BELOW THAT APPLIES TO SUCH
SHAREHOLDER AND SIGN BELOW WHERE INDICATED.
o 1. I have an individual net worth or joint net worth with my spouse
in excess of $1,000,000.
o 2. I have had an individual income in excess of $200,000 in each of
1996 and 1997, and I reasonably expect an individual income in
excess of $200,000 for 1998. NOTE: IF YOU ARE BUYING JOINTLY WITH
YOUR SPOUSE, YOU MUST EACH HAVE AN INDIVIDUAL INCOME IN EXCESS OF
$200,000 IN EACH OF THESE YEARS IN ORDER TO CHECK THIS BOX.
o 3. My spouse and I have had a joint income in excess of $300,000 in
each of 1996 and 1997, and I reasonably expect a joint income in
excess of $300,000 for 1998.
o 4. I am a director or executive officer of the Company.
B-2
<PAGE>
____________________________ ___________________________
Print Name of Shareholder(s) Signature of Shareholder(s)
III. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) that the CORPORATION's purchase of a Note (and entering into the
related Royalty Agreement) will be solely for the CORPORATION's own
account and not for the account of any other person or entity; and
(b) that the CORPORATION's name, address of principal place of business,
place of incorporation, and taxpayer identification number as set
forth in this Questionnaire are true, correct, and complete.
IV. GENERAL INFORMATION.
(a) PROSPECTIVE PURCHASER (THE CORPORATION)
Name:___________________________________________________________________________
Principal Place of Business:____________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Address for Correspondence (if different):______________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number:_______________________________________________________________
(Area Code) (Number)
State of Incorporation:_________________________________________________________
Date of Formation:______________________________________________________________
Taxpayer Identification Number:_________________________________________________
Number of Shareholders:_________________________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION
Name:___________________________________________________________________________
Position or Title:______________________________________________________________
(c) IF SECTION II HAS BEEN COMPLETED, NAMES OF INDIVIDUAL SHAREHOLDERS
WHOSE SIGNATURES MUST APPEAR ON B-4
Name(s) of Shareholders:________________________________________________________
B-3
<PAGE>
CELERITY SYSTEMS, INC.
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the agreement
by the CORPORATION to be bound by the Questionnaire and the Subscription
Agreement.
1. The undersigned CORPORATION hereby represents that (a) the information
contained in this Questionnaire is complete and accurate and (b) the CORPORATION
will notify the Company (contact by collect call at the telephone number
contained on page (iii) hereof) immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned CORPORATION's
subscription and will promptly send the Company written confirmation of such
change.
2. The undersigned CORPORATION hereby certifies that it has read and
understands this Subscription Agreement.
3. The undersigned CORPORATION hereby represents and warrants that the
person signing this Subscription Agreement on behalf of the CORPORATION has been
duly authorized by all requisite action on the part of the CORPORATION to
acquire a Note (and enter into the related Royalty Agreement) and sign this
Subscription Agreement on behalf of the CORPORATION and, further, that the
undersigned CORPORATION has all requisite authority to purchase a Note (and
enter into the related Royalty Agreement) and enter into this Subscription
Agreement.
__________________________________ ______________________________________
Maximum Principal Amount of the Date
Note Applied For
______________________________________
Name of Corporation
(Please Type or Print)
By:___________________________________
(Signature)
Name:________________________________
(Please Type or Print)
Title:________________________________
(Please Type of Print)
THE NOTES (AND ROYALTY AGREEMENTS) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED UNLESS THE NOTES (AND, IF REQUIRED, THE ROYALTY
AGREEMENTS) ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
CONCURRED IN BY COUNSEL TO THE COMPANY, HAS BEEN DELIVERED TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
B-4
<PAGE>
C. CELERITY SYSTEMS, INC.
TRUST QUESTIONNAIRE
-----------------------------------------------
IMPORTANT: Investor Name: ________________________________
Please Complete
Memorandum No. ________________________________
(from the cover of this Subscription Booklet)
-----------------------------------------------
To: Celerity Systems, Inc. (the "Company")
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned TRUST's subscription to purchase a
Note (and to enter into the related Royalty Agreement) described in the
Confidential Private Placement Memorandum may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned TRUST understands, however, that the Company may
present this Questionnaire to such parties as it deems appropriate if called
upon to establish that the proposed offer and sale of the Notes and the Royalty
Agreements are exempt from registration under the Securities Act of 1933, as
amended, and meet the requirements of applicable state securities or "blue sky"
laws. Further, the undersigned TRUST understands that the offering is required
to be reported to the Securities and Exchange Commission and to various state
securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE (PAGE C-4), THE UNDERSIGNED
TRUST MUST COMPLETE FORM W-9 FOUND AT SECTION F AT THE END OF THIS SUBSCRIPTION
PACKAGE.
- --------------------------------------------------------------------------------
NOTE: RETIREMENT PLANS SHOULD COMPLETE THE QUESTIONNAIRE ON PAGES D-1 to D-5.
- --------------------------------------------------------------------------------
I. PLEASE CHECK STATEMENTS 1 OR 2 BELOW, AS APPLICABLE.
o 1. a. the TRUST has total assets in excess of $5,000,000; and
b. the TRUST was not formed for the specific purpose of acquiring
the Notes and/or entering into the Royalty Agreement; and
c. the purchase by the TRUST is directed by a person who has such
knowledge and experience in financial and business matters
that he/she is capable of evaluating the merits and risks of
an investment in the Offering.
o 2. The TRUST is a revocable grantor TRUST which the grantor may
revoke at any time without the consent or approval of any other
person; the grantor retains sole investment control over the assets
of the trust; and
a. the grantor is a natural person whose individual net worth* or
joint net worth with the grantor's spouse exceeds $1,000,000;
or
- ----------
* For purposes of this Questionnaire, the term "net worth" means the
excess of total assets over total liabilities. In determining income, an
investor should add to his or her adjusted gross income any amounts
attributable to tax-exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depletion,
contributions to IRA or Keogh retirement plan, alimony payments and any
amount by which income from long-term capital gains has been reduced in
arriving at adjusted gross income.
C-1
<PAGE>
b. the grantor is a natural person who had an individual income*
in excess of $200,000 in each of 1996 and 1997 and who
reasonably expects an individual income in excess of $200,000
in 1998; or
c. the grantor is a natural person who, together with his or her
spouse, has had a joint income in excess of $300,000 in each
of 1996 and 1997 and who reasonably expects a joint income in
excess of $300,000 in 1998; or
d. the grantor is a director or executive officer of the Company.
- --------------------------------------------------------------------------------
IF THE TRUST IS A REVOCABLE GRANTOR TRUST, EACH GRANTOR MUST PHOTOCOPY AND
COMPLETE SECTION II BELOW AND RETURN IT TO THE COMPANY IN THE SAME ENVELOPE WITH
THE QUESTIONNAIRE.
- --------------------------------------------------------------------------------
II. FOR REVOCABLE GRANTOR TRUSTS ONLY: PLEASE CHECK ANY OF STATEMENTS 1-4
BELOW THAT APPLY TO THE GRANTOR.
o 1. I have an individual net worth or joint net worth with my spouse
in excess of $1,000,000.
o 2. I have had an individual income in excess of $200,000 in each of
1996 and 1997, and I reasonably expect an individual income in
excess of $200,000 for 1998. [NOTE: IF YOU ARE BUYING JOINTLY WITH
YOUR SPOUSE, YOU MUST EACH HAVE AN INDIVIDUAL INCOME IN EXCESS OF
$200,000 IN EACH OF THESE YEARS IN ORDER TO CHECK THIS BOX.]
o 3. My spouse and I have had a joint income in excess of $300,000 in
each of 1996 and 1997, and I reasonably expect a joint income in
excess of $300,000 for 1998.
o 4. I am a director or executive officer of the Company.
________________________ _______________________
Print Name of Grantor(s) Signature of Grantor(s)
III. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) that the TRUST's purchase of a Note and entering into the related
Royalty Agreement will be solely for the TRUST's own account and not
for the account of any other person;
(b) that the TRUST's purchase of a Note and entering into the related
Royalty Agreement are within the investment powers and authority of
the TRUST (as set forth in the declaration of trust or other
governing instrument) and that all necessary consents, approvals,
and authorizations for such purchase have been obtained and that
each person who signs the Signature Page has all requisite power and
authority as trustee to execute this Questionnaire and the
Subscription Agreement on behalf of the TRUST;
(c) that the TRUST has not been established in connection with either
(i) an employee benefit plan (as defined in Section 3(3) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ) ,
whether or not subject to the provisions of Title I of ERISA, or
(ii) a plan described in Section 4975(e) (i) of the Internal Revenue
Code; and
(d) that the TRUST's name, address, place of formation, and taxpayer
identification number as set forth in this Questionnaire are true,
correct, and complete.
C-2
<PAGE>
IV. GENERAL INFORMATION.
(a) PROSPECTIVE PURCHASER (THE TRUST).
Name:___________________________________________________________________________
Address:________________________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Address for Correspondence (if different):______________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number:_______________________________________________________________
(Area Code) (Number)
State in which Formed:__________________________________________________________
Date of Formation:______________________________________________________________
Taxpayer Identification Number:_________________________________________________
(b) TRUSTEE(S) WHO ARE EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE TRUST.
Name(s) of
Trustee(s):_________________________________________________________
If Grantor Trust, Name(s) of Grantor(s):____________________________
V. ADDITIONAL INFORMATION.
- --------------------------------------------------------------------------------
A TRUST MUST ATTACH A COPY OF THE TRUST AGREEMENT, DECLARATION OF TRUST,
OR OTHER GOVERNING INSTRUMENT, AS AMENDED, AS WELL AS ALL OTHER DOCUMENTS THAT
AUTHORIZE THE TRUST TO INVEST IN THE OFFERING. ALL DOCUMENTATION MUST BE
COMPLETE AND CORRECT.
- --------------------------------------------------------------------------------
C-3
<PAGE>
CELERITY SYSTEMS, INC.
TRUST SIGNATURE PAGE
--------------------
Your signature on this TRUST Signature Page evidences the agreement by the
Trustee(s), on behalf of the TRUST, to be bound by the Questionnaire and the
Subscription Agreement.
1. The undersigned trustees represent that (a) the information contained
in this Questionnaire is complete and accurate and (b) the TRUST will notify the
Company (contact by collect call at the telephone number contained on page (iii)
hereof) immediately if any material change in any of this information occurs
before the acceptance of the TRUST's subscription and will promptly send the
Company written confirmation of such change.
2. The undersigned trustees hereby certify that they have read and
understand this Subscription Agreement.
3. The undersigned trustees hereby represent and warrant that the persons
signing this Subscription Agreement on behalf of the TRUST are duly authorized
to acquire a Note (and enter into the related Royalty Agreement) and sign this
Subscription Agreement on behalf of the TRUST and, further, that the undersigned
TRUST has all requisite authority to purchase such Note (and enter into the
related Royalty Agreement) and enter into this Subscription Agreement.
__________________________________ _______________________________________
Maximum Principal Amount of the Date
Note Applied For
Please Type or Print the Exact
Legal Title of Trust as follows; _______________________________________
Trustee's name, as trustee for Title of Trust
[Name of Grantor] under Agreement
[or Declaration] of Trust dated
[Date of Trust Formation]
Name of Name of
Trustee:___________________________ Trustee:_______________________________
(Please Type or Print) (Please Type or Print)
By:________________________________ By:____________________________________
(Signature of Trustee) (Signature of Trustee)
THE NOTES (AND ROYALTY AGREEMENTS) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED UNLESS THE NOTES (AND, IF REQUIRED, THE ROYALTY
AGREEMENTS) ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
CONCURRED IN BY COUNSEL
C-4
<PAGE>
TO THE COMPANY, HAS BEEN DELIVERED TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
C-5
<PAGE>
D. CELERITY SYSTEMS, INC.
RETIREMENT PLAN QUESTIONNAIRE
-----------------------------------------------
IMPORTANT: Investor Name: ________________________________
Please Complete
Memorandum No. ________________________________
(from the cover of this Subscription Booklet)
-----------------------------------------------
To: Celerity Systems, Inc. (the "Company")
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned RETIREMENT PLAN's subscription to
purchase a Note (and to enter into the related Royalty Agreement) described in
the Confidential Private Placement Memorandum may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned RETIREMENT PLAN understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Notes and
the Royalty Agreements are exempt from registration under the Securities Act of
1933, as amended, and meet the requirements of applicable state securities or
"blue sky" laws. Further, the undersigned RETIREMENT PLAN understands that the
offering is required to be reported to the Securities and Exchange Commission
and to various state securities or "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE (PAGE D-5), YOU MUST COMPLETE
FORM W-9 FOUND AT SECTION F AT THE END OF THIS SUBSCRIPTION PACKAGE.
I. PLEASE CHECK ANY OF THE FOLLOWING STATEMENTS, AS APPLICABLE.
o 1. The undersigned RETIREMENT PLAN certifies that it is a Keogh plan
or Individual Retirement Account in which each participant satisfies
at least one of the following conditions:
a. such person's individual net worth* or joint net worth with
his or her spouse exceeds $1,000,000; or
- ----------
* For purposes of this Questionnaire, the term "net worth" means the
excess of total assets over total liabilities. In determining income, an
Investor should add to his or her adjusted gross income any amounts
attributable to tax-exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depletion,
contributions to IRA or Keogh retirement plan, alimony payments and any
amount by which income from long-term capital gains has been reduced in
arriving at adjusted gross income.
D-1
<PAGE>
b. such person had an individual income* in excess of $200,000 in
each of 1996 and 1997 and reasonably expects an individual
income in excess of $200,000 in 1998; or
c. such person, together with his or her spouse, had a joint
income in excess of $300,000 in each of 1996 and 1997 and
reasonably expects a joint income in excess of $300,000 in
1998.
2. The undersigned RETIREMENT PLAN certifies that it is an employee
benefit plan within the meaning of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and:
o a. The undersigned RETIREMENT PLAN is self-directed, and each such
person directing his account and for whom the investment is being
made satisfies at least one of the following conditions:
(1) such person's individual net worth or joint net worth with his
or her spouse exceeds $1,000,000; or
(2) such person had an individual income in excess of $200,000 in
each of 1996 and 1997 and reasonably expects an individual
income in excess of $200,000 in 1998; or
(3) such person together with his or her spouse, had a joint
income in excess of $300,000 in each of 1996 and 1997 and
reasonably expects a joint income in excess of $300,000 in
1998.
(4) such person is a director or executive officer of the Company.
o b. The undersigned RETIREMENT PLAN has total assets in excess of
$5,000,000; or
o c. The investment decisions are made by a plan fiduciary as defined
in Section 3(21) of ERISA that is either a bank, insurance company,
or registered investment adviser.
- --------------------------------------------------------------------------------
IF YOU CHECKED STATEMENT 1 OR STATEMENT 2(a) IN SECTION I ABOVE, EACH RETIREMENT
PLAN PARTICIPANT FOR WHOSE ACCOUNT THE INVESTMENT IS BEING MADE MUST PHOTOCOPY
AND COMPLETE SECTION II BELOW.
- --------------------------------------------------------------------------------
II. IF YOU CHECKED STATEMENT 1 OR STATEMENT 2(a) IN SECTION I ABOVE, EACH
RETIREMENT PLAN PARTICIPANT FOR WHOSE ACCOUNT THE INVESTMENT IS BEING MADE
MUST CHECK ANY OF THE STATEMENTS 1-4 BELOW THAT APPLIES TO SUCH
PARTICIPANT.
o 1. I have an individual net worth or joint net worth with my spouse
in excess of $1,000,000.
D-2
<PAGE>
o 2. I have had an individual income in excess of $200,000 in each of
1996 and 1997, and I reasonably expect an individual income in
excess of $200,000 for 1998. [NOTE: IF YOU ARE BUYING JOINTLY WITH
YOUR SPOUSE, YOU MUST EACH HAVE AN INDIVIDUAL INCOME IN EXCESS OF
$200,000 IN EACH OF THESE YEARS IN ORDER TO CHECK THIS BOX.]
o 3. My spouse and I have had a joint income in excess of $300,000 in
each of 1996 and 1997, and I reasonably expect a joint income excess
of $300,000 for 1998.
o 4. I am a director or executive officer of the Company.
______________________________ ___________________________________
Print Name of Participant Signature of Participant
III. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a). that the RETIREMENT PLAN's purchase of a Note and entering into the
related Royalty Agreement will be solely for the RETIREMENT PLAN's
own account and not for the account of any other person or entity;
(b). that the RETIREMENT PLAN's governing documents duly authorize the
type of investment contemplated herein, and the undersigned is
authorized and empowered to make such investment on behalf of the
RETIREMENT PLAN; and
(c). that the RETIREMENT PLAN's name, address, place of formation, and
taxpayer identification number as set forth in this Questionnaire
are true, correct, and complete.
IV. GENERAL INFORMATION.
(a). PROSPECTIVE PURCHASER (THE RETIREMENT PLAN).
Name:___________________________________________________________________________
Address:________________________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Address for Correspondence (if different):
________________________________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number:
D-3
<PAGE>
________________________________________________________________________________
(Area Code) (Number)
State in which Formed:__________________________________________________________
Date of Formation:______________________________________________________________
Taxpayer Identification Number:_________________________________________________
(b). INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
RETIREMENT PLAN (TRUSTEE FOR AN EMPLOYEE BENEFIT PLAN; CUSTODIAN FOR
AN IRA OR KEOGH).
Name:___________________________________________________________________________
Position or Title:______________________________________________________________
V. ADDITIONAL INFORMATION.
- --------------------------------------------------------------------------------
THE RETIREMENT PLAN MAY BE REQUIRED TO ATTACH COPIES OF ALL DOCUMENTS GOVERNING
THE PLAN AS WELL AS ALL OTHER DOCUMENTS AUTHORIZING THE RETIREMENT PLAN TO
INVEST IN THIS OFFERING. INCLUDE, AS NECESSARY, THE TRUST AGREEMENT AND
DOCUMENTS DEFINING PERMITTED INVESTMENTS BY THE RETIREMENT PLAN AND
DEMONSTRATING AUTHORITY OF THE SIGNING INDIVIDUAL TO ACT ON BEHALF OF THE PLAN.
ALL DOCUMENTATION MUST BE COMPLETE AND CORRECT.
- --------------------------------------------------------------------------------
D-4
<PAGE>
Celerity Systems, Inc.
RETIREMENT PLAN SIGNATURE PAGE
Your signature on this RETIREMENT PLAN Signature Page evidences the
agreement by the RETIREMENT PLAN to be bound by the Questionnaire and the
Subscription Agreement.
I. The undersigned RETIREMENT PLAN hereby represents that (a) the
information contained in this Questionnaire is complete and accurate and (b) the
RETIREMENT PLAN will notify the Company (contact by collect call at the
telephone number contained on page (iii) hereof) immediately if any material
change in any of the information occurs prior to the acceptance of the
undersigned RETIREMENT PLAN's subscription and will promptly send the Company
written confirmation of such change.
2. The undersigned RETIREMENT PLAN hereby certifies that it has read and
understands this Subscription Agreement.
3. The undersigned RETIREMENT PLAN hereby represents and warrants that the
person signing this Subscription Agreement on behalf of the RETIREMENT PLAN has
been duly authorized to acquire a Note (and enter into the related Royalty
Agreement) and sign this Subscription Agreement on behalf of the RETIREMENT PLAN
and, further, that the undersigned RETIREMENT PLAN has all requisite authority
to purchase such Note (and enter into the related Royalty Agreement) and enter
into this Subscription Agreement.
_______________________________ ______________________________________
Maximum Principal Amount of the Date
Note Applied For
______________________________________
Name of Retirement Plan
(Please Type or Print)
By:___________________________________
(Signature)
Name:_________________________________
(Please Type or Print)
Title:________________________________
(Please Type of Print)
THE NOTES (AND ROYALTY AGREEMENTS) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED UNLESS THE NOTES (AND, IF REQUIRED, THE ROYALTY
AGREEMENTS) ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
CONCURRED IN BY COUNSEL TO THE COMPANY, HAS BEEN DELIVERED TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
D-5
<PAGE>
E. CELERITY SYSTEMS, INC.
PARTNERSHIP QUESTIONNAIRE
-----------------------------------------------
IMPORTANT: Investor Name: ________________________________
Please Complete
Memorandum No. ________________________________
(from the cover of this Subscription Booklet)
-----------------------------------------------
To: Celerity Systems, Inc. (The "Company")
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned PARTNERSHIP's subscription to
purchase a Note (and to enter in to the related Royalty Agreement) described in
the Confidential Private Placement Memorandum may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned PARTNERSHIP understands, however, that the
Company or the Placement Agent may present this Questionnaire to such parties as
it deems appropriate if called upon to establish that the proposed offer and
sale of the Notes and the Royalty Agreements are exempt from registration under
the Securities Act of 1933, as amended, and meet the requirements of applicable
state securities or "blue sky" laws. Further, the undersigned PARTNERSHIP
understands that the offering is required to be reported to the Securities and
Exchange Commission and to various state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE (PAGE E-4), THE UNDERSIGNED
PARTNERSHIP MUST COMPLETE FORM W-9 FOUND AT SECTION AT THE END OF THIS
SUBSCRIPTION PACKAGE.
I. PLEASE CHECK ANY OF STATEMENTS 1-3 BELOW THAT APPLIES TO THE PARTNERSHIP.
o 1. The undersigned PARTNERSHIP: (a) has total assets in excess of
$5,000,000; and (b) was not formed for the specific purpose of
acquiring the Shares.
o 2. Each of the partners of the undersigned PARTNERSHIP is able to
certify that such partner meets at least one of the following three
conditions:
a. the partner is a natural person whose individual net worth* or
joint net worth with his or her spouse exceeds $1,000,000; or
b. the partner is a natural person whose individual income* was
in excess of $200,000 in each of 1996 and 1997 and who
reasonably expects an individual income in excess of $200,000
in 1998; or
c. the partner is a director or executive officer of the Company.
o 3. Each of the partners of the undersigned PARTNERSHIP is able to
certify that such partner is a natural person who, together with his
or her spouse, has had a joint
- ----------
* For purposes of this Questionnaire, the term "net worth" means the excess
of total assets over total liabilities. In determining income, an investor
should add to his or her adjusted gross income any amounts attributable to
tax-exempt income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion, contributions to
IRA or Keogh retirement plan, alimony payments and any amount by which
income from long-term capital gains has been reduced in arriving at
adjusted gross income.
E-1
<PAGE>
income in excess of $300,000 in each of 1996 and 1997 and who
reasonably expects a joint income in excess of $300,000 in 1998.
- --------------------------------------------------------------------------------
IF YOU CHECKED STATEMENT 2 OR STATEMENT 3 IN SECTION I AND DID NOT CHECK
STATEMENT I, YOU MUST PROVIDE A LETTER SIGNED BY A GENERAL PARTNER OF THE
UNDERSIGNED PARTNERSHIP LISTING THE NAME OF EACH PARTNER (WHETHER A GENERAL OR
LIMITED PARTNER) AND THE REASON (UNDER STATEMENT 2 OR STATEMENT 3) SUCH PARTNER
QUALIFIES AS AN ACCREDITED INVESTOR (ON THE BASIS OF NET WORTH, INDIVIDUAL
INCOME, OR JOINT INCOME), OR EACH PARTNER MUST PHOTOCOPY AND COMPLETE SECTION II
BELOW.
- --------------------------------------------------------------------------------
II. IF YOU CHECKED STATEMENT 2 OR STATEMENT 3 IN SECTION I ABOVE, EACH PARTNER
MUST CHECK ANY OF THE STATEMENTS 1-4 BELOW THAT APPLIES TO SUCH PARTNER
AND SIGN WHERE INDICATED.
o 1. I have an individual net worth or joint net worth with my spouse
in excess of $1,000,000.
o 2. I have had an individual income in excess of $200,000 in each of
1996 and 1997, and I reasonably expect an individual income in
excess of $200,000 for 1998. NOTE: IF YOU ARE BUYING JOINTLY WITH
YOUR SPOUSE, YOU MUST EACH HAVE AN INDIVIDUAL INCOME IN EXCESS OF
$200,000 IN EACH OF THESE YEARS IN ORDER TO CHECK THIS BOX.
o 3. My spouse and I have had a joint income in excess of $300,000 in
each of 1996 and 1997, and I reasonably expect a joint income in
excess of $300,000 for 1998.
o 4. I am a director or executive officer of the Company.
_________________________________ ________________________________
Print Name of Partner(s) Signature of Partner(s)
III. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) that the PARTNERSHIP's purchase of a Note and entering into the
related Royalty Agreement will be solely for the PARTNERSHIP's own
account and not for the account of any other person; and
(b) that the PARTNERSHIP's name, address of principal place of
business, place of formation, and taxpayer identification number as
set forth in this Questionnaire are true, correct, and complete.
IV. GENERAL INFORMATION.
(a) PROSPECTIVE PURCHASER (THE PARTNERSHIP)
Name:___________________________________________________________________________
Principal Place of Business:____________________________________________________
(Number and Street)
________________________________________________________________________________
E-2
<PAGE>
(City) (State) (Zip Code)
Address for Correspondence (if different):______________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number:_______________________________________________________________
(Area Code) (Number)
State in which Formed:_________________________________________________________
Date of Formation:______________________________________________________________
Taxpayer Identification Number:_________________________________________________
Number of Partners:_____________________________________________________________
(b) THE PERSON WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
PARTNERSHIP
Name:___________________________________________________________________________
Position or Title:______________________________________________________________
(c) IF SECTION II HAS BEEN COMPLETED, NAMES OF INDIVIDUAL PARTNERS WHOSE
SIGNATURES MUST APPEAR ON PAGE E-4
Name(s) of Individual Partners:_________________________________________________
E-3
<PAGE>
Celerity Systems, Inc.
Partnership Signature Page
Your signature on this Partnership Signature Page evidences the agreement
by the PARTNERSHIP to be bound by the Questionnaire and the Subscription
Agreement.
1. The undersigned PARTNERSHIP hereby represents that (a) the information
contained in this Questionnaire is complete and accurate and (b) the PARTNERSHIP
will notify the Company (contact by collect call at the telephone number
contained on page (iii) hereof) immediately if any material change in any of
this information occurs before the acceptance of the undersigned PARTNERSHIP's
subscription and will promptly send the Company written confirmation of such
change.
2. The undersigned PARTNERSHIP hereby certifies that it has read and
understands this Subscription Agreement.
3. The undersigned PARTNERSHIP hereby represents and warrants that the
person signing this Subscription Agreement on behalf of the PARTNERSHIP is a
general partner of the PARTNERSHIP, has been duly authorized by the PARTNERSHIP
to acquire a Note (and enter into the related Royalty Agreement) and sign this
Subscription Agreement on behalf of the PARTNERSHIP and, further, that the
undersigned PARTNERSHIP has all requisite authority to purchase a Note (and
enter into the related Royalty Agreement) and enter into this Subscription
Agreement.
_______________________________ ______________________________________
Maximum Principal Amount of the Date
Note Applied For
______________________________________
Name of Partnership
(Please Type or Print)
By:___________________________________
(Signature)
Name:_________________________________
(Please Type or Print)
Title:________________________________
- --------------------------------------------------------------------------------
THE RETIREMENT PLAN MAY BE REQUIRED TO ATTACH COPIES OF ALL DOCUMENTS GOVERNING
THE PLAN AS WELL AS ALL OTHER DOCUMENTS AUTHORIZING THE RETIREMENT PLAN TO
INVEST IN THIS OFFERING. INCLUDE, AS NECESSARY, THE TRUST AGREEMENT AND
DOCUMENTS DEFINING PERMITTED INVESTMENTS BY THE RETIREMENT PLAN AND
DEMONSTRATING AUTHORITY OF THE SIGNING INDIVIDUAL TO ACT ON BEHALF OF THE PLAN.
ALL DOCUMENTATION MUST BE COMPLETE AND CORRECT.
- --------------------------------------------------------------------------------
E-4
<PAGE>
W-9 TO BE INSERTED HERE
F-1 AND F-2
F-1
<PAGE>
W-9 TO BE INSERTED HERE
F-2
<PAGE>
CELERITY SYSTEMS, INC.
COMPANY SIGNATURE PAGE
The Company's signature on this page evidences its agreement to be bound
by the Subscription Agreement.
Date: ___________, 1998
CELERITY SYSTEMS, INC.
By:_________________________________________
Name:
Title:
G-1
ROYALTY AGREEMENT
THIS AGREEMENT is entered into effective as of the __ day of ____________,
1998 (the "Effective Date"), by and between Celerity Systems, Inc., a Delaware
corporation (hereinafter called "Celerity"), and the undersigned individual or
entity (hereinafter called the "Lender").
Recitals
A. The Lender has made a loan (the "Loan") to Celerity as evidenced by a
Promissory Note (the "Note") dated the same date as the Effective Date.
B. In consideration for the Loan, Celerity has agreed to make certain royalty
payments to the Lender with respect to sales of its T 6000 set top box (as
defined in Section 1.E. below), subject to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the Loan and the mutual promises and
covenants set forth herein, the parties hereto do hereby agree as follows:
1. Calculation and Payment of Royalties.
A. Celerity hereby agrees to pay to the Lender royalty payments (the
"Royalty" or "Royalties") equal to the product of (i) a fraction,
the numerator of which is the principal amount of the Note, and the
denominator of which is $100,000, (ii) Fifty Cents ($0.50), and
(iii) the number of T 6000 set top boxes shipped by Celerity to
customers during the Royalty Period (as defined in Section 1.B.
below), subject to the other provisions of this Agreement. Royalties
shall not be paid with respect to non-revenue producing shipments of
the T 6000, including, but not limited to, shipments of loaned
units, beta shipments, and shipments of test and evaluation units,
nor shall Royalties be due on units for which Celerity is only
reimbursed for the costs of shipping and insuring the units and/or
similar costs.
B. The "Royalty Period" means the period commencing on the Effective
Date and ending at 12:01 A.M. on the third anniversary of the
Effective Date; provided, however, that (i) if the initial term of
the Note is two (2) years, then the Royalty Period shall end at
12:01 A.M. on the fourth anniversary of the Effective Date, and (ii)
if the initial term of the Note is three (3) years, then the Royalty
Period shall end at 12:01 A.M. on the fifth anniversary of the
Effective Date; provided, further, that if the initial term of the
Note is for one (1) or two (2) years, then, under certain
circumstances, the Royalty Period may be extended at the election of
the Lender in accordance with the terms of Section 2 below and the
Note.
C. Subject to the other provisions of this Agreement, the Royalty
applicable to each T 6000 shipped by Celerity shall be deemed to be
earned thirty (30) days following the date of
<PAGE>
shipment by Celerity. Celerity will issue a written report to the
Lender within thirty (30) days following the expiration of each
calendar quarter; provided, however, that each report with respect
to a calendar quarter ending December 31 (other than the final such
report due under this Agreement, as it may be extended, which shall
be due not later than January 31 of the following year) shall be
issued not later than December 31. Such report shall set forth the
number (or estimated number, in the case of any report issued on
December 31) of units shipped during such calendar quarter for which
the Royalty has been earned and shall be accompanied by a check
representing payment of all Royalties owed.
D. Royalty payments with respect to any calendar quarter will be
subject to adjustments for refunds provided and amounts declared
uncollectible by Celerity, in its sole discretion, during the
applicable (or any subsequent) calendar quarter. In addition,
Royalty payments set forth in reports issued on December 31 shall be
subject to adjustment in subsequent calendar quarters, to the extent
actual Royalties differ from any estimated Royalties set forth in
such report.
E. For the purposes hereof, the "T 6000 set top box" shall mean the
current version of Celerity's T 6000 digital set top box as of the
Effective Date, all versions of the T 6000 digital set top box
containing updates, upgrades and enhancements, and all other digital
set top boxes developed and manufactured by Celerity that are
derived from or based in any substantial part on the design of the
current version of the T 6000 digital set top box as of the
Effective Date.
2. Extension of Royalty Period.
Under certain circumstances, the Lender may elect to extend the payment
date of the Note by providing written notice of such election as provided
for in the Note. If the Note has an initial term of one (1) year and (i)
if the Lender extends the payment date of the Note for one (1) year, then
the end of the Royalty Period will also be extended for one (1) additional
year (from 12:01 A.M. on the third anniversary of the Commencement Date to
12:01 A.M. on the fourth anniversary of the Commencement Date), and (ii)
if the Lender extends the payment date of the Note for two (2) years, then
the end of the Royalty Period will also be extended for two (2) years
(from 12:01 A.M. on the third anniversary of the Effective Date to 12:01
A.M. on the fifth anniversary of the Effective Date). If the Note has an
initial term of two (2) years and the Lender extends the payment date of
the Note for one (1) year, then the end of the Royalty Period will also be
extended for one (1) year (from 12:01 A.M. on the fourth anniversary of
the Commencement Date to 12:01 A.M. on the fifth anniversary of the
Commencement Date).
3. General Provisions.
A. This Agreement shall be binding upon, enforceable by and shall inure
to the benefit of the parties hereto and their respective successors
and assigns, except that the Lender may not transfer any of its
rights or obligations under this Agreement unless such
2
<PAGE>
transfer is made in connection with a transfer of the Note to a
person who is a registered holder thereof in accordance with the
terms of the Note, and the Lender shall be required to transfer such
rights and obligations in connection with a transfer of the Note.
B. This Agreement is entered into pursuant to and shall be governed by
the laws of the State of Delaware, without regard to the conflicts
of laws principles of such State. The Company and the Payee each
irrevocably consent to the jurisdiction of, and venue in, the courts
of the State of Delaware, and of the federal courts located in the
State of Delaware, in connection with any action or proceeding
arising out of or relating to this Note, any document or instrument
delivered pursuant to, in connection with or simultaneously with
this Note, or a breach of this Note or any such document or
instrument. In the event that any provision of this Agreement shall
be deemed to be invalid and unenforceable in whole or in part, the
remainder of this Agreement shall remain in full force and effect.
C. This Agreement, the Note and the Subscription Agreement collectively
constitute the entire agreement between the parties with respect to
the subject matter hereof and may be amended only by a written
instrument executed by Celerity and the Lender.
D. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or
similar overnight delivery or courier service or delivered (in
person or, if receipt is confirmed orally or in writing, by telecopy
or similar telecommunications equipment) against receipt to the
party to whom it is to be given, (i) if to Celerity, as follows:
Celerity Systems, Inc., Attention: President, 1400 Centerpoint
Boulevard, Knoxville, Tennessee 37932, (ii) if to the Lender, at the
Lender's address set forth below, or (iii) in either case, to such
other address as the party shall have furnished by notice in
accordance with the provisions of this paragraph. Any such notice
shall be deemed given at the time of receipt thereof.
E. The section headings of this Agreement are for reference purposes
only and are to be given no effect in the construction or
interpretation of this Agreement.
F. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one
and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the Effective Date.
CELERITY SYSTEMS, INC.
By: ____________________________
Title: _________________________
1400 Centerpoint Boulevard
Knoxville, Tennessee 37932
LENDER: ________________________
________________________________
Print Name
________________________________
Signature
________________________________
Title, if applicable
LENDER ADDRESS:
________________________________
________________________________
________________________________
4
Notes to Financial Statements
12. Loss Per Share
Basic and diluted loss per share were computed by dividing net loss
applicable to common stock by the weighted average common shares
outstanding during each period. Potential common equivalent shares of
435,181 and 454,411 at December 31, 1997 and 1998, respectively, are not
included in the computation of per share amounts in the periods because
the Company reported a loss.
following is a reconciliation of the numerators and denominators of the
basic and diluted earning per share:
1997 1998
Loss
Basic and diluted:
Loss available to common stockholders $(8,883,559) $(6,955,847)
Shares
Basic and diluted:
Weighted-average common shares outstanding 2,090,320 4,260,327
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Celerity Systems, Inc. on Form S-8 (File No. 333-63795) of our report dated
February 26, 1999, which report includes an explanatory paragraph regarding
substantial doubt about Celerity Systems, Inc.'s ability to continue as a going
concern, on our audits of the financial statements of Celerity Systems, Inc. as
of December 31, 1997 and 1998 and for each of the two years then ended December
31, 1998, which report is included in this Annual Report on Form 10-KSB.
PricewaterhouseCoopers LLP
Knoxville, Tennessee
April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 18273
<SECURITIES> 0
<RECEIVABLES> 716787
<ALLOWANCES> (436472)
<INVENTORY> 1206611
<CURRENT-ASSETS> 1568349
<PP&E> 1697367
<DEPRECIATION> 0
<TOTAL-ASSETS> 3265716
<CURRENT-LIABILITIES> 1892280
<BONDS> 397955
0
0
<COMMON> 4753
<OTHER-SE> 970728
<TOTAL-LIABILITY-AND-EQUITY> 3265716
<SALES> 814159
<TOTAL-REVENUES> 814159
<CGS> 879280
<TOTAL-COSTS> 879280
<OTHER-EXPENSES> 6810757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (55163)
<INCOME-PRETAX> (6820715)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6820715)
<DISCONTINUED> 135132
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6956847)
<EPS-PRIMARY> (1.63)
<EPS-DILUTED> (1.63)
</TABLE>
