<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
VIVID TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3844 04-3054475
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
10E COMMERCE WAY, WOBURN, MASSACHUSETTS 01801 (617) 938-7800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
S. DAVID ELLENBOGEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIVID TECHNOLOGIES, INC.
10E COMMERCE WAY
WOBURN, MASSACHUSETTS 01801 (617) 938-7800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies to:
LAWRENCE M. LEVY, ESQUIRE EDWIN L. MILLER, JR., ESQUIRE
BROWN, RUDNICK, FREED & GESMER TESTA, HURWITZ & THIBEAULT, llp
One Financial Center 125 High Street
Boston, Massachusetts 02111 Boston, Massachusetts 02110
(617) 856-8200 (617) 248-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF PROPOSED MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) FEE(1)
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<S> <C> <C>
Common Stock, $.01 par value.......... $38,640,000 $11,709.09
</TABLE>
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(1) Calculated pursuant to Rule 457(o).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated October 17, 1996
PROSPECTUS
2,000,000 SHARES
[VIVID LOGO]
COMMON STOCK
-------------
All of the 2,000,000 shares of Common Stock offered hereby are being sold by
Vivid Technologies, Inc. ("Vivid" or the "Company"). Of such shares, shares
are being offered in the United States and Canada (the "U.S. Offering") by the
U.S. Underwriters (as defined in "Underwriting"), and shares are being
offered outside the United States and Canada in a concurrent international
offering (the "International Offering") by the International Managers (as
defined in "Underwriting," and, together with the U.S. Underwriters, the
"Underwriters"). These offerings are collectively referred to herein as the
"Offering." See "Underwriting." The closing of the U.S. Offering is a condition
to the closing of the International Offering and the closing of the
International Offering is a condition to the closing of the U.S. Offering.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price and underwriting discounts and commissions
are identical for each of the Offerings. See "Underwriting" for the factors to
be considered in determining the initial public offering price. It is currently
estimated that the initial public offering price will be between $12.00 and
$14.00 per share. The Common Stock has been approved for quotation on the
Nasdaq National Market under the symbol "VVID."
-------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK
OFFERED HEREBY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share.......................... $ $ $
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Total(3)........................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $650,000.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an aggregate of additional shares of Common Stock solely to cover
over-allotments, if any. The International Managers have been granted a
similar option to purchase up to additional shares solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public would be $ , the total Underwriting Discounts and
Commissions would be $ , and the total Proceeds to Company before
estimated expenses would be $ . See "Underwriting."
-------------
The shares of Common Stock offered by this Prospectus are offered by the U.S.
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the U.S.
Underwriters and to certain further conditions. It is expected that delivery of
the shares will be made at the offices of Lehman Brothers Inc., New York, New
York, on or about , 1996.
LEHMAN BROTHERS
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
, 1996
<PAGE>
[Three photographs of installations of the Company's systems at various
airports.]
Caption: Installations of Vivid's Systems at BAA Airports.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
[Graphic consists of a schematic illustrating a possible configuration of the
deployment of the Company's products at an airport, both in a multi-level
checked baggage screening configuration in the baggage handling area and for
screening carry-on baggage at the pre-board screening checkpoint area.
Photographs of the Company's VIS-M systems with multiple workstations, VDS-3
system, APS system and an image of the contents of a bag created by an APS
system are superimposed on the graphic.]
The following legends appear on the graphic:
General Caption: Vivid's automated explosive detection systems are designed to
be used in a variety of multi-level checked baggage screening configurations in
an airports baggage handling area. Vivid's APS is designed to inspect carry-on
baggage at the pre-board screening checkpoint. More than 100 of the Company's
systems have been selected for use at sixteen airports in Europe.
Level 1 System: The VIS-M system automatically (without the use of an operator)
inspects up to 1,500 bags per hour. Baggage cleared by the system continues en
route to the aircraft.
Level 2 Workstations: Images from bags rejected by the Level 1 system are
reviewed by operators at remote VIS-M level 2 workstations. Baggage cleared by
the operator continue en route to the aircraft.
Level 3 System: Baggage rejected by the Level 2 operator are forwarded to Level
3 for a more detailed automated analysis and operator review. Baggage rejected
by Level 3 operators are opened in the presence of the passenger.
Advanced Passenger Screening System: The recently introduced APS system is
designed to automatically detect explosive materials in carry-on items.
APS Image: Explosive material is highlighted in bright red to assist the
operator. Weapons, such as guns or knives, are visible to the operator without
enhancement.
<PAGE>
(4/C)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the consolidated financial statements and notes
thereto (the "Consolidated Financial Statements") appearing elsewhere in this
Prospectus. All references in this Prospectus to the terms "Vivid" and the
"Company" refer to Vivid Technologies, Inc., its Massachusetts predecessor and
its wholly-owned subsidiaries unless otherwise required by the context. See
"Risk Factors" for information that should be considered by prospective
investors.
THE COMPANY
The Company is a leading developer, manufacturer and marketer of automated
inspection systems which detect plastic and other explosives in airline
baggage. The Company's family of advanced explosives detection systems identify
targeted materials by analyzing the physical characteristics of each item in a
bag, including the atomic number and mass, using patented composition analysis
techniques and proprietary dual-energy X-ray technology. These systems
automatically (without the use of an operator) isolate and identify targeted
materials within a bag, thereby preventing a suspect bag from being loaded into
an aircraft until cleared by operator inspection. The Company's systems can
also be used to identify a wide variety of other substances, including drugs
and currency.
In 1993, the Company's automated systems were successfully deployed in
airports as part of an integrated multi-level checked baggage screening
approach that is being adopted in many countries throughout the world. To date,
the Company has sold over 100 systems for installation in airports throughout
Europe. The Company's systems are in use in over 75% of the airports that have
deployed advanced integrated explosives detection equipment, including London
Heathrow and London Gatwick, Paris Charles de Gaulle, Amsterdam, Zurich,
Brussels and Glasgow.
In response to the December 1988 bombing of Pan American Flight 103 over
Lockerbie, Scotland, many countries began to require the installation of
systems that could detect plastic and other explosives in airline baggage.
Europe, led by the United Kingdom, has been at the forefront of deploying
advanced automated explosives detection screening equipment. The United Kingdom
Department of Transport (the "UK DOT") has required all of the United Kingdom's
commercial airports to deploy systems for 100% screening of international
checked baggage by the end of 1997. The European Civil Aviation Conference
("ECAC"), an organization of 33 member countries, has agreed to implement 100%
screening of international checked baggage by the year 2000. In the
Asia/Pacific region, major new airports and terminals, including in Hong Kong,
Malaysia, Singapore and South Korea, are being designed to include 100%
screening of international checked baggage. In the United States, the Federal
Aviation Administration (the "FAA") has adopted more comprehensive standards
for explosives detection systems than those adopted by the rest of the world.
To date, no system has demonstrated that it meets these standards under
realistic airport operating conditions. As a result, only a limited number of
explosives detection systems have been deployed, primarily on a test basis, in
the United States. In response to the recent crash of TWA Flight 800 off Long
Island, New York in July 1996, the United States has enacted legislation which
includes a $144.2 million allocation to purchase explosives detection systems
and other advanced security equipment.
The Company believes that the success of its systems is attributable to their
high performance, cost effectiveness, reliability, product breadth and system
flexibility. These systems identify plastic and other high explosives, with
relatively low false alarm rejections at throughputs of up to 1,500 bags per
hour, which is comparable to the peak throughput of existing baggage handling
equipment. The Company's installed base has had a reported average system
availability of over 99% at airports of varying sizes, including London
Heathrow, one of the world's largest international airports, serving more than
50 million passengers per year.
3
<PAGE>
The Company's objectives are to maintain its leadership in the airport
automated explosives detection systems market and to apply its technology to
address complementary applications. The key elements of the Company's strategy
to achieve these objectives are to maintain its technological leadership, to
continue its international expansion, to capitalize on the emerging United
States market, to expand its product line and applications for those products,
and to explore strategic alliances and acquisitions to complement its products
and technology.
The Company believes that installations of advanced automated explosives
detection systems at airports will accelerate the adoption of this technology
for other security applications, including the screening of airline carry-on
baggage, the protection of government and private facilities, and the screening
of mail. The Company is also exploring opportunities with various governmental
agencies in the United States and internationally to use its equipment for the
detection of drugs and currency. Further, the Company believes that its
technology can expand the use of X-ray in food processing and other process
control applications by providing enhanced or new value added functions such as
material analysis, segregation and sorting of materials, and quality control.
The Company was incorporated as a Massachusetts corporation in May 1989 under
the name of QDR Security, Inc. The Company changed its name to Vivitech, Inc.
in June 1989 and was renamed Vivid Technologies, Inc. in September 1989. In
October 1996, the Company changed its state of incorporation to Delaware. The
Company's principal executive offices are located at 10E Commerce Way, Woburn,
Massachusetts 01801, and its telephone number is (617) 938-7800.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,000,000 shares
Common Stock to be outstanding after the Offering.. 8,792,370 shares(1)
Use of proceeds.................................... For working capital and
general corporate
purposes. In addition,
approximately $5.8 million
of the net proceeds will
be used to redeem certain
non-convertible redeemable
Preferred Stock. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. VVID
</TABLE>
- --------
(1) Excludes 1,276,969 shares of Common Stock reserved for issuance as of
October 15, 1996 upon exercise of outstanding stock options and warrants.
See "Management--Stock Option Plans," "Description of Securities--Warrants"
and Notes 6 and 7 to Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $ -- $ 631 $2,854 $13,801 $14,437 $ 10,727 $ 10,163
Income (loss) before
income taxes........... (1,891) (2,091) (859) 2,910 2,104 861 1,051
Net income (loss)....... $(1,891) $(2,091) $ (859) $ 2,810 $ 2,014 $ 824 $ 736
Net income (loss) per
common and common
equivalent share....... $ (0.37) $ (0.38) $(0.15) $ 0.39 $ 0.28 $ 0.11 $ 0.10
Weighted average number
of common and common
equivalent shares
outstanding............ 5,060 5,496 5,815 7,198 7,275 7,276 7,584
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED(1)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $(1,471) $22,059
Total assets............................................ 10,209 27,958
Currently redeemable preferred stock.................... 5,781 --
Stockholders' equity (deficit).......................... (305) 23,225
</TABLE>
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(1) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered hereby at an assumed offering price of $13.00 per share, and the
application of the proceeds therefrom, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company. See "Use of Proceeds" and "Capitalization."
----------------
The Vivid name and logo is a service mark of the Company. H-1, VIS, VIS-W,
VIS-M, VDS, VDS-II, VDS-III, APS, and Rapid Detection System are trademarks of
the Company.
Unless otherwise indicated, all information in this Prospectus assumes (i) no
exercise of the Underwriters' over-allotment option, (ii) the redemption of
578,065 shares of non-convertible redeemable Series A Preferred Stock and
Series C Preferred Stock effective upon the closing of the Offering, (iii) the
conversion of all of the Company's issued and outstanding shares of convertible
Series B Preferred Stock and Series D Preferred Stock into an aggregate of
5,045,850 shares of Common Stock effective upon the closing of the Offering,
and (iv) the filing of an amended and restated Certificate of Incorporation
(the "Restated Certificate of Incorporation") eliminating the Company's Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, and effecting certain other changes. See "Certain
Transactions--Certain Financing Transactions," "Description of Securities" and
the Consolidated Financial Statements.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, investors should
carefully consider the following risk factors when evaluating an investment in
the Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Prospectus should be read as being applicable to all
forward-looking statements wherever they appear in this Prospectus. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere in this Prospectus.
Reliance on a Significant Customer. In fiscal 1994, 1995 and the first nine
months of 1996, sales to BAA plc ("BAA"), formerly the British Airport
Authority, accounted for approximately 88%, 76% and 73% of the Company's
revenues, respectively. BAA is scheduled to complete deployment of checked
baggage explosives detection systems at its seven airports by the end of 1997.
As a result, the Company expects that new orders from BAA will decrease during
fiscal 1997. The inability of the Company to obtain orders from customers
other than BAA would have a material adverse effect on the Company's business
and financial condition. See "Business--Customers."
Dependence on Government Regulation. The Company's sales of its explosives
detection systems for use in airports has been and will continue to be
dependent upon governmental initiatives to require or support the screening of
baggage with advanced explosives detection equipment. Substantially all of
such systems have been installed at airports in countries in which the
applicable government or regulatory authority overseeing the operations of the
airport has mandated such screening. Such mandates are influenced by many
factors outside of the control of the Company, including political and
budgetary concerns of governments, airlines and airports. In the United
States, the Aviation Security Act of 1990 directed the FAA to develop a
standard for explosives detection systems and required airports in the United
States to deploy systems meeting this standard by 1993. The standard adopted
by the FAA is more comprehensive than standards adopted in most other
countries. To date, no system has demonstrated that it meets the FAA standard
under realistic airport operating conditions. As a result, the FAA has not
required the installation of automated explosives detection systems, and only
a limited number of these systems have been deployed, primarily on a test
basis, in the United States. The FAA certified a computed tomography ("CT")
system in December 1994. However, the FAA has recognized that this system must
undergo further testing to resolve whether it can operate under realistic
airport operating conditions. The Company's systems do not meet the FAA
certification standard. There can be no assurance that any of the Company's
systems will ever meet this or any other United States certification standard.
Moreover there can be no assurance that additional countries will mandate the
implementation of effective explosives screening of airline baggage, or that,
if mandated, the Company's systems will meet the certification or other
requirements of the applicable governmental authority. Even if the Company's
systems were to meet the applicable requirements, there can be no assurance
that the Company would be able to market its systems effectively. See
"Business--Regulation."
In October 1996, the United States enacted legislation which includes a
$144.2 million allocation to purchase explosives detection systems and other
advanced security equipment. There can be no assurance that this legislation
will not be modified to reduce the funding for advanced explosives equipment,
that the necessary appropriations will be made to fund the purchases of
advanced explosives equipment contemplated by the legislation, or that, even
if such appropriation is made, any of the Company's automated explosives
detection systems will be purchased for installation at any airports in the
United States. See "Business--Industry Background."
Developing Market; Uncertainty of Market Acceptance. The explosives
detection system market is at a relatively early stage of development.
Acceptance of explosives detection systems on a broad basis will be dependent
upon the acceptance and adoption of explosives detection systems by airlines
and airports throughout the world, the expansion of applications for
explosives detection technology, government initiatives to support the
expansion of this market, the performance and price of the Company's and its
competitors' products,
6
<PAGE>
customer reaction to those products and continued cost and performance
improvements in explosives detection technology. There can be no assurance
that the explosives detection market will develop further or that the Company
will be successful in obtaining broader market acceptance for its products.
Failure to do so would have a material adverse effect on the Company's
business and financial condition. Further, if one of the Company's or a
competitor's systems were to fail to detect explosives and such failure
resulted in an airline bombing, the ability of the Company to market its
products could be materially adversely affected. See "Business--Industry
Background."
Dependence on Management and Key Employees. The Company's success will
depend in large part on the continued services of its executive officers and
other key management employees. The loss of one or more key management
employees or the failure to attract and retain additional personnel could have
a material adverse effect on the Company's business and financial condition.
S. David Ellenbogen, the Company's President, Chief Executive Officer and
Chairman of the Board, and Dr. Jay A. Stein, the Company's Senior Vice
President and a Director, also serve in similar positions at Hologic. Under a
management agreement between the Company and Hologic, Hologic has agreed to
provide management services to the Company, including the part-time assistance
of Mr. Ellenbogen and Dr. Stein. Recently, Mr. Ellenbogen and Dr. Stein have
devoted approximately 20 and eight hours per week, respectively, to the
Company. The Company has commenced a search for a Chief Operating Officer to
further support its anticipated growth. There can be no assurance that the
Company will be able to attract and retain a qualified Chief Operating Officer
on a timely basis, if at all, or that the Company will be able to successfully
integrate such person, if hired. Mr. Ellenbogen has advised the Company that,
after the integration of such person, he intends to reduce his time commitment
to the Company. The divided attention of Mr. Ellenbogen could have a material
adverse effect on the Company's business and financial condition. See
"Management" and "Certain Transactions--Hologic, Inc."
Significant Fluctuations and Unpredictability of Operating
Results. Significant annual and quarterly fluctuations in the Company's
results of operations may be caused by, among other factors, the overall
demand for explosives detection systems, market acceptance of the Company's
products, the timing of regulatory approvals for the Company's system,
government initiatives to promote the use of explosives detection systems such
as those manufactured and sold by the Company, the timing of the announcement,
introduction and delivery of new products and product enhancements by the
Company and its competitors, variations in the Company's product mix and
component costs, timing of customer orders, adjustments of delivery schedules
to accommodate customers programs, the availability of materials and labor
necessary to produce the Company's products, the availability of components
from suppliers, the timing and level of expenditures in anticipation of future
sales, the mix of products sold by the Company, and pricing and other
competitive conditions. Customers may also cancel or reschedule shipments and
production difficulties could delay shipments. Relatively few system sales to
relatively few customers comprise a significant portion of the Company's
revenues in each quarter. Therefore, small variations in the number of systems
sold have a significant effect on the Company's results of operations. The
Company believes that period to period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
Lengthy Sales Cycle. As a result of the significant capital and other
commitments required to install and integrate the Company's products into an
airport baggage handling system, foreign regulatory approval requirements, and
the developing nature of the explosives detection market, the Company has
experienced extended sales cycles with its customers. The Company's sales
efforts with certain customers and potential customers have extended over
several years. Customers may initially purchase one or a few units for
extensive testing and evaluation before making a decision regarding volume
purchases and, in certain circumstances, the Company may provide a potential
customer with a demonstration unit for regulatory testing and evaluation.
Delays in anticipated purchase orders could have a material adverse effect on
the Company's business and financial condition. See "Risk Factors--Significant
Fluctuations and Unpredictability of Operating Results" and "Business--
Marketing and Sales."
Reliance on International Sales. In fiscal 1995 and the first nine months of
fiscal 1996, international sales accounted for approximately 91% and 93%,
respectively, of the Company's revenues. The Company anticipates that
international sales will continue to account for a significant percentage of
the Company's revenues. This
7
<PAGE>
will result in a significant portion of the Company's revenues being subject
to risks associated with international sales, including international
regulatory requirements and policy changes, political and economic
instability, possible foreign currency controls, intellectual property
protection, currency exchange rate fluctuations, tariffs or other barriers,
staffing and management of foreign operations, inventory management, accounts
receivable collection and the management of distributors or representatives.
Most foreign countries have their own regulatory approval requirements for
sales of the Company's products. As a result, the Company's introduction of
new products into international markets can be costly and time consuming, and
there can be no assurance that the Company will be able to obtain the required
regulatory approvals on a timely basis, if at all. The Company's international
sales have been denominated primarily in United States dollars. The Company
anticipates that its international sales may increasingly be denominated in
foreign currencies, which will expose the Company to increased risks of
currency fluctuation. There can be no assurance that risks associated with
international sales and operations will not have a material adverse effect on
the Company's business and financial condition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Marketing and Sales."
Uncertainty of Product Development. The Company's success will depend upon
its ability to enhance its existing products, and to develop new products to
meet regulatory and customer requirements and to achieve market acceptance.
The enhancement and development of these products will be subject to all of
the risks associated with new product development, including unanticipated
delays, expenses, technical problems or other difficulties that could result
in the abandonment or substantial change in the commercialization of these
enhancements or new products. Given the uncertainties inherent with product
development and introduction, there can be no assurance that the Company will
be successful in introducing products or product enhancements on a timely
basis, if at all, or that the Company will be able to market successfully
these products and product enhancements once developed.
Rapid Technological Change. The market for the Company's products is
characterized by rapid technological change and evolving industry
requirements. The Company believes that its future success will depend in
large part upon its ability to enhance its existing products and to
successfully develop new products that meet regulatory and customer
requirements and gain market acceptance. There can be no assurance that the
Company's products will not be rendered obsolete by new industry standards or
changing technology.
Competition. The markets for the Company's products are highly competitive.
The Company's systems compete against dual energy X-ray as well as other
competing technologies, including CT and trace detection. Certain of the
Company's competitors have substantially greater manufacturing, marketing and
financial resources than the Company. In addition, other major corporations
have recently announced their intention to enter the security screening
market. One of the Company's competitors has developed a product based upon CT
scanner technology that was certified by the FAA. However, the FAA has
recognized that this system must undergo further testing to resolve whether it
can operate under realistic airport operating conditions. None of the
Company's products have been certified by the FAA. Competitors may develop
superior products or products of similar quality for sale at the same or lower
prices. Other technical innovations may impair the Company's ability to market
its products. There can be no assurance that the Company will be able to
compete successfully with existing or new competitors. See "Business--
Competition."
Limited Protection of Intellectual Property Rights; Patent Litigation. The
Company's success depends significantly upon proprietary technology. The
Company relies on a combination of patent, copyright, trademark and trade
secret laws, non-disclosure agreements and other contractual provisions to
establish, maintain and protect its proprietary rights, all of which afford
only limited protection. The Company has obtained two patents, and has pending
three patent applications in the United States. The Company has obtained or
applied for corresponding patents and patent applications for certain of these
patents and patent applications for certain foreign countries. There can be no
assurance that any of the Company's patent applications will be granted or
that any patent or patent application will provide significant protection for
the Company's products and technology. Moreover, there can be no assurance
that foreign intellectual property laws will protect the Company's
intellectual property rights. In the absence of significant patent protection,
the Company may be vulnerable to competitors who attempt to copy the Company's
products, processes or technology.
8
<PAGE>
The Company has an exclusive license to use certain patents and technology
developed by Hologic, Inc. ("Hologic") for the development, manufacture and
sale of X-ray screening security systems for explosives, drugs, currency and
other contraband. The Company also has a nonexclusive license to use this
technology for the development, manufacture and sale of X-ray-based products
for process control applications in the food and beverage industries. If the
Company desires to develop products for other applications, it must either use
alternative technology or obtain an additional license from Hologic. There can
be no assurance that the Company would be able to develop or license
alternative technology for any additional applications, or that the Company
would be able to license Hologic's technology for these applications on
favorable terms, if at all. In addition, there can be no assurance that
Hologic will not develop or license its technology to others for applications
competitive with those that may be developed by the Company outside of areas
for which the Company has an exclusive license. See "Certain Transactions--
Hologic, Inc."
In October 1994, EG&G Astrophysics Research Corporation ("EG&G") filed a
patent infringement claim
against the Company alleging that certain of the Company's products violate a
patent held by EG&G. EG&G is seeking damages and expenses from the Company and
to enjoin the Company from selling products that allegedly infringe the EG&G
patent. In December 1994, the Company filed an answer denying any infringement
and a counterclaim seeking invalidation of the EG&G patent and alleging that
EG&G is infringing three patents owned and licensed by the Company. In
addition, in May 1996, in response to allegations made by American Science and
Engineering, Inc. ("AS&E") to third parties that the Company was infringing
AS&E's patents, the Company filed a request for declaratory judgment that the
Company is not infringing AS&E's patents. In August 1996, AS&E filed an answer
and counterclaim alleging that the Company is infringing one or more of eight
AS&E patents. Although the Company does not believe that it is infringing any
valid patents of either EG&G or AS&E, there can be no assurance that the
Company will prevail in its litigation or reach a favorable settlement with
either EG&G or AS&E. An unfavorable outcome to the Company could result in an
injunction prohibiting the Company from using the technology found to be
infringing, which technology may be critical to the functioning of the
Company's products, or could require the Company to pay substantial damages. A
settlement of either of these disputes could require the Company to pay
substantial settlement amounts and/or ongoing royalties. Even if the Company
were successful in its defense of these claims, the costs of defense are
likely to be substantial. See "Business--Legal Proceedings."
Management of Growth. The Company has undergone a period of growth, and any
continued expansion may significantly strain the Company's management,
financial and other resources. Due to the level of technical and marketing
expertise necessary to support its existing and new customers, the Company
must attract and retain highly qualified and well-trained personnel. There are
a limited number of persons with the requisite skills to serve in these
positions, and it may become increasingly difficult for the Company to hire
such personnel. The Company's expansion may also significantly strain the
Company's management, manufacturing, financial and other resources. There can
be no assurance that the Company's systems, procedures, and controls will be
adequate to support the Company's operations. Failure to manage the Company's
growth properly could have a material adverse effect on the Company's business
and financial condition. See "Management."
Risks Associated with Possible Acquisitions. The Company intends to pursue
potential acquisitions of businesses, products and technologies that could
complement or expand the Company's business. There can be no assurance that
the Company will be able to identify any appropriate acquisition candidate. If
the Company identifies an acquisition candidate, there can be no assurance
that the Company would be able to successfully negotiate the terms of any such
acquisition, finance such acquisition or integrate such acquired business,
products or technologies into the Company's existing business and products.
Furthermore, the negotiation of potential acquisitions as well as the
integration of an acquired business could cause diversion of management's time
and resources, and require the Company to use proceeds from the Offering to
consummate a potential acquisition.
9
<PAGE>
There can be no assurance that a given acquisition, whether or not
consummated, would not have a material adverse effect on the Company's
business or financial condition. If the Company consummates one or more
significant acquisitions in which consideration consists of Common Stock,
stockholders of the Company could suffer significant dilution of their
interests in the Company. See "Risk Factors--Management of Growth."
Dependence on Principal Supplier for APS System. The Company purchases all
of the X-ray mainframes for its recently introduced APS automated explosives
detection system for carry-on baggage from Gilardoni S.p.A. ("Gilardoni"),
which is located in Italy. The Company and Gilardoni are negotiating an
arrangement under which the Company will manufacture the X-ray mainframes for
the APS systems to be sold outside of Europe, and Gilardoni will manufacture
certain of the Company's systems to be sold in Europe. There can be no
assurance that these negotiations will be successful. An inability of the
Company to obtain timely deliveries of X-ray mainframes of acceptable quality
on favorable terms from Gilardoni could materially adversely affect the
Company's sales of APS systems.
Potential for Product Liability Claims. The Company's business involves the
risk of product liability claims inherent to the explosives detection
business. There are many factors beyond the control of the Company that could
result in the failure of the Company's products to detect explosives, such as
the reliability of a customer's operators, the ongoing training of such
operators and the maintenance of the Company's products by its customers. For
these and other reasons, there can be no assurance that the Company's products
will detect all explosives concealed in screened bags. The failure to detect
an explosive could give rise to product liability claims and result in
negative publicity that could have a material adverse effect on the Company's
business and financial condition. The Company currently maintains aviation
product liability insurance with an aggregate coverage limit of $150 million
per year, subject to certain deductibles and exclusions. There can be no
assurance that this insurance will be sufficient to protect the Company from
product liability claims, or that product liability insurance will continue to
be available to the Company at a reasonable cost, if at all.
Concentration of Ownership; Control by Management. Upon completion of the
Offering, the Company's executive officers, directors and their affiliates and
members of their immediate families will beneficially own approximately 24.6%
of the outstanding shares of Common Stock, excluding shares issuable upon
exercise of options and warrants. As a result, these stockholders, if acting
together, will be able to exert substantial influence over actions requiring
stockholder approval, including the election of directors, amendments to the
Company's Restated Certificate of Incorporation, mergers, sales of assets or
other business acquisitions or dispositions. See "Principal Stockholders."
Antitakeover Provisions. The Company's Restated Certificate of Incorporation
contains certain provisions that may discourage bids for the Company. This
could limit the price that certain investors might be willing to pay in the
future for shares of the Common Stock. See "Description of Securities."
No Prior Market for Common Stock; Possible Volatility of Stock Price. Prior
to the Offering, there has been no public market for the Common Stock, and no
assurance can be given that any market for the Common Stock will develop or be
sustained. The initial public offering price will be determined through
negotiations between the Company and the Underwriters. Such price may not be
indicative of prices of the Common Stock that will prevail in the trading
market. In addition, the market price for the Common Stock may be highly
volatile. Factors such as the announcement of technical innovations or new
products by the Company or its competitors, announcements of and changes in
government initiatives to promote the use of the Company's or its competitor's
products, variations in anticipated or actual operating results, market
conditions and general economic conditions may have a significant impact on
the market price of the Common Stock. See "Underwriting."
Shares Eligible for Future Sale. Sales of shares of Common Stock in the
public market following the Offering by existing stockholders or option or
warrant holders could adversely affect the market price of the Common Stock.
Upon the expiration of contractual lock-up periods 180 days after the
effective date of this Prospectus (or earlier upon the consent of Lehman
Brothers), 4,359,520 shares of Common Stock (plus shares
10
<PAGE>
issuable upon the exercise of then vested options) will become eligible for
sale subject to the restrictions of Rule 144, and in some cases, Rule 701
under the Securities Act, and 2,432,850 shares of Common Stock will be
eligible for sale in the public market without restriction under Rule 144(k).
Upon the expiration of the lock-up period, holders of 2,898,520 shares of
Common Stock and warrants to acquire 210,199 shares of Common Stock will have
certain registration rights. See "Shares Eligible for Future Sale."
Immediate and Substantial Dilution. Based upon the net tangible book value
of the Company at June 30, 1996, purchasers of Common Stock offered hereby
will experience immediate and substantial dilution of approximately $10.34 per
share. Purchasers of Common Stock will experience additional dilution if
outstanding options and warrants are exercised. See "Dilution."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
of Common Stock offered hereby are estimated to be $23,530,000, assuming an
initial public offering price of $13.00 per share and after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company.
The principal purposes of the Offering are to increase the Company's
capitalization and financial flexibility, to provide a public market for the
Common Stock and to facilitate future access to public equity markets. The
Company believes that its enhanced financial position will provide the Company
with needed flexibility to respond to technological and market developments
and opportunities, and enhance its ability to attract and retain customers.
The Company intends to use $5,780,650 of the net proceeds to redeem all of
its outstanding shares of non-convertible redeemable Series A Preferred Stock
and Series C Preferred Stock. The Company anticipates that the balance of the
net proceeds will be used to increase funds available for general corporate
purposes, including working capital, research and development, international
sales and service offices and capital equipment. In addition, the Company may
use a portion of the proceeds to expand its presence in Europe and the
Asia/Pacific region, including to expand its sales and service office in the
United Kingdom, to establish additional sales and service offices in Europe
and in the Asia/Pacific region, and to establish a manufacturing operation in
one or more of those regions. Proceeds may also be used to acquire companies,
technologies or products that complement the business of the Company. As of
the date of this Prospectus, the Company has no agreements or commitments and
is not currently engaged in any negotiations for any such acquisition. See
"Risk Factors--Risks Associated with Possible Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Pending such uses, the Company intends to invest the net proceeds in short-
term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock
and does not plan to pay any cash dividends in the foreseeable future. The
Company's current policy is to retain all of its earnings to finance future
growth. The Company's bank line of credit prohibits the payment of cash
dividends without prior bank approval.
12
<PAGE>
DILUTION
At June 30, 1996, the Company had a pro forma net tangible book value
(deficit) of $(330,597) or $(0.05) per share of Common Stock. "Net tangible
book value per share" represents the tangible book value of the Company (total
tangible assets less total liabilities) divided by the number of shares of
Common Stock outstanding on a pro forma basis. Without taking into account any
changes in such net tangible book value after June 30, 1996, other than to
give effect to the sale by the Company of the 2,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$13.00 and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company, the pro forma net
tangible book value of the Company at June 30, 1996 would have been
$23,199,403, or $2.66 per share. This represents an immediate increase in the
net tangible book value per share of $2.71 to existing stockholders and an
immediate dilution of the net tangible book value per share of $10.34 to
persons purchasing the Common Stock offered hereby (the "New Investors"). The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $13.00
Pro forma net tangible book value (deficit) per share
before the Offering....................................... $(0.05)
Increase per share attributable to New Investors........... 2.71
------
Pro forma as adjusted net tangible book value per share after
the Offering................................................ 2.66
------
Dilution per share to New Investors.......................... $10.34
======
</TABLE>
The following table sets forth on a pro forma basis, as of June 30, 1996,
the total number of shares purchased from the Company after giving effect to
the sale of the 2,000,000 shares of Common Stock offered by the Company
hereby, the total consideration paid to the Company and the average price per
share paid by existing stockholders and by New Investors at an assumed initial
public offering price of $13.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.. 6,724,870 77.1% $ 606,040 2.3% $ 0.09
New Investors.......... 2,000,000 22.9 26,000,000 97.7 13.00
--------- ----- ----------- -----
Total................ 8,724,870 100.0% $26,606,040 100.0%
========= ===== =========== =====
</TABLE>
The above information assumes (i) no exercise of the Underwriters' over-
allotment option, (ii) the conversion of all outstanding Series B Preferred
Stock and Series D Preferred Stock into an aggregate of 5,045,850 shares of
Common Stock and (iii) no exercise of outstanding options and warrants after
June 30, 1996. As of June 30, 1996, there were outstanding options and
warrants to purchase an aggregate of 1,219,819 shares of Common Stock at
exercise prices ranging from $0.10 to $1.50 per share. If all of these options
and warrants were exercised in full, there would be additional dilution to New
Investors. See "Management--Stock Option Plans," "Certain Transactions--
Certain Financing Transactions," "Description of Securities--Warrants" and
Notes 6 and 7 to Consolidated Financial Statements.
13
<PAGE>
CAPITALIZATION
The following table sets forth (a) the capitalization of the Company as of
June 30, 1996 and (b) the as adjusted capitalization of the Company to give
effect to (i) the conversion of all of the Company's outstanding shares of
Series B Preferred Stock and Series D Preferred Stock into 5,045,850 shares of
Common Stock, (ii) the filing of the Restated Certificate of Incorporation,
and (iii) the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby and the application of the net proceeds therefrom, assuming an
initial public offering price of $13.00 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company. This table should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Obligation under capital leases....................... $ 65,326 $ 65,326
========== ===========
Redeemable preferred stock, $.01 par value:
Series A Preferred Stock:
Authorized--234,375 shares actual, none as
adjusted
Issued and outstanding--234,375 shares actual,
none as adjusted................................. $2,343,750 $ --
Series C Preferred Stock:
Authorized--343,690 shares actual, none as
adjusted
Issued and outstanding--343,690 shares actual,
none as adjusted................................. 3,436,900 --
Stockholders' equity (deficit):
Preferred Stock, $.01 par value:
Authorized--none actual, 1,000,000 shares as
adjusted
Issued and outstanding--none actual or as
adjusted....................................... -- --
Convertible Preferred Stock, $.01 par value:
Series B Preferred Stock:
Authorized--250,000 shares actual, none as
adjusted
Issued and outstanding--250,000 shares actual,
none as adjusted............................... 2,500 --
Series D Preferred Stock:
Authorized--254,585 shares actual, none as
adjusted
Issued and outstanding 254,585 shares actual,
none as adjusted............................... 2,546 --
Common Stock, $.01 par value:
Authorized--7,500,000 shares actual, 30,000,000
shares as adjusted
Issued and outstanding--1,679,020 shares actual,
8,724,870 shares as adjusted................... 16,790 87,249
Capital in excess of par value........................ 541,644 24,006,231
Retained deficit...................................... (868,836) (868,836)
---------- -----------
Total stockholders' equity (deficit)................ (305,356) 23,224,644
---------- -----------
Total capitalization............................ $5,475,294 $23,224,644
========== ===========
</TABLE>
- --------
(1) Excludes 1,219,819 shares of Common Stock reserved as of June 30, 1996 for
issuance upon exercise of outstanding options and warrants. See Notes 6
and 7 to Consolidated Financial Statements.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial data of
the Company and is qualified in its entirety by the more detailed Consolidated
Financial Statements included elsewhere in this Prospectus. The statement of
operations data for the fiscal years ended September 30, 1993, 1994 and 1995,
and the balance sheet data as of September 30, 1994 and 1995, have been
derived from the Consolidated Financial Statements, which statements have been
audited by Arthur Andersen LLP, independent public accountants, and are
included elsewhere in this Prospectus. The statement of operations data for
the fiscal years ended September 30, 1991 and 1992, and the balance sheet data
as of September 30, 1991, 1992 and 1993 have been derived from the Company's
consolidated financial statements, which statements have been audited by
Arthur Andersen LLP and are not included in this Prospectus. The statement of
operations data for the nine months ended June 30, 1995 and 1996, and the
balance sheet data as of June 30, 1996 have been derived from unaudited
Consolidated Financial Statements included elsewhere in this Prospectus and,
in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
condition and results of operations for the periods presented. The results for
the first nine months of fiscal 1996 are not necessarily indicative of the
results that may be expected for the full year. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements appearing
elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------ ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $ -- $ 631 $2,854 $13,801 $14,437 $ 10,727 $ 10,163
Cost of revenues........ -- 368 1,921 6,762 6,129 5,054 4,362
------- ------- ------ ------- ------- -------- --------
Gross margin.......... -- 263 933 7,039 8,308 5,673 5,801
------- ------- ------ ------- ------- -------- --------
Operating expenses:
Research and
development.......... 1,607 1,620 1,139 2,296 3,653 2,882 2,512
Selling and
marketing............ 180 113 317 716 1,077 795 987
General and
administrative....... 155 549 221 916 1,120 856 1,071
Litigation expenses... -- -- -- 199 309 227 182
------- ------- ------ ------- ------- -------- --------
Total operating
expenses........... 1,942 2,282 1,677 4,127 6,159 4,760 4,752
Income (loss) from
operations........... (1,942) (2,019) (744) 2,912 2,149 913 1,049
Interest income
(expense), net......... 51 (72) (115) (2) (45) (52) 2
------- ------- ------ ------- ------- -------- --------
Income (loss) before
income taxes......... (1,891) (2,091) (859) 2,910 2,104 861 1,051
Provision for income
taxes.................. -- -- -- 100 90 37 315
------- ------- ------ ------- ------- -------- --------
Net income (loss)..... $(1,891) $(2,091) $ (859) $ 2,810 $ 2,014 $ 824 $ 736
======= ======= ====== ======= ======= ======== ========
Net income (loss) per
common and common
equivalent share....... $ (0.37) $ (0.38) $(0.15) $ 0.39 $ 0.28 $ 0.11 $ 0.10
======= ======= ====== ======= ======= ======== ========
Weighted average number
of common and common
equivalent
shares outstanding... 5,060 5,496 5,815 7,198 7,275 7,276 7,584
======= ======= ====== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------- ------ ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $ 669 $(1,292) $ (338) $2,054 $3,968 $(1,471)
Total assets............ 1,120 1,153 1,509 6,365 7,740 10,209
Redeemable preferred
stock, including
current portion........ 4,144 4,144 5,781 5,781 5,781 5,781
Stockholders'
equity (deficit)....... (3,163) (5,217) (5,887) (3,065) (1,045) (305)
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements included elsewhere in this Prospectus. This Prospectus contains
certain forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
anticipated in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein.
OVERVIEW
The Company was founded in 1989 to develop, manufacture and market automated
explosives detection systems following the bombing of Pan American Flight 103
over Lockerbie, Scotland. Following its organization, the Company undertook
extensive research and development, introducing its first free standing
automated explosives detection system, the H-1, in 1991, and its first
integrated automated explosives detection systems for Level 1 and Level 2
screening, the VIS and VDS, in 1993. The Company commenced commercial
shipments of its VIS and VDS systems in January 1994. As of September 30,
1996, the Company had sold over 100 explosives detection systems.
The Company's sales are primarily to owners and operators of airports,
including foreign governments and regulatory authorities. The Company's
revenues are derived primarily from product sales. The Company recognizes
revenue from product sales upon shipment to the customer provided that no
significant Company obligations remain outstanding and collection of the
related receivable is deemed probable by management. The Company accrues for
anticipated warranty and installation costs upon shipment. The Company's
revenues also include government research and development grants and revenues
from service, the sale of spare parts and training, which have comprised less
than 10% of revenues in the periods presented. In fiscal 1995 and the first
nine months of fiscal 1996, the Company recognized $1.4 million and $670,000,
respectively, in development revenue from an FAA grant. As of June 30, 1996,
the Company had substantially completed its work under this grant.
The Company has an exclusive license to use certain patents and technology
developed by Hologic for the development, manufacture and sale of X-ray
screening security systems for explosives, drugs, currency and other
contraband. The Company also has a nonexclusive license to use these patents
and technology for the development, manufacture and sale of X-ray based
products which may be used for process control applications in the food and
beverage industries. See "Risk Factors--Limited Protection of Intellectual
Property Rights; Patent Litigation" and "Certain Transactions--Hologic, Inc."
The Company's cost of revenues includes a 5% royalty payable with respect to
product sales and other revenues derived from certain patents and technology
exclusively licensed from Hologic for use in the development, manufacture and
sale of X-ray screening security systems for explosives, drugs, currency and
other contraband. This royalty will be reduced to 3% upon the Company reaching
$50 million in cumulative revenues under this exclusive license agreement, and
eliminated upon the Company reaching $200 million of such cumulative revenues.
Through September 30, 1996 the Company had recorded revenues in the aggregate
amount of approximately $46.9 million subject to this exclusive license. See
"Business--Intellectual Property" and "Certain Transactions--Hologic, Inc."
In fiscal 1993, 1994, 1995 and the first nine months of fiscal 1996, sales
to BAA accounted for approximately 62%, 88%, 76% and 73% of revenues,
respectively. BAA is scheduled to complete deployment of checked baggage
explosives detection systems at its seven airports by the end of 1997. As a
result, the Company expects that its revenues from BAA will become
increasingly dependent upon sales of upgrades, replacement equipment and
services, and that new orders from BAA will decrease during fiscal 1997. The
failure
16
<PAGE>
of the Company to obtain orders from customers other than BAA would have a
material adverse effect on the Company's business and financial condition. See
"Risk Factors--Reliance on a Significant Customer."
Substantially all of the Company's revenues have been generated by sales to
customers outside the United States. The Company's foreign sales have occurred
principally in the UK and other Western European countries. The Company has a
sales and service office in the UK to support its European operations, plans
to expand its presence in Europe and the Asia/Pacific Region, and expects
international sales to remain an important component of the Company's
business. The Company's export sales have been denominated primarily in United
States dollars. To the extent that the Company changes its pricing practices
to denominate prices in foreign currencies, the Company will be exposed to
increased risks of currency fluctuation. See "Risk Factors--Reliance on
International Sales."
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth the percentage of
revenues represented by the respective line items in the Company's
consolidated statement of operations:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------------- ------------------
1993 1994 1995 1995 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................. 67.3 49.0 42.5 47.1 42.9
------ ------ ------ -------- --------
Gross margin.................... 32.7 51.0 57.5 52.9 57.1
Operating expenses:
Research and development........ 39.9 16.6 25.3 26.9 24.7
Selling and marketing........... 11.1 5.2 7.5 7.4 9.7
General and administrative...... 7.8 6.6 7.7 8.0 10.6
Litigation expenses............. -- 1.5 2.1 2.1 1.8
------ ------ ------ -------- --------
Total operating expenses...... 58.8 29.9 42.6 44.4 46.8
------ ------ ------ -------- --------
Income (loss) from operations... (26.1) 21.1 14.9 8.5 10.3
Interest income (expense), net.... (4.0) -- (0.3) (0.5) --
------ ------ ------ -------- --------
Income (loss) before income
taxes.......................... (30.1) 21.1 14.6 8.0 10.3
Provision for income taxes........ -- 0.7 0.6 0.3 3.1
------ ------ ------ -------- --------
Net income (loss)............... (30.1)% 20.4% 14.0% 7.7% 7.2%
====== ====== ====== ======== ========
</TABLE>
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Revenues. Revenues decreased by 5.3% to $10.2 million in the first nine
months of fiscal 1996, as compared to $10.7 million in the comparable period
in fiscal 1995. This decrease reflected decreases in product sales and FAA
development grants. The decrease in product sales was primarily attributable
to the decrease in unit sales, which was partially offset by the higher
average selling price of new models. Sales to BAA accounted for approximately
73% and 77% of revenues for the first nine months of fiscal 1996 and 1995,
respectively.
Gross Margin. Gross margin increased to 57.1% of revenues in the first nine
months of fiscal 1996 compared to 52.9% of revenues in the first nine months
of fiscal 1995. The increase in gross margin was primarily attributable to the
Company's introduction of new products and enhancements to existing products
that resulted in a change in product mix, manufacturing efficiencies and
reduced costs associated with the Company's FAA grant.
Research and Development Expenses. Research and development expenses
decreased by 12.8% to $2.5 million (24.7% of revenues) in the first nine
months of fiscal 1996 from $2.9 million (26.9% of revenues) in the first nine
months of fiscal 1995. The decrease was primarily attributable to expenditures
in fiscal 1995 related to
17
<PAGE>
the Company's development of its VIS-M product, which was substantially
completed by the first quarter of fiscal 1996.
Selling and Marketing Expenses. Selling and marketing expenses increased by
24.1% to $990,000 (9.7% of revenues) in the first nine months of fiscal 1996
from $800,000 (7.4% of revenues) in the first nine months of fiscal 1995. The
increase was primarily attributable to additional sales and support personnel,
and to an increase in advertising, consulting and trade show costs. The
Company anticipates that it will continue to expand its selling and marketing
efforts in fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased by 25.0% to $1.1 million (10.6% of revenues) in the first nine
months of fiscal 1996 from $860,000 (8.0% of revenues) in the first nine
months of fiscal 1995. The increase was primarily attributable to an increase
in personnel and additional overhead costs related to the Company's move to a
new facility in March 1996. The Company anticipates that it will continue to
increase its general and administrative costs in fiscal 1997.
Litigation Expenses. The Company incurred $180,000 and $230,000 of
litigation expenses in the first nine months of fiscal 1996 and 1995,
respectively, in connection with the Company's patent litigation with EG&G
and, in the first nine months of fiscal 1996, AS&E. The Company anticipates
that it will continue to incur significant legal expenses with respect to this
claim until this claim is resolved or settled. See "Risk Factors--Limited
Protection of Intellectual Property Rights; Patent Litigation," "Business--
Intellectual Property" and "--Legal Proceedings."
Interest Income (Expense), Net. The Company recognized net interest income
of $2,000 in the first nine months of fiscal 1996 and net interest expense of
$52,000 in the comparable period in fiscal 1995. The change in interest income
(expense), net was primarily attributable to reduced average borrowings by the
Company under its bank working capital line of credit.
Provision for Income Taxes. The Company's effective tax rate was 30.0% in
the first nine months of fiscal 1996. In the first nine months of fiscal 1995,
the Company's effective tax rate was 4.3%. The increase in the Company's
effective tax rate was primarily attributable to the Company fully utilizing
its net operating loss carryforwards as of September 30, 1995. The Company
expects that its effective tax rate will continue to be lower than the
statutory tax rates primarily due to the use of tax credits, tax credit
carryforwards and the tax benefits associated with the Company's foreign sales
corporation established in December 1994.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1994
Revenues. Revenues increased by 4.6% to $14.4 million in fiscal 1995 from
$13.8 million in fiscal 1994. The increase was primarily attributable an
increase in development revenues that were partially offset by a slight
decrease in product revenues. In fiscal 1995, the Company recognized $1.4
million in development revenues from the FAA, compared to no development
revenues in fiscal 1994. Product sales in fiscal 1995 reflected a significant
increase in sales of the Company's VIS-W product which was offset by a
decrease in the number of other products sold.
Gross Margin. Gross margin increased to 57.5% of product sales in fiscal
1995 from 51.0% of product sales in fiscal 1994. Gross margin increased as a
percentage of revenues in fiscal 1995 primarily due to a volume increase in
the number of VIS-W systems sold and associated manufacturing efficiencies.
Research and Development Expenses. Research and development expenses
increased by 59.1% to $3.7 million (25.3% of revenues) in fiscal 1995 from
$2.3 million (16.6% of revenues) in fiscal 1994. The increase was primarily
attributable to the addition of engineering personnel and outside consultants
working on the development of new products and product enhancements, including
the Company's VIS-M product.
18
<PAGE>
Selling and Marketing Expenses. Selling and marketing expenses increased by
50.4% to $1.1 million (7.5% of revenues) in fiscal 1995 from $720,000 (5.2% of
revenues) in fiscal 1994. The increase was primarily attributable to
additional sales and support personnel, including staffing of the Company's
United Kingdom office, and to an increase in advertising and trade show costs.
General and Administrative Expenses. General and administrative expenses
increased by 22.4% to $1.1 million (7.7% of revenues) in fiscal 1995 from
$920,000 (6.6% of revenues) in fiscal 1994. The increase was primarily
attributable costs associate with the Company's growth, including the addition
of personnel, additional costs associated with its United Kingdom subsidiary
and an increase in management services provided by Hologic.
Litigation Expenses. The Company incurred $310,000 and $200,000 of
litigation expenses in fiscal 1995 and 1994, respectively, in connection with
the Company's patent litigation with EG&G.
Interest Income (Expense), Net. The Company incurred net interest expense of
$45,000 and $2,000, respectively, in fiscal 1995 and fiscal 1994,
respectively. The increase was primarily attributable to increased average
borrowings by the Company under its bank working capital line of credit.
Provision for Income Taxes. The Company's effective tax rate was 4.3% in
fiscal 1995 and 3.4% in fiscal 1994. The provision for income taxes in these
years consisted primarily of federal alternative minimum tax. The Company's
effective tax rate was lower than the statutory tax rates due primarily to the
use of tax credits, the use of net loss carryforwards, and certain tax
benefits associated with the Company's foreign sales corporation incorporated
in December 1994.
FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1993
Revenues. Revenues increased by 383.6% to $13.8 million in fiscal 1994 from
$2.9 million in fiscal 1993. The increase was primarily attributable to the
Company's first orders for permanent installation of its integrated automated
explosives detection systems and, to a lesser extent, increased sales of the
Company's free standing systems.
Gross Margin. Gross margin increased to 51.0% in fiscal 1994 from 32.7% in
fiscal 1993. The increase was primarily attributable increased manufacturing
efficiencies achieved in fiscal 1994 associated with the Company's increased
sales.
Research and Development Expenses. Research and development expenses
increased by 101.5% to $2.3 million (16.6% of revenues) in fiscal 1994 from
$1.1 million (39.9% of revenues) in fiscal 1993. The increase was primarily
attributable to increased personnel in research and engineering for product
development and enhancements, including the increased costs associated with
the Company's development of its workstation application for its VIS-W
product.
Selling and Marketing Expenses. Selling and marketing expenses increased by
126.2% to $720,000 (5.2% of revenues) in fiscal 1994 from $320,000 (11.1% of
revenues) in fiscal 1993. The increase was primarily attributable to an
increase in the number of selling and marketing personnel, and the opening of
a sales and service office in the United Kingdom in September 1993.
General and Administrative Expenses. General and administrative expenses
increased by 314.6% to $920,000 (6.6% of revenues) in fiscal 1994 from
$220,000 (7.8% of revenues) in fiscal 1993. The increase was primarily
attributable to increased personnel, the increase in management services
provided by Hologic and the issuance of bonuses to employees.
Litigation Expenses. The Company incurred $200,000 of litigation expenses in
fiscal 1994 compared to no litigation expense in fiscal 1993 in connection
with the Company's patent litigation with EG&G.
19
<PAGE>
Interest Income (Expense), Net. The Company incurred net interest expense of
$2,000 and $115,000, respectively, in fiscal 1994 and fiscal 1993,
respectively. The decrease was primarily attributable to decreased average
borrowings by the Company under its bank working capital line of credit and
the conversion of certain notes payable into Series C Preferred Stock and
Series D Preferred Stock in July 1993.
Provision for Income Taxes. The Company's effective tax rate was 3.4% in
fiscal 1994. The Company had a net tax loss in fiscal 1993. The provision for
income tax in fiscal 1994 consists primarily of federal alternative minimum
tax. The Company's effective tax rate was lower than the statutory tax rates
primarily because of the Company's use of net operating loss carryforwards and
certain tax credits.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited consolidated quarterly
financial information for the three quarters ended June 30, 1996. In the
opinion of the Company's management, this information has been prepared on the
same basis as the Consolidated Financial Statements appearing elsewhere in
this Prospectus and includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial results set
forth herein. Results of operations for any previous quarter are not
necessarily indicative of results for any future periods.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------
DECEMBER 31, MARCH 31, JUNE 30,
1995 1996 1996
------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues....................................... $3,017 $3,225 $3,921
Cost of revenues............................... 1,259 1,399 1,704
------ ------ ------
Gross margin.................................. 1,758 1,826 2,217
Operating expenses:
Research and development...................... 789 799 924
Selling and marketing......................... 285 268 434
General and administrative.................... 341 364 366
Litigation expenses........................... 61 61 60
------ ------ ------
Total operating expenses...................... 1,476 1,492 1,784
------ ------ ------
Income from operations........................ 282 334 433
Interest income (expense), net................. 18 6 (22)
------ ------ ------
Income before income taxes.................... 300 340 411
Provision for income taxes..................... 90 102 123
------ ------ ------
Net income.................................... $ 210 $ 238 $ 288
====== ====== ======
<CAPTION>
QUARTER ENDED
-------------------------------
DECEMBER 31, MARCH 31, JUNE 30,
1995 1996 1996
------------ --------- --------
<S> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues....................................... 100.0% 100.0% 100.0%
Cost of revenues............................... 41.7 43.3 43.5
------ ------ ------
Gross margin.................................. 58.3 56.7 56.5
------ ------ ------
Operating expenses:
Research and development...................... 26.2 24.8 23.6
Selling and marketing......................... 9.4 8.3 11.1
General and administrative.................... 11.3 11.3 9.3
Litigation expenses........................... 2.0 1.9 1.5
------ ------ ------
Total operating expenses...................... 48.9 46.3 45.5
------ ------ ------
Income from operations........................ 9.4 10.4 11.0
Interest income (expense), net................. 0.6 0.2 (0.6)
------ ------ ------
Income before income taxes.................... 10.0 10.6 10.4
Provision for income taxes..................... 3.0 3.2 3.1
------ ------ ------
Net income..................................... 7.0% 7.4% 7.3%
====== ====== ======
</TABLE>
20
<PAGE>
The Company's results of operations have been and may continue to be subject
to significant quarterly fluctuations, due to a number of factors, many of
which are beyond the control of the Company. Relatively few system sales to
relatively few customers comprise a significant portion of the Company's
revenues in each quarter. Therefore, small variations in the number of systems
sold have a significant effect on the Company's results of operations. The
Company believes that period to period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. See "Risk Factors--Significant Fluctuations
and Unpredictability of Operating Results."
The Company has received a substantial portion of its revenues from product
sales to BAA. During fiscal 1996, the Company's sales to BAA remained
relatively consistent, reflecting the Company's ability to spread shipments of
orders to BAA throughout the year. In the third quarter of fiscal 1996, the
Company began shipment of its first VIS-M products. In the same period, the
Company began upgrading previously installed systems with its new scatter
detection enhancement technology.
The quarterly fluctuations of the Company's gross margin was primarily
attributable to changing product mix, initial costs associated with the
introduction of the Company's VIS-M product and increased manufacturing
efficiencies achieved as the Company's products have matured.
The Company's research and development expense increased in the third
quarter of fiscal 1996, primarily reflecting expenses incurred in the
development of the Company's APS explosives detection system for carry-on
baggage and the continued enhancement of its existing products. The growth of
selling and marketing expenses and general and administrative expenses
reflects the Company's growing infrastructure, including increased marketing,
operational and administrative staff to support the Company's sales and
anticipated growth, and increased trade show costs.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations and capital
expenditures through internally generated cash flow, proceeds from sales of
securities and the availability of a working capital line of credit. At June
30, 1996, the Company had a working capital deficit of $1.5 million, including
$640,000 in cash and cash equivalents. The Company also has a $3.0 million
bank line of credit which expires on February 28, 1997, of which $1.0 million
was outstanding at June 30, 1996. The Company's bank line of credit bears
interest at the bank's prime rate (8.25% as of June 30, 1996). The line of
credit is secured by substantially all of the Company's assets and contains
certain financial and other covenants. As of the date of this Prospectus, the
Company had no amounts outstanding under this line of credit.
During the first nine months of fiscal 1996, the Company's net cash used in
operating activities was approximately $2.3 million. During that period, $2.9
million and $990,000 increases in accounts receivable and inventory,
respectively, were partially offset by net income and non-cash depreciation
and amortization expenses totaling $1.0 million and an increase in accounts
payable of $630,000. As of June 30, 1996, the Company had a $3.9 million
account receivable due from BAA of which $3.5 million has subsequently been
paid.
During fiscal 1995, operating activities provided the Company with net cash
of $1.0 million. During that period, net income and non-cash depreciation and
amortization expenses totaling $2.3 million were partially offset by increases
in inventory, accounts receivable and other current assets, and a $700,000
reduction in customer deposits. The reduction in customer deposits reflected
the Company's decision to change its terms of sale to reduce or eliminate
customer deposits in response to customer demands.
The Company's capital expenditures during the first nine months of fiscal
1996 and in fiscal 1995 were $500,000 and $380,000, respectively. While the
Company does not have any significant commitments for capital expenditures,
the Company anticipates that it will continue to purchase equipment to support
its anticipated growth.
21
<PAGE>
During the first nine months of fiscal 1996 and during fiscal 1995, the net
cash provided by financing activities were $870,000 and $7,000, respectively.
Net cash provided by financing activities is primarily attributable to
borrowings under the Company's bank line of credit and proceeds from the sale
of Common Stock pursuant to employee stock options.
The Company has 578,065 shares of redeemable non-convertible Series A and
Series C Preferred Stock outstanding. All of these shares are redeemable
within one year of June 30, 1996. The Company will redeem all of the issued
and outstanding shares of the Series A and Series C Preferred Stock at the
closing of the Offering in order to eliminate certain rights and preferences
of the holders of such stock.
In October 1994, EG&G filed a patent infringement claim against the Company
alleging that certain of the Company's products violate a patent held by EG&G.
EG&G is seeking damages and expenses from the Company and to enjoin the
Company from selling products that allegedly infringe the EG&G patent. In
December 1994, the Company filed an answer denying any infringement and a
counterclaim seeking invalidation of the EG&G patent and alleging that EG&G is
infringing three patents owned and licensed by the Company. In May 1996, in
response to allegations made by AS&E to third parties that the Company was
infringing AS&E's patents, the Company filed a request for declaratory
judgment that the Company is not infringing AS&E's patents. In August 1996,
AS&E filed an answer and counterclaim alleging that the Company is infringing
one or more of eight AS&E patents. Although the Company does not believe that
it is infringing any valid patents of either EG&G or AS&E, there can be no
assurance that the Company will prevail in its litigation or reach a favorable
settlement with either EG&G or AS&E. An unfavorable outcome to the Company
could result in an injunction prohibiting the Company from using the
technology found to be infringing, which technology may be critical to the
functioning of the Company's products, or could require the Company to pay
substantial damages. A settlement of either of these disputes could require
the Company to pay substantial settlement amounts and/or ongoing royalties.
Even if the Company were successful in its defense of these claims, the costs
of defense are likely to be substantial. See "Risk Factors--Limited Protection
of Intellectual Property Rights; Patent Litigation," "Business--Legal
Proceedings."
The Company believes that the net proceeds from the Offering, cash received
from operations and its current sources of liquidity will be adequate to fund
the Company's operations through at least the next twelve months. However for
a discussion of certain factors that could adversely affect the Company's
financial position and results of operations, see "Risk Factors."
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-
Based Compensation," which becomes effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. However, entities are allowed to
elect whether to measure compensation expense for stock-based compensation
under SFAS 123 or APB No. 25, "Accounting for Stock Issued to Employees." The
Company has elected to remain with the accounting under APB No. 25 and will
make the required pro forma disclosures of net income and earnings per share
as if the provisions of SFAS 123 had been applied in its September 30, 1997
financial statements. The potential impact of adopting this standard on the
Company's pro forma disclosures of net income and earnings per share has not
been quantified at this time.
22
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading developer, manufacturer and marketer of automated
inspection systems which detect plastic and other explosives in airline
baggage. The Company's family of advanced explosives detection systems
identify targeted materials by analyzing the physical characteristics of each
item in a bag, including the atomic number and mass, using patented
composition analysis techniques and proprietary dual-energy X-ray technology.
These systems automatically (without the use of an operator) isolate and
identify targeted materials within a bag, thereby preventing a suspect bag
from being loaded into an aircraft until cleared by operator inspection. The
Company's systems can also be used to identify a wide variety of other
substances, including drugs and currency.
In 1993, the Company's automated systems were successfully deployed in
airports as part of an integrated multi-level checked baggage screening
approach that is being adopted in many countries throughout the world. To
date, the Company has sold over 100 systems for installation in airports
throughout Europe. The Company's systems are in use in over 75% of the
airports that have deployed advanced integrated explosives detection
equipment, including London Heathrow and London Gatwick, Paris Charles de
Gaulle, Amsterdam, Zurich, Brussels and Glasgow.
INDUSTRY BACKGROUND
Markets. There are over 600 commercial airports worldwide providing
scheduled service to more than 2.5 billion passengers per year. Of these
airports, over 400 are located in the United States, 150 in Europe and 50 in
the Asia/Pacific region. Based upon the installations of the Company's
systems, the Company believes that one integrated multi-level checked baggage
screening system can serve up to approximately one million passengers per year
in mid-size and large airports. The capabilities of each integrated multi-
level system at each airport, as well as the number of systems required, will
vary depending upon a variety of factors, including the explosives detection
equipment deployed, the configuration of the airport's baggage handling
systems, the nature of the integration of the explosives detection equipment
with the airport's baggage handling systems and the profile of the airport's
passenger traffic flow. Airports deploying advanced explosives detection
equipment, including smaller airports, may choose to implement one or more
freestanding systems.
The Company believes that the implementation of effective checked baggage
screening will highlight the ineffectiveness of conventional X-ray systems to
identify explosives in carry-on baggage. The United Nations International
Civil Aviation Organization requires all 184 member states to inspect 100% of
international carry-on baggage for the detection of weapons, and virtually all
airports use conventional X-ray systems for this purpose. The Company believes
that several thousand of these conventional X-ray systems are installed in
airports throughout the world, and that these systems are candidates for
replacement with more sophisticated systems.
Market Evolution and Government Initiatives. In the 1970s, in response to
hijackings, airports worldwide began to install X-ray systems to screen carry-
on baggage for weapons such as guns and knives. When combined with walk-
through metal detectors, these systems substantially reduced the number of
airplane hijackings. The success of these systems in airports also fostered
their adoption for use by governmental agencies and private companies. As the
threat to civil aviation evolved in the early 1980's from hijackings to
bombings, many countries required checked baggage on international flights to
be inspected. Most equipment initially deployed for this purpose have been
conventional X-ray systems. Although conventional X-ray systems are effective
for the detection of weapons made from dense materials with defined shapes,
such as guns and knives, they are ineffective in detecting explosive materials
that are not as dense and can be molded into virtually any shape.
In response to the December 1988 bombing of Pan American Flight 103 over
Lockerbie, Scotland, many countries began the installation of systems that
could detect plastic and other explosives in airline baggage.
23
<PAGE>
Europe, led by the United Kingdom, has been at the forefront of deploying
advanced automated explosives detection equipment.The United Kingdom
Department of Transport (the "UK DOT") has required the United Kingdom's
commercial airports to deploy systems for 100% screening of international
checked baggage by the end of 1997. The European Civil Aviation Conference
("ECAC"), an organization of 33 member countries, has agreed to implement 100%
screening of international checked baggage by the year 2000. Several of those
countries, including Belgium, France, Netherlands, Spain and Switzerland, have
begun to implement checked baggage screening approaches similar to that
adopted by the United Kingdom.
In the Asia/Pacific region, major new airports and terminals, including in
Hong Kong, Malaysia, Singapore and South Korea, are being designed to include
100% screening of international checked baggage using advanced automated
explosives detection systems. These and other countries in the region,
including Japan, are also studying the implementation of these systems at
existing airports.
Following the Pan American Flight 103 bombing, the United States enacted the
Aviation Security Improvement Act of 1990 (the "Aviation Security Act"). The
Aviation Security Act directed the Federal Aviation Administration (the "FAA")
to develop a standard for explosives detection systems and required airports
in the United States to deploy systems meeting this standard by 1993. The
standard adopted by the FAA is more comprehensive than standards adopted by
the rest of the world. To date, no system has demonstrated that it meets the
FAA standard under realistic airport operating conditions. As a result, the
FAA has not required the installation of automated explosives detection
systems, and only a limited number of these systems have been deployed,
primarily on a test basis, in the United States.
In response to the recent crash of TWA Flight 800 off Long Island, New York
in July 1996, President Clinton formed the White House Commission on Aviation
Safety and Security, chaired by Vice President Gore (the "Gore Commission"),
to review airline and airport security and oversee aviation safety. The Gore
Commission released its initial report in September 1996, and in October 1996,
the United States enacted legislation which includes a $144.2 million
allocation to purchase explosives detection systems and other advanced
security equipment.
Implementation of Checked Baggage Systems. Effective screening of checked
baggage for explosives and other contraband is a complex task. To accomplish
this task while meeting the operational requirements of airports, a screening
system must be flexible, accurate, fast, reliable and cost-effective. The
screening system must have the ability to effectively identify a wide range of
explosives, including plastic explosives which can be molded into virtually
any shape. In addition, the system must have an acceptable false alarm rate,
rejecting only a limited percentage of explosive-free luggage. The system must
also process baggage rapidly and have limited down-time to avoid delays. Costs
associated with installation include the cost of modifying the airport's
baggage handling system to accommodate the explosives detection equipment and
the cost of integrating that equipment with the baggage handling system. A key
component of the cost of operation is the staffing associated with operating
these systems.
Several advanced explosives detection systems have been developed to address
these requirements, each with its own inherent advantages and limitations.
These systems include dual energy X-ray, trace detection and computed
tomography (CT) systems. Dual energy X-ray systems measure the X-ray
absorption properties of a bag's contents at two different X-ray energies to
determine if any of the items have the physical characteristics of explosive
materials. Trace detection equipment, known as "sniffers," detect particulate
and chemical traces of explosive materials collected by an operator by wiping
or vacuuming the bag under inspection. CT systems use hundreds of partial X-
ray images, referred to as slices, to analyze the contents of a bag. The FAA
certified a CT-based system in December 1994. However, the FAA has recognized
that this system must undergo further testing to resolve whether it can
operate under realistic airport operating conditions. Certain information,
which has been derived from publicly available information, regarding each of
these systems is set forth in the following table:
24
<PAGE>
<TABLE>
<CAPTION>
THROUGHPUT
TECHNOLOGY EQUIPMENT PRICE (BAGS PER HOUR) (1) FILM SAFETY
---------- ------------------- ------------------- -------------
<S> <C> <C> <C>
Dual Energy X-ray......... $200,000-$ 450,000 900-1,500 Film safe
Trace Detection........... $ 50,000-$ 170,000 120- 180 Film safe
Computed Tomography....... $800,000-$1,000,000 150- 260 Not film safe
</TABLE>
- --------
(1) Throughput measures the maximum number of bags that can be inspected by
the system per hour.
In 1993, BAA plc ("BAA"), formerly the British Airport Authority and one of
the first airport operators to implement 100% checked baggage screening using
automated explosives detection equipment, developed a multi-level automated
screening approach that integrates the explosives detection equipment directly
into the airport baggage handling systems. The multi-level approach, which is
being adopted throughout Europe and the Asia/Pacific region, separates the
screening process into multiple steps, and permits the use of equipment at
each stage that is most suitable for the requirements of that particular
stage.
Under the multi-level approach, a fully-automated Level 1 explosives
detection system is integrated into the existing airport baggage handling
system to screen rapidly all baggage without an operator in attendance. Bags
rejected by the Level 1 system are subjected to Level 2 inspection. Level 2
inspection equipment allows an operator to review and manipulate images of the
contents of the rejected bags provided by the Level 1 system or a separate
Level 2 system. If the operator rejects the bag, it is forwarded for Level 3
inspection. Level 3 inspection is the slowest and the most detailed process.
Bags rejected at Level 3 are inspected by hand in the presence of the
passenger. Bags not rejected at any inspection level are conveyed by the
baggage handling system for loading into the aircraft. This multi-level
approach, when implemented with rapid automated explosives detection
equipment, can maintain the processing rates of existing baggage handling
systems. The multi-level approach also significantly reduces operating costs
by reducing staffing requirements.
Level 1 inspection systems, which must inspect all baggage on a conveyor
line, are often required to inspect baggage during peak periods at the rate of
900 to 1,500 bags per hour (2.4 to 4.0 seconds per bag) in order to avoid
delays in the baggage handling process. Level 2 inspection systems are often
required to process baggage at the rate of 180 to 360 bags per hour (10 to 20
seconds per bag). Level 3 systems can be slower to accommodate the greater
precision required for the operator to fully inspect the bag in order to avoid
the undesirable and expensive final inspection process, which requires the bag
to be reunited with the passenger and inspected by hand.
As a result of their high throughput rates, dual energy X-ray explosives
detection systems have been deployed in all integrated Level 1 and most Level
2 installations. Trace Detection, and to a lesser extent CT scanners, have
generally been deployed as Level 3 systems. More recently, enhanced versions
of dual energy X-ray explosives detection systems have been deployed as Level
3 systems. In addition, trace detection, dual energy X-ray and CT scanners
have been deployed as free-standing checked baggage explosives detection
systems.
Implementation of Carry-on Baggage Systems. There are currently no
requirements for the use of automated explosives detection systems to screen
carry-on baggage. However, the presence of explosives in carry-on baggage
poses a serious threat to civil aviation. A published industry source
estimated that approximately one quarter of bombs smuggled on board aircraft
were hidden in carry-on baggage. Although the current focus of explosives
detection efforts has been on the screening of checked baggage, a potential
extension of the explosives detection technology developed for this purpose is
to screen carry-on baggage.
THE VIVID SOLUTION
The Company has developed a family of effective explosives detection systems
that automatically (without the use of an operator) isolate and identify
suspect materials in airport baggage and prevent the rejected baggage from
being loaded into an aircraft until cleared by operator inspection. The
Company's systems are in use in over 75% of the airports that have deployed
integrated multi-level automated explosives detection systems,
25
<PAGE>
including London Heathrow and London Gatwick, Paris Charles de Gaulle,
Amsterdam, Zurich, Brussels and Glasgow. Many of the Company's customers have
placed multiple orders for the Company's systems and have served as referrals
for additional sales. The Company believes that the success of its systems is
attributable to the following advantages:
High Performance. The Company's patented composition analysis techniques and
proprietary X-ray technology enable its systems to effectively identify
plastic and other high explosives, with relatively low false alarm rejections
at throughputs of up to 1,500 bags per hour, which is comparable to the peak
throughput of existing baggage handling equipment. The Company believes that
no competitive system offers as high a throughput with comparable detection
capabilities and false alarm rates as the Company's VIS systems. The Company's
systems are capable of being upgraded to detect many new materials as they are
developed.
Cost Effectiveness. The Company has introduced a number of innovations to
reduce the cost of installation, integration and operation of a multi-level
checked baggage screening system. As a result, the Company believes that its
integrated systems achieve a competitive cost per bag inspected, including the
cost of the equipment, installation, integration and operation.
Proven Reliability. The Company's installed base of over 100 systems, some
of which have been in continuous operation since 1992, have a reported average
system availability of over 99%.
Product Breadth and System Flexibility. The Company offers a broad line of
automated explosives detection systems that address the security needs of
airports of varying sizes under a variety of operating conditions. Airports
which have installed the Company's systems range in size from England's
Southampton Eastleigh Airport, which processes approximately 500,000
passengers per year, to London Heathrow Airport, which processes more than 50
million passengers per year.
STRATEGY
The Company's objectives are to maintain its leadership in the airport
automated explosives detection systems market and to apply its technology to
address complementary applications. The key elements of the Company's strategy
to achieve these objectives are as follows:
Maintain Technological Leadership. The Company has been at the forefront of
developing and advancing the market for automated explosives detection
systems. The Company believes that it was the first to introduce the
following: (i) an X-ray-based advanced automated explosives detection system
for checked baggage screening capable of being fully integrated into an
airport baggage handling system; (ii) an explosives detection system
architecture allowing multiple workstations to display images from multiple
Level 1 systems; (iii) an explosives detection system combining dual energy X-
ray with scatter detection technology; and (iv) a dual energy X-ray-based
explosives detection system allowed for use as a Level 3 inspection system.
The Company intends to expand upon its core technical expertise to continue
offering leading edge automated screening solutions.
Continue International Expansion. The Company has concentrated its initial
marketing efforts on airports in countries outside of the United States in
response to the early adoption of advanced explosives detection equipment in
those markets. The Company believes that the deployment of its systems in
Europe provides valuable referral sites to promote further sales of its
products. The Company has established a sales and servicing subsidiary in the
United Kingdom to support its European efforts and plans to expand its
presence in Europe and in the Asia/Pacific region.
Capitalize on Emerging United States Market. Through September 1996, the FAA
had not mandated the deployment of any advanced explosives detection systems.
In October 1996, the United States enacted legislation which includes a $144.2
million allocation to purchase explosives detection systems and other advanced
security equipment. The Company is expanding its sales and marketing force to
address this emerging market and is
26
<PAGE>
working actively with the FAA, other government agencies, airlines, airport
operators, Congressional committees and the Gore Commission to promote the
efficacy and cost-effectiveness of its products for deployment in United
States airports.
Expand Product Line and Applications. The Company is expanding its product
line and applications of its existing products to serve markets other than
explosives detection screening of airport checked baggage. These new market
opportunities include the screening of airport carry-on baggage, the
protection of government and private facilities, the detection of drugs and
currency, the screening of mail and advanced process control.
Explore Strategic Alliances and Acquisitions. The Company intends to pursue
strategic alliances, acquisitions and licenses of complementary technologies
to further enhance its growth.
PRODUCTS
The Company develops, manufactures and markets a family of advanced
automated systems that can detect explosives and other contraband in airline
baggage and other parcels. The first market to emerge for these systems has
been explosives detection for airline baggage. The Company's product line
includes Level 1 and Level 2 integrated automated explosives detection systems
for checked baggage, freestanding automated explosives detection systems for
Level 3, terminal and baggage hall inspection of checked baggage, and an
automated explosives detection system for carry-on baggage. The list prices
for the Company's automated integrated and freestanding checked baggage
explosives detection systems range from approximately $250,000 to $450,000.
The Company's list price for its carry-on baggage explosives detection system
is approximately $75,000. Through September 30, 1996, the Company has sold
more than 100 advanced automated explosives detection systems.
Each of the Company's automated checked baggage explosives detection systems
uses a proprietary instrumentation quality power supply that generates
alternating high (150kV) and low (75kV) energy pulses at film safe-levels of
exposure. The power supply is driven by an X-ray controller that uses both
current and source voltage feedback to maintain a stable, repeatable fan
shaped X-ray beam. As the X-ray beam passes through the bag and its contents,
a portion of the beam is absorbed (referred to as X-ray absorption or
attenuation) and a portion is scattered. The beam that passes through the bag
without being absorbed or scattered is referred to as the transmitted beam and
contains information regarding the X-ray absorption properties of the objects
within the bag at each of the two levels of energy generated by the X-ray
tube. This information can be used to analyze the atomic number, mass and
other physical characteristics of the objects within the bag. The transmitted
beam also contains information that can be used to make high quality images of
the contents of a bag.
The Company's automated checked baggage explosives detection systems
incorporate a high resolution detector array that collects high quality data
from the transmitted X-ray beam consisting of more than one million pixels of
information per bag. The systems then employ the Company's patented
composition analysis software algorithms to identify and separate the
individual objects within a bag, including objects in between other items or
within a container. These algorithms also analyze the atomic number, mass and
other characteristics of each of those objects to determine whether they match
those of a targeted item, such as explosives or other contraband. Additional
algorithms detect materials such as lead that could be used to shield an
explosive device from this analysis.
X-ray absorption analysis techniques are less effective for detecting
certain configurations of explosives which only absorb a very small fraction
of the transmitted beam. However, these materials tend to scatter X-rays more
than other materials. The Company has developed proprietary scatter detection
enhancement ("SDE") technology that enhances its systems' ability to detect
these configurations. The Company's SDE system, which includes a combination
of additional detection arrays and software, measures and analyses the
scattered X-ray intensity emitted from baggage in both the forward and
backward direction. If the scatter levels indicate the possible presence of a
suspect material in a bag, the affected area is further analyzed to determine
if a threat is present. The Company has incorporated SDE technology in most of
its products, either as an option or a standard feature, and also offers this
technology as an upgrade for existing systems.
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<PAGE>
Both the Company's composition and scatter analysis techniques result in a
computer generated decision regarding the contents of the baggage screened.
Any bag that is determined to contain a suspect object will cause the system
to reject the bag. In the case of an operator attended system, such as a Level
2 or Level 3 system, an image of the rejected bag is presented to an operator
for detailed inspection. The bag image is presented in high resolution gray
scale, with the suspect object highlighted in bright red. The system can be
programmed to sound an alarm, as well as require the operator to acknowledge
the alarm by pressing a designated button to either reject or clear the bag.
The Company has integrated its products into a wide range of airport baggage
handling systems. These products make use of an effective control software
developed by the Company to facilitate communication between the explosives
detection system and the airport baggage handling system. If no suspect object
is detected by the automated system, a "clear" status is sent to the baggage
handling system, allowing the bag to continue directly to the aircraft. If a
suspect object is detected, a "reject" message is sent to the baggage handling
system, requiring the next level of inspection. The Company has gained broad
acceptance of its control software by working closely with many of the major
baggage handling systems and control systems contractors.
28
<PAGE>
The Company's systems are offered in a variety of configurations depending
on the application or installation requirements. The following table sets
forth certain information regarding the Company's current product line of
automated explosives detection systems:
CHECKED BAGGAGE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
YEAR OF
MODEL INTRODUCTION APPLICATIONS FEATURES (1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
H-1 1991 Freestanding terminal or baggage .Operator interface
hall inspection .0.2 meters/sec. belt speed
.Film safe
VIS 1993 Integrated Level 1 system .No operator required
.1,500 or 900 bags per hour
throughput
.0.5 meters/sec. belt speed
.SDE option
.Film safe
VDS-II 1995(2) Freestanding terminal or baggage .Operator interface
hall inspection, or integrated .0.25 meters/sec. belt speed
Level 2 system .Film safe
VIS-W 1994 Integrated combined Level 1 and .No operator required for Level 1
Level 2 system inspection
.One Level 2 workstation with
operator interface
.1,500 or 900 bags per hour
throughput
.0.5 meters/sec belt speed
.SDE option
.Film safe
VDS-III 1996 Freestanding Level 3, or terminal .Operator interface
or baggage hall inspection .0.25 meters/sec. belt speed
.SDE included
.Film safe
VIS-M 1996 Integrated combined Level 1 and .No operator required for Level 1
Level 2 system inspection
.Supports up to five Level 2
workstations with operator
interface
.Two mainframe matrixing
capability
.1,500 or 900 bags per hour
throughput
.0.5 meters/sec belt speed
.SDE option
.Linear screening compatible (3)
.Film safe
- --------------------------------------------------------------------------------------------
</TABLE>
CARRY-ON BAGGAGE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
YEAR OF
MODEL INTRODUCTION APPLICATIONS FEATURES (1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
APS 1996 Freestanding carry-on baggage .Advanced operator interface
screening for explosives and .0.2 meters/sec. belt speed
weapons .Film safe
- --------------------------------------------------------------------------------------
</TABLE>
(1) Throughput only applies to integrated Level 1 systems that do not have an
operator interface.
(2) The first VDS model was introduced in 1993.
(3) Enables Level 2 screening without diverting baggage to a secondary
conveyor belt.
29
<PAGE>
Integrated Models. The Company's first integrated products were the VIS
Level 1 inspection system and the VDS Level 2 inspection system. The VIS
system is used to inspect 100% of the baggage on a baggage conveyor line. The
system is capable of automatically inspecting up to 1,500 bags per hour
without an operator. The VDS Level 2 system is designed to provide an operator
with a high quality image in addition to automatically highlighting suspicious
objects as an aid to the operator to inspect bags rejected by the automated
Level 1 system. The system also allows the operator to view the contents of a
bag using various imaging modes and magnifications to determine whether the
bag should be cleared or sent to Level 3 for additional investigation.
The VIS-W was the Company's first single system alternative to discrete
Level 1 and Level 2 systems. The VIS-W combines a VIS Level 1 X-ray system
("VIS mainframe") with a single remote Level 2 operator workstation. The VIS
mainframe transmits images of rejected bags to the Level 2 operator
workstation. Level 2 inspection is then performed by an operator at a
workstation in the same manner as an operator of a discrete Level 2 VDS
system, thereby eliminating the need for a separate Level 2 explosives
detection system to re-scan all bags rejected at Level 1.
The VIS-M, introduced in April 1996, further extends the capability of the
workstation concept by allowing one or two VIS mainframes to be interconnected
("Matrixed") with up to five Level 2 operator workstations. During off-peak
periods, workstations can be switched off, thereby significantly reducing
staffing requirements and operating costs. The efficiency gained by the
additional workstations combined with enhanced baggage control software allows
an operator to review images of the contents of a bag while the bag continues
en route to the aircraft. This eliminates the need and associated costs of a
secondary conveyor system to hold the bags while Level 2 inspection is taking
place. These costs can be a significant portion of the total cost of purchase
and installation of a multi-level integrated explosives detection system. The
Company is further seeking to improve the efficiency of its Matrix
configuration by allowing more than two VIS-M systems to be networked with
multiple Level 2 operator workstations.
Freestanding Models. The Company's freestanding checked baggage explosives
detection systems are intended to be installed in airport terminals, such as
in front of airline check-in counters or in a baggage handling hall. The H-1
inspects bags in the upright position, as they tend to be carried by a
passenger. The VDS series of systems, which can be used as freestanding
systems, inspects baggage lying flat as they are transported on a conveyor
belt.
The Company has recently introduced the operator attended VDS-III system to
serve as a Level 3 inspection system. Since less than 1% of the bags reach
Level 3, additional time is available for bag inspection. The VDS-III combines
the Company's SDE capability with a high resolution image to enhance detection
capability. The system is a low cost alternative to CT scanners for Level 3
inspection. It is also faster and less labor intensive than trace detection
systems. This system can also be used as a freestanding system in a baggage
handling hall.
Carry-on Model. The Company has recently introduced its APS system to
inspect carry-on baggage for explosives or contraband material. The system is
being evaluated by various governmental agencies. To date, the Company has not
sold any APS systems. The APS is similar in configuration to conventional X-
ray systems currently installed in airports to screen carry-on baggage for
concealed weapons. While an operator is required to inspect each bag for
weapons, the APS automatically alerts the operator to the presence of suspect
explosive materials. The APS incorporates an advanced proprietary operator
interface that allows the operator to view the contents of a bag using various
imaging modes and magnifications to determine whether the bag should be
cleared or rejected for further inspection.
The Company developed the APS system with Gilardoni, S.p.A. ("Gilardoni") a
manufacturer of conventional X-ray weapons screening systems and nuclear and
X-ray-based equipment for the medical field. The system combines many of the
advanced detection algorithms developed by the Company for its automated
checked baggage explosives detection systems with an X-ray main frame using
conventional dual X-ray technology manufactured by Gilardoni. The arrangement
with Gilardoni has greatly reduced the time-to-market of the Company's new APS
carry-on baggage inspection system and provides the Company with a
manufacturing capability within the European Union. See "Risk Factors--
Dependence on Principal Supplier for APS System."
30
<PAGE>
OTHER PRODUCTS AND APPLICATIONS
The Company believes that installations of advanced automated explosives
detection systems at airports will accelerate the adoption of this technology
for other security applications, including the protection of government and
private facilities, and the screening of mail. The Company is also exploring
opportunities with various governmental authorities and agencies in the United
States and internationally to use its equipment for the detection of illicit
drugs and the illegal export of currency. Further, the Company believes that
its technology can expand the traditional role of X-ray technology in process
control applications by providing enhanced or new value added functions such
as material analysis, segregation and sorting of materials, and quality
control. For example, the Company is pursuing discussions with a food
processing company regarding the possibility of entering into a development
agreement to adapt the Company's technology for nondestructive testing for
food processing applications. See "Risk Factors--Developing Markets;
Uncertainty of Market Acceptance" and "--Uncertainty of Product Development."
CUSTOMERS
The Company's customers have consisted primarily of owners, operators and
regulators of international airports located in the United Kingdom and other
European countries. The Company's customers include BAA, the Direction
Geuerale de L'Aviation Civile of France, Brussels Airport Authority, Zurich
Airport Authority, and Schiphol Amsterdam Airport Authority. The following is
a list of the airports for which these and other of the Company's customers
have installed or have ordered the Company's systems. These airports range in
size from facilities that process approximately 500,000 passengers per year to
more than 50 million passengers per year.
<TABLE>
<CAPTION>
UNITED KINGDOM CONTINENTAL EUROPE
<S> <C>
London Heathrow Paris Charles de Gaulle
London Gatwick Paris Orly*
London Stansted Amsterdam Schiphol
Glasgow Zurich
Edinburgh Brussels National
Newcastle Alicante (Spain)*
Aberdeen
East Midlands
Bristol
Southhampton Eastleigh
</TABLE>
- --------
* Orders included in backlog as of the date of this Prospectus. In certain
circumstances, these orders may be canceled or delayed by customers without
significant penalty.
In fiscal 1995 and the first nine months of 1996, sales to BAA accounted for
approximately 76% and 73%, respectively, of the Company's revenues. See "Risk
Factors--Reliance on a Significant Customer."
MARKETING AND SALES
The Company sells and markets its products through its direct sales force,
as well as independent sales representatives in certain foreign countries,
including Spain, Japan and Malaysia. As of September 30, 1996, the Company had
a six person marketing and sales staff, including one employee engaged in
marketing and sales out of the Company's sales and service office in the
United Kingdom.
In the United States the Company is working actively with the FAA, other
government agencies, airlines, airport operators, Congressional committees and
the Gore Commission to promote the efficacy and cost-effectiveness of its
products for deployment in United States airports. The Company is also working
with United States and foreign governmental agencies to promote its products
for non-aviation applications. The Company also markets its products through
participation in trade shows, publication of articles and advertising in trade
journals, participation in industry forums and standard setting organizations,
and distribution of sales literature.
31
<PAGE>
The Company has also benefited from customer referrals and the use of certain
customer installations as demonstration sites for its systems. In fiscal 1995
and the first nine months of fiscal 1996, international sales accounted for
approximately 91% and 93% of the Company's revenues, respectively. All of
these foreign sales were to the United Kingdom and other European countries.
See "Risk Factors--Reliance on International Sales."
The selling process for the Company's products often involves a team
comprised of individuals from sales, marketing, engineering, operations and
senior management. This team frequently engages in a multi-level sales effort
directed toward a variety of constituents which may include government
regulators, the local airport operator or authority, systems integrators and
airlines. The Company's sales efforts with certain of its customers have
extended over several years. Potential customers frequently require the
Company's products to be tested against various performance standards and
competitive products. The Company maintains demonstration units for this
purpose and intends to increase its investment in demonstration units in order
to accelerate the introduction of its products to new customers. Delays in
anticipated purchase orders by the Company's customers and potential customers
could have a material adverse effect on the Company's business. See "Risk
Factors--Lengthy Sales Cycle."
The Company has entered into an arrangement with Gilardoni for the
manufacture and sale of the APS carry-on baggage explosives detection system.
Under this arrangement, the Company has the exclusive right to sell this
system in the United States, the United Kingdom, certain other European
countries and Mexico. In addition, the Company has agreed not to sell any
competitive X-ray-based system within its territory unless manufactured by
Gilardoni or the Company. The Company intends to pursue strategic alliances,
acquisitions and licenses of complementary technologies to further enhance its
growth. See "Risk Factors--Dependence on Principal Supplier for APS System."
CUSTOMER SERVICE AND SUPPORT
The Company provides a high level of customer support to assist in the
installation and integration of the Company's products into its customers'
facilities and to assist in maintaining the reliability of the Company's
products once installed. The Company offers a number of customer support
services, including applications support, training, system preventative and
corrective system maintenance, and upgrades. The Company generally provides
one year parts warranty and offers primary and back-up service contracts to
its customers. The Company's customer support staff currently consists of two
support engineers at its headquarters in Massachusetts and four support
engineers operating out of the Company's office in the United Kingdom.
REGULATION
The explosives detection systems manufactured and marketed by the Company
for use in airports are subject to regulation by the FAA, corresponding
foreign governmental authorities and The International Civil Aviation
Organization ("ICAO"), the United Nations organization for establishing
standard practices for the aviation industry on a worldwide basis. Sales of
the Company's explosives detection systems for use in airports has been and
will continue to be dependent upon governmental initiatives to require or
support the screening of baggage with advanced explosives detection equipment.
Substantially all of such systems have been installed at airports in countries
in which the applicable government or regulatory authority overseeing the
operations of the airport has mandated such screening. Such mandates are
influenced by many factors outside of the control of the Company, including
political and budgetary concerns of governments, airlines and airports. See
"Risk Factors--Dependence on Government Regulation."
The FAA currently requires all carry-on baggage and international checked
baggage to be inspected by conventional X-ray equipment. United States
airlines operating at airports outside of the United States are required to
meet FAA security requirements in addition to the requirements of the local
authorities. The FAA permits the use of the Company's systems by United States
airlines at foreign airports as an alternative to conventional X-ray
equipment.
32
<PAGE>
Under the Aviation Security Act, the FAA was required to develop a standard
for explosives detection systems and to certify equipment which met this
standard under realistic airport operating conditions. The Aviation Security
Act also required the deployment of certified equipment within the United
States by 1993. The standard adopted by the FAA is more comprehensive than
standards adopted in most other countries. To date, no system has demonstrated
that it meets the FAA standard under realistic airport operating conditions.
As a result, the FAA has not required the installation of automated explosives
detection systems, and only a limited number of these systems have been
deployed, primarily on a test basis, in the United States. The FAA certified a
CT-based system in December 1994. However, the FAA has recognized that this
system must undergo further testing to resolve whether it can operate under
realistic airport operating conditions. The Company's systems do not meet the
FAA certification standard. There can be no assurance that any Company systems
will ever meet this or any other United States certification standard.
In response to the recent crash of TWA Flight 800, President Clinton formed
the Gore Commission to review airline and airport security and oversee
aviation safety. The Gore Commission released its initial report in September
1996, and in October 1996, the United States enacted legislation which
includes a $144.2 million allocation to purchase explosives detection systems
and other advanced security equipment. There can be no assurance that this
legislation will not otherwise be modified to reduce the funding for advanced
explosives equipment, that the necessary appropriations will be made to fund
the purchases of advanced explosives equipment contemplated by the
legislation, or that, even if such appropriation is made, any of the Company's
automated explosives detection screening systems will be purchased for
installation at any airports in the United States.
The UK DOT has mandated 100% screening of international checked baggage in
the United Kingdom by 1997. Similarly, the 33 European countries in ECAC have
agreed to implement 100% screening of international checked baggage by the
year 2000. The Company's Level 1, Level 2 and Level 3 systems, as well as the
Company's SDE technology, have been allowed for use by the UK DOT. In most
other ECAC countries, the Company's systems either must be tested and approved
or procured by governmental authorities overseeing the operation of airports
within the country. The Company's systems have been purchased or approved for
use in airports in many European countries in addition to the United Kingdom,
including in Belgium, France, The Netherlands, Spain and Switzerland.
Governmental authorities overseeing the construction of new airports in the
Asia/Pacific region are defining requirements for the use of advanced
explosives detection systems to achieve 100% screening of international
checked baggage at those airports. As a result, the Company's systems are also
being evaluated by the applicable regulatory authorities in countries in the
Asia/Pacific region for purchases at new airports being constructed in
Malaysia and Hong Kong. There can be no assurance that the Company's systems
will be purchased for installation in any of these new terminals.
ICAO has adopted various recommendations and requirements for screening of
checked and carry-on baggage. Currently, the ICAO requires the screening of
all international carry-on bags and recommends the screening of international
checked baggage. This requirement and recommendation relates only to the
screening of baggage and does not require any specific technology to be used.
There can be no assurance that additional countries will mandate the
implementation of effective explosives screening of airline baggage, or that,
if mandated, the Company's systems will meet the certification or other
requirements of the applicable governmental authority. Even if the Company's
systems meet the applicable requirements, there can be no assurance that the
Company would be able to market its systems effectively.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on developing new
products for the explosives and contraband detection system market and further
enhancing the functionality, reliability and performance of its existing
product line. The Company's research and development personnel also are
involved in establishing protocols, monitoring and interpreting and submitting
test data to the FAA and other domestic
33
<PAGE>
and foreign regulatory agencies to obtain the requisite certifications,
clearances and approvals for its products. At September 30, 1996, the Company
had 28 employees engaged in research and development and engineering,
including 11 employees engaged in software development. During fiscal 1993,
1994, 1995 and the first nine months of fiscal 1996, the Company's research
and product development expenses were approximately $1.1 million, $2.3
million, $3.7 million and $2.5 million, respectively. See "Business--
Products."
INTELLECTUAL PROPERTY
The Company relies upon trade secrets and patents to protect its technology.
Due to the rapid technological change that characterizes the explosives
detection system industry, the Company believes that the improvement of
existing technology, reliance upon trade secrets and unpatented proprietary
know-how and the development of new products are generally as important as
patent protection in establishing and maintaining a competitive advantage.
Nevertheless, the Company has obtained patents and will continue to make
efforts to obtain patents, when available, in connection with its product
development program. The Company has obtained two patents and has pending
three patent applications in the United States. The Company has obtained or
applied for corresponding patents and patent applications for certain of its
patents and patent applications in certain foreign countries. The Company's
United States patents relate to applications of its dual X-ray technology and
the Company's software algorithms used to implement the Company's composition
analysis techniques and expire in 2011. There can be no assurance that any of
the Company's patent applications will be granted or that any patent or patent
application will provide significant protection for the Company's products or
technology, be of commercial benefit to the Company, or that its validity will
not be challenged. Moreover, there can be no assurance that foreign
intellectual property laws will protect the Company's intellectual property
rights. In the absence of significant patent protection, the Company may be
vulnerable to competitors who attempt to copy the Company's products,
processes or technology. See "Risk Factors--Limited Protection of Intellectual
Property Rights; Patent Litigation."
The Company has an exclusive license to use certain patents and technology
developed by Hologic, Inc. ("Hologic") for the development, manufacture and
sale of X-ray screening security systems for explosives, drugs, currency and
other contraband. The Company also has a nonexclusive license to use this
technology for the development, manufacture and sale of X-ray-based products
for process control applications in the food and beverage industries. Each of
Hologic and the Company have also granted to the other a non-exclusive,
royalty-free license to use any unpatented technology developed by the other
in connection with such party's research and development activities. In
addition, each of Hologic and the Company have the right to obtain from the
other an exclusive license, on commercially reasonable terms to be negotiated,
for any patented new developments. See "Risk Factors--Limited Protection of
Intellectual Property Rights; Patent Litigation" and "Certain Transactions--
Hologic, Inc."
The Company also licenses certain other technologies used in its products,
often on an exclusive or semi-exclusive basis, for a defined field of use.
These licenses involve six United States patents and certain foreign patents
relating to X-ray technology. The patents have expiration dates ranging from
1997 to 2006. The Company's arrangement with Gilardoni relating to the
Company's APS automated explosives detection system for screening of carry-on
baggage contains cross licenses of intellectual property rights associated
with each party's technology incorporated into the system. This license
expires in 1999, subject to certain early termination and extension options.
There has been significant patent litigation in the field of X-ray
technology. The Company is involved in patent litigation with EG&G
Astrophysics Research Corporation ("EG&G") and American Science and
Engineering, Inc. ("AS&E"). See "Risk Factors--Limited Protection of
Intellectual Property Rights; Patent Litigation" and "Business--Legal
Proceedings."
COMPETITION
The markets for the Company's products are highly competitive. Certain of
the Company's competitors have substantially greater manufacturing, marketing
and financial resources than the Company. Other major
34
<PAGE>
corporations have recently announced their intention to enter the security
screening market. Competitors may develop superior products or products of
similar quality for sale at the same or lower prices. Moreover, there can be
no assurance that the Company's products will not be rendered obsolete by new
industry standards or changing technology. There can be no assurance that the
Company will be able to compete successfully with existing or new competitors.
See "Risk Factors--Rapid Technological Change" and "--Competition."
While certain of the Company's competitors currently market automated
checked baggage explosives detection products that use dual energy X-ray
technology, the Company believes that it is able to compete favorably with
these products based upon the over-all cost effectiveness of the Company's
systems as measured by a combination of factors including effective automated
explosives detection, throughput, expense of operation, installation and
integration, price, reliability, and their proven operation in a variety of
airports.
The Company's systems also compete with systems employing other technologies
including CT scanner technology and trace detection technology. A product
based upon CT scanner technology currently detects a wider range of explosives
than does the Company's systems. In 1994, this CT based system was certified
by the FAA. However, the FAA has recognized that this system must undergo
further testing to resolve whether it can operate under realistic airport
operating conditions. This system operates at a significantly lower throughput
rate and significantly higher expense than the Company's systems. In addition,
as currently certified, the installation of this CT based equipment for Level
1 explosives screening would require the use of two systems, substantially
increasing the total system price, cost of installation and cost of operation.
As a result, there have only been limited permanent installations of CT
systems in airports, typically as either Level 2 or Level 3 systems. Products
based upon trace detection technology have throughput rates lower than those
based on dual energy X-ray or CT technology and generally have been installed
as Level 3 systems.
The Company's new APS system, which is intended to detect explosives in
carry-on bags and personal effects at airports and other installations, has
recently been introduced and is in the process of being evaluated by various
government agencies. These systems will compete against conventional X-ray
systems, which are lower in price, as well as advanced explosives detection
systems being adapted by its competitors for this use. The APS system will
compete on the basis of price, detection capabilities, ease of use, expense of
operation and reliability.
MANUFACTURING
The Company's manufacturing operations consist primarily of assembly, test,
burn-in and quality control. The Company has adopted stringent quality
assurance procedures that include standard design practices, component
selection procedures, vendor control procedures, and comprehensive reliability
testing and analysis to ensure the reliability of its products. As a result of
these efforts, the Company was one of the first manufacturers in the industry
to receive ISO 9001 certification. The Company's manufacturing facility is
currently producing approximately eight of the Company's larger systems per
month and has the capability to accommodate production of over 20 systems per
month. Should market conditions warrant, the Company may choose to establish
overseas manufacturing operations. See "Use of Proceeds."
The Company purchases a major portion of the parts and peripheral components
for its products, and manufactures certain subsystems, such as the high
voltage power supply, from raw materials. Most parts and materials are readily
available from several supply sources. The Company purchases all of its X-ray
mainframes for its APS system from Gilardoni, which is located in Italy. The
Company and Gilardoni are negotiating an arrangement under which the Company
will manufacture the X-ray mainframes for the system for sales outside of
Europe and Gilardoni will manufacture certain of the Company's systems to be
sold in Europe. There can be no assurance that these negotiations will be
successful. See "Risk Factors--Dependence on Principal Supplier for APS
System."
BACKLOG
Backlog for the Company's products as of September 30, 1995 and 1996 totaled
approximately $4.9 million and $7.5 million, respectively. Backlog consists of
purchase orders for which a customer has scheduled delivery within the next
twelve months. In certain circumstances, orders included in backlog may be
canceled or
35
<PAGE>
rescheduled by customers without significant penalty. Backlog as of any
particular date should not be relied upon as indicative of the Company's
revenues for any future period.
EMPLOYEES
As of September 30, 1996, the Company had 77 full-time employees, including
23 in manufacturing operations and quality assurance, 28 in research,
development and engineering, 12 in marketing, sales and customer support,
eight in finance and administration and six in data management. None of the
Company's employees is represented by a union. The Company considers its
employee relations to be good.
FACILITIES
The Company leases its administrative headquarters and manufacturing
facility located in Woburn, Massachusetts. The facility consists of
approximately 43,000 square feet, including 21,000 square feet dedicated to
the Company's manufacturing operations. The Company also leases a 700 square
foot sales and service office in the United Kingdom. The Company believes that
its facilities will be adequate for its needs for the foreseeable future and
that suitable additional space will be available at commercially reasonable
prices as needed. Should market conditions warrant, the Company may expand its
presence in Europe and the Asia/Pacific region, including expanding its sales
and service office in the United Kingdom, establishing additional sales and
service offices in Europe and in the Asia/Pacific region, and establishing a
manufacturing operation in one or more of those regions.
LEGAL PROCEEDINGS
In October 1994, EG&G filed a patent infringement claim against the Company
in the United States District Court for the District of Massachusetts,
alleging that certain of the Company's products violate a patent held by EG&G.
EG&G is seeking damages and expenses from the Company and to enjoin the
Company from selling products that allegedly infringe the EG&G patent. In
December 1994, the Company filed an answer denying any infringement and a
counterclaim seeking invalidation of the EG&G patent and alleging that EG&G is
infringing three patents owned and licensed by the Company.
In May 1996, in response to allegations made by AS&E to third parties that
the Company was infringing AS&E's patents, the Company filed a request for
declaratory judgment that the Company is not infringing AS&E's patents in the
United States District Court for the District of Massachusetts. In August
1996, AS&E filed an answer and counterclaim alleging that the Company is
infringing one or more of eight AS&E patents.
Although the Company does not believe that it is infringing any valid
patents of either EG&G or AS&E, there can be no assurance that the Company
will prevail in its litigation or reach a favorable settlement with either
EG&G or AS&E. An unfavorable outcome to the Company could result in an
injunction prohibiting the Company from using the technology found to be
infringing, which technology may be critical to the functioning of the
Company's products, or could require the Company to pay substantial damages. A
settlement of either of these disputes could require the Company to pay
substantial settlement amounts and/or ongoing royalties. Even if the Company
were successful in its defense of these claims, the costs of defense are
likely to be substantial. See "Risk Factors--Limited Protection of
Intellectual Property Rights; Patent Litigation," and "Business--Intellectual
Property."
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S. David Ellenbogen 58 President, Chief Executive Officer and Director
Dr. Jay A. Stein 54 Senior Vice President, Technical Director and Director
James J. Aldo 45 Vice President of Marketing and Sales
Daniel J. Silva 44 Vice President of Operations
William J. Frain 30 Treasurer and Chief Financial Officer
Ambassador L. Paul
Bremer, III(1)(2) 55 Director
Frank Kenny(1)(2) 52 Director
Glenn P. Muir(1)(2) 37 Director
Gerald Segel(1)(2) 74 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2)Member of the Audit Committee.
The Company has commenced a search for a Chief Operating Officer to support
its anticipated growth. See "Risk Factors--Dependence on Management and Key
Employees."
S. DAVID ELLENBOGEN, a co-founder of the Company, has served as its
President and a director since its organization in June 1989. Mr. Ellenbogen
was also a co-founder of Hologic, a developer, manufacturer and seller of X-
ray and other bone densitometers, served as its President from October 1985
until May 1994, and is currently its Chairman of the Board and Chief Executive
Officer. Prior to founding Hologic, Mr. Ellenbogen served as President,
Treasurer and a director of Diagnostic Technology, Inc. ("DTI"), which he co-
founded in 1981. DTI, which developed an X-ray product for digital
angiography, was acquired in 1982 by Advanced Technology Laboratories, Inc.
("ATL"), a wholly-owned subsidiary of Squibb Corporation. Mr. Ellenbogen was
involved in the management of the digital angiography group of ATL from 1982
to 1985. Mr. Ellenbogen is employed by Hologic and performs part-time
management services for the Company pursuant to a management agreement between
the Company and Hologic. See "Risk Factors--Dependence on Management and Key
Employees" and "Certain Transactions--Hologic, Inc."
DR. JAY A. STEIN, a co-founder of the Company and Hologic, has served as
Senior Vice President, Technical Director and a director for both companies
since their organization. Dr. Stein co-founded DTI with Mr. Ellenbogen in
1981, served as Vice President and Technical Director of DTI and was Technical
Director of the digital angiography group of its successor, ATL, from 1982 to
1985. Dr. Stein received a Ph.D. in Physics from The Massachusetts Institute
of Technology. He is the principal author of fifteen patents pertaining to X-
ray technology. Dr. Stein is employed by Hologic and performs part-time
management services for the Company pursuant to a management agreement between
the Company and Hologic. See "Risk Factors--Dependence on Management and Key
Employees" and "Certain Transactions--Hologic, Inc."
JAMES J. ALDO has served as Vice President of Marketing and Sales since July
1993. Prior to that, Mr. Aldo served as Director of Sales and Marketing since
joining the Company in July 1989. Prior to joining the Company, Mr. Aldo held
positions in marketing, sales, engineering and field service management at
AS&E and served as Eastern Regional Manager at Tegal, Inc., a subsidiary of
Motorola, Inc., a manufacturer of capital equipment for the semiconductor
industry.
DANIEL J. SILVA has served as Vice President of Operations since April 1994.
Prior to that, Mr. Silva served as the Company's Director of Operations from
June 1992 to April 1994. Mr. Silva was hired as an Operations Manager in June
1991. Prior to joining the Company, Mr. Silva held positions in manufacturing,
project management and program management at AS&E.
37
<PAGE>
WILLIAM J. FRAIN, a Certified Public Accountant, has served as Treasurer and
Chief Financial Officer since October 1996. Prior to that, Mr. Frain served as
Controller from August 1993 until October 1996. Prior to joining the Company,
Mr. Frain served as a financial auditor in the Enterprise Group at Arthur
Andersen LLP from September 1988 to August 1993.
AMBASSADOR L. PAUL BREMER, III has been a director of the Company since July
1996. Ambassador Bremer has served as a Managing Director of Kissinger
Associates, Inc., a strategic consulting firm headed by former Secretary of
State Henry Kissinger, since 1989. Prior to joining Kissinger Associates,
Ambassador Bremer held numerous positions in the United States Diplomatic
Service, including as the United States Ambassador to the Netherlands from
1983 to 1986, and as Ambassador-at-Large for Counter-Terrorism responsible for
developing and implementing America's global policies to combat terrorism,
from 1986 to 1989. Ambassador Bremer is a Trustee of the Economic Club of New
York, serves on the Board of Advisors of the Russian--American Press and
Information Center, and is a member of the International Institute for
Strategic Studies and the Council on Foreign Relations. Ambassador Bremer also
serves as a director of Air Products and Chemicals, Inc. See "Certain
Transactions--Consulting Services."
FRANK KENNY has been a director of the Company since 1989. Mr. Kenny has
served as Managing Director of Delta Partners Ltd., a venture capital company
since June 1994. Mr. Kenny has also served as Managing Partner of Beta
Partners, Inc., a venture capital company, since 1987. Mr. Kenny is also a
director of Abacus Direct Corporation.
GLENN P. MUIR has been a director of the Company since October 1996. Mr.
Muir, a Certified Public Accountant, served as Treasurer of the Company from
August 1993 until October 1996 and served as Controller of the Company from
the Company's inception until August 1993, under the Company's management
agreement with Hologic. Mr. Muir is the Vice President of Finance and
Treasurer of Hologic since February 1992. Mr. Muir joined Hologic as its
Controller in October 1988 and served in that capacity until February 1992.
See "Certain Transactions--Hologic, Inc."
GERALD SEGEL has been a director of the Company since October 1996. Mr.
Segel, currently retired, was Chairman of the Board of Tucker Anthony
Incorporated from January 1987 to May 1990. From 1983 through January 1987 he
served as President of Tucker Anthony Incorporated. Mr. Segel also serves a
director of Litchfield Financial Inc. and Hologic.
Mr. Kenny, Mr. Ellenbogen and Dr. Stein have been elected to the Board of
Directors pursuant to agreements among the Company, Mr. Ellenbogen, Dr. Stein
and the holders of the Company's Preferred Stock. Under these agreements, the
holders of the Preferred Stock have agreed to vote their shares for the
election of Mr. Ellenbogen and Dr. Stein, and Mr. Ellenbogen and Dr. Stein
have agreed to vote their shares to elect designees of the holders of the
Preferred Stock. Mr. Kenny is the designee of the holders of the Preferred
Stock. The agreements will terminate upon the closing of the Offering.
Upon the closing of the Offering, the Company's Board of Directors will be
divided into three classes, with the classes being elected for staggered
three-year terms. At each annual meeting of stockholders, directors will be
elected to succeed those in the class whose term then expires, and each
elected director will serve for a term expiring at the third succeeding annual
meeting of stockholders after such director's election, and until the
director's successor is elected and qualified. As a result, directors stand
for election only once in three years. Executive officers serve at the
discretion of the Board of Directors.
The Board of Directors has appointed a Compensation Committee and an Audit
Committee, each of which is currently composed of Messrs. Bremer, Kenny, Muir
and Segel. The functions of the Compensation Committee include presentation
and recommendations to the Board of Directors on compensation levels for
officers and directors and issuance of stock options to the Board of
Directors, employees and affiliates. The functions of the Audit Committee
include recommending to the Board of Directors the engagement of the
independent accountants,
38
<PAGE>
reviewing the scope of internal controls and reviewing the implementation by
management of recommendations made by the independent accountants.
SIGNIFICANT EMPLOYEES
Certain key employees of the Company who are not also officers or directors
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Kristoph D. Krug 43 Director of Engineering
Jeremy M. Attree 37 Director of Operations, Europe
</TABLE>
KRISTOPH D. KRUG joined the Company in July 1989 as a Project Engineer and
was promoted to Director of Research and Development Engineering in 1992. Mr.
Krug is the author of two of the Company's patents for X-ray screening. Prior
to joining the Company, Mr. Krug was Engineering Manager at Teradyne, Inc., a
manufacturer of automated test equipment.
JEREMY M. ATTREE has served as Director of Operations, Europe since joining
the Company in October 1993. From September 1991 to October 1993, Mr. Attree
served as Marketing Manager for EA Technology Ltd, a primary research and
development center for the electricity industry in the United Kingdom. Prior
to joining EA Technology, Mr. Attree served as Marketing Director and
Development Manager for Schlumberger Industries, Security Division, where he
was engaged primarily in the development of new products in the airport
security field.
DIRECTOR COMPENSATION
Each nonemployee director receives (i) an annual retainer of $5,000, payable
$1,250 per quarter, (ii) a directors meeting fee of $1,000 for each meeting of
the Board of Directors at which the director is physically present and $500
for each meeting at which the director participated by telephone and (iii) a
committee meeting fee for each meeting of a committee of the Board of
Directors at which the director was physically present, in the amount of
$1,000 if the meeting is held on a day other than a day of a meeting of the
Board of Directors and $500 if held on the same day as a meeting of the Board
of Directors, but no fee if the committee meeting is held at the same time or
immediately in conjunction with the meeting of the Board of Directors.
Nonemployee directors are also eligible to receive stock options pursuant to
the Company's 1996 Nonemployee Stock Option Plan. See "Management--Stock
Option Plans."
39
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation during
the fiscal year ended September 30, 1996 of each of the Chief Executive Officer
and the executive officers of the Company whose annual salary and bonus
exceeded $100,000 for services in all capacities to the Company during the
fiscal year.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
--------------------------------- -------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
POSITION ($) ($) ($) OPTION (#)(2) ($)
- ------------------ ------- ------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
S. David Ellenbogen..... 71,000(3) 25,000(3) -- -- --
President, Chief
Executive Officer and
Director
James J. Aldo........... 114,916 48,750 -- -- --
Vice President of
Marketing and Sales
Daniel J. Silva ........ 112,900 48,750 -- -- --
Vice President of
Operations
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission the
compensation described in the tables does not include medical, group life
insurance or other benefits received by the executive officers named in the
above table which are available to all salaried employees of the Company,
and certain perquisites and other personal benefits, securities or property
received by the executive officers which do no exceed the lesser of $50,000
or 10% of any such officer's salary and bonus described in this table.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during fiscal
1996.
(3) Represents Mr. Ellenbogen's compensation paid by the Company to Hologic
pursuant to a management agreement between the Company and Hologic. The
Company pays to Hologic its proportionate share of Hologic's overhead,
including the salary of Hologic's employees rendering services to the
Company. See "Certain Transactions--Hologic, Inc."
BONUS PLANS
The Company maintains an informal bonus program for certain employees,
including executive officers, under which such employees may be awarded
discretionary cash bonuses based upon an evaluation of individual performance
and the performance of the Company during the year.
STOCK OPTION PLANS
The following two tables set forth certain information with respect to (i)
the number of options granted to the named executive officers in fiscal 1996
and (ii) the aggregate number of and value of options exercised and exercisable
by the named executive officers during fiscal 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
----------------------------------------------- -----------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE OR
GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR $/SHARE(2) DATE 5% ($) 10%($)
- ---- ---------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
S. David Ellenbogen..... -- -- -- -- -- --
James J. Aldo........... 10,000 14.9% 3.00 7/22/2006 18,867 47,812
10,000 1.00 11/6/2005 6,289 15,937
Daniel J. Silva......... 10,000 14.9% 3.00 7/22/2006 18,867 47,812
10,000 1.00 11/6/2005 6,289 15,937
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Options vest at the rate of 20% per year commencing one year after the date
of grant and each year thereafter until fully vested.
(2) All options were granted at not less than the fair market value as
determined by the Board of Directors of the Company on the date of grant.
(3) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming the specified compounded rates of appreciation of
the Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Securities and Exchange
Commission. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the time of such exercise and the future
performance of the Company's Common Stock.
40
<PAGE>
The following table sets forth the aggregate number and value of options
exercisable and unexercisable by the named executive officers during fiscal
1996. No stock options were exercised by any of the named executive officers
in fiscal 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT 9/30/96(#) 9/30/96($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
S. David Ellenbogen......... --/-- --/--
James J. Aldo............... 84,500/42,000 $1,073,000/$494,000
Daniel J. Silva............. 55,000/50,000 $686,500/$591,000
</TABLE>
- --------
(1) There was no public trading market for the Common Stock as of September
30, 1996. Accordingly, these values have been calculated on the basis of
the assumed initial public offering price of $13.00 per share, less the
applicable exercise price.
1989 Combination Stock Option Plan. In 1989, the Company adopted the 1989
Combination Stock Option Plan (the "1989 Option Plan"). The purpose of the
1989 Option Plan is to provide long-term incentives and rewards to the
Company's employees, officers, directors, advisors and consultants. The
Company has adopted an informal policy of granting stock options to each
employee. A total of 1,250,000 shares of Common Stock has been reserved for
issuance under the 1989 Option Plan. As of October 15, 1996, options to
purchase 873,300 shares of Common Stock at exercise prices ranging from $0.10
to $9.50 per share were outstanding under the 1989 Option Plan.
1996 Nonemployee Director Stock Option Plan. In October 1996, the Company
adopted the 1996 Nonemployee Director Stock Option Plan (the "Directors Plan")
to promote the Company's interests by attracting and retaining highly skilled,
experienced and knowledgeable nonemployee directors. Any director who is not
an employee of the Company is eligible to receive nonqualified stock options
under the Directors Plan. A total of 125,000 shares of Common Stock have been
reserved for issuance under the Directors Plan.
The Directors Plan provides that each eligible director, elected or
appointed after October 10, 1996, will be granted an option to acquire 10,000
shares, effective upon the date he or she is first elected to the Board of
Directors. Each eligible director will also receive an option to acquire 2,500
shares each year. The initial grant of options to eligible directors under the
Directors Plan vest at the rate of 20% per year, with the first installment
vesting one year from the date of grant. The annual grant of options under the
Directors Plan vest six months after the date of grant. The exercise price for
all options granted under the Directors Plan will be the fair market value of
the shares of Common Stock at the time the options granted. No option under
the Directors Plan may be exercised subsequent to ten years from the date of
grant.
Options to purchase 10,000 shares of Common Stock at an exercise price of
$3.00 per share granted to each of Messrs. Bremer and Segel in July 1996 will
be credited against the number of shares eligible for issuance under the
Directors Plan.
1996 Equity Incentive Plan. In October 1996, the Company adopted the 1996
Equity Incentive Plan (the "Incentive Plan") to promote the Company's
interests by attracting and retaining key employees, directors, consultants
and advisors and providing incentives for such individuals to assist the
Company in achieving long-range performance goals. A total of 750,000 shares
of Common Stock have been reserved for issuance upon the exercise of options
and other awards to be granted under the Incentive Plan.
Under the Incentive Plan, the Company may grant both incentive stock options
and non-qualified stock options, as well as stock appreciation rights
("SARs"), performance or award shares, and restricted stock. SARs
41
<PAGE>
entitle the holder thereof to receive upon exercise, cash or common stock, as
determined by the Board of Directors of the Company, equal in value to the
difference between the SAR issuance price and the fair market value of the
shares subject to the SAR on the date of exercise. Performance or award shares
may be issued to a participant in the Plan for no value in the event certain
performance milestones, determined by the Board, have been reached by the
Company or the plan participant. Restricted stock may be issued to a
participant in the Plan for no value but may not be sold by the participant
for a restriction period to be determined by the Board.
The Incentive Plan contains change in control provisions which could cause
options to become immediately exercisable and restrictions and deferred
limitations applicable to other awards to lapse in the event of a change in
control of the Company.
Options and other awards under the Incentive Plan may not be granted after
October 8, 2006. No options or other awards have been issued under the
Incentive Plan.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY; INDEMNIFICATION AGREEMENTS
The Company's Restated Certificate of Incorporation and Bylaws include
provisions (i) to eliminate the personal liability of the Company's directors
for monetary damages resulting from breaches of their fiduciary duty and (ii)
to permit the Company to indemnify its directors and officers to the fullest
extent permitted by Delaware law. The Company has entered into indemnification
agreements with each of its directors and anticipates that it will enter into
similar agreements with any future directors. The Company may also enter into
similar agreements with certain of the Company's officers who are not also
directors. Generally, each indemnification agreement attempts to provide the
maximum protection permitted by Delaware law with respect to indemnification
of directors or officers.
The indemnification agreements provide that the Company will pay certain
amounts incurred by a director or officer in connection with any civil or
criminal action or proceeding and specifically including actions by or in the
name of the Company (derivative suits) where the individual's involvement is
by reason of the fact that he is or was a director or officer. Such amounts
include, to the maximum extent permitted by law, attorneys fees, judgments,
civil or criminal fines, settlement amounts and other expenses customarily
incurred in connection with legal proceedings. Under the indemnification
agreements, a director or officer will not receive indemnification if he is
found not to have acted in good faith in the reasonable belief that his action
was in the best interests of the Company.
The Company expects to obtain directors and officers liability insurance.
42
<PAGE>
CERTAIN TRANSACTIONS
HOLOGIC, INC.
In June 1989, the Company obtained an exclusive license to use certain
patents and technology developed by Hologic for the development, manufacture
and sale of X-ray screening security systems for explosives, drugs, currency
and other contraband. In September 1996, this license was amended to grant the
Company a nonexclusive license to use these patents and technology for the
development, manufacture and sale of the X-ray-based products capable of being
used for process control applications in the food and beverage industries.
Mr. Ellenbogen and Dr. Stein are directors of Hologic and hold similar offices
in Hologic as they do in the Company. Mr. Ellenbogen and Dr. Stein
collectively beneficially own approximately 6.7% of the outstanding voting
stock of Hologic.
Under the license agreement with Hologic, the Company is required to pay
Hologic royalties of 5% of the first $50 million of net sales of screening
security systems using Hologic's technology, and 3% of net sales in excess of
$50 million, up to a maximum of $200 million of net sales of these products.
The Company is also required to pay royalties of 3% up to a maximum of $200
million of net sales of products covered by the Company's nonexclusive license
for food and beverage process control. The maximum aggregate royalties payable
by the Company to Hologic under this exclusive arrangement are $7.0 million,
and under the nonexclusive arrangement, are $6.0 million. In fiscal 1994,
1995, and 1996, the Company incurred royalties of approximately $688,000,
$719,000 and $772,000, respectively, for payment under this arrangement, on
aggregate sales through fiscal 1996 of approximately $46.9 million.
Under a management agreement, through the second quarter of fiscal 1996,
Hologic provided the Company with management, engineering and administrative
support, and space at Hologic's facilities. Hologic continues to provide part-
time management services of Mr. Ellenbogen and Dr. Stein, and through
September 1996 the services of Glenn P. Muir. Under this arrangement, the
Company was required to pay Hologic its proportionate share of Hologic's
expenses, including the salaries of its employees and overhead, in rendering
services to the Company. Currently the payments made under this arrangement
are the Company's proportionate share of Mr. Ellenbogen's and Dr. Stein's
compensation. No compensation is paid by the Company to any of Hologic's
employees, including Mr. Ellenbogen and Dr. Stein. The management agreement
may be terminated by either party on six months' written notice. For fiscal
1994, 1995 and 1996, the Company incurred expenses of approximately $544,000,
$530,000 and $325,000, respectively, for rent (through the second quarter of
fiscal 1996) and services under the management agreement with Hologic. In
fiscal 1994 and 1995, the Company also purchased subassemblies in the amount
of approximately $229,000 and $210,000, respectively, from Hologic.
During fiscal 1996, Mr. Ellenbogen and Dr. Stein have typically devoted
approximately 16 and 8 hours per week, respectively, to the Company. In
connection with this Offering and the growth of the Company's business, Mr.
Ellenbogen is currently expending approximately 20 hours per week to the
Company. The Company has commenced a search for a chief operating officer to
further support its anticipated growth. There can be no assurance that the
Company will be able to attract and retain a qualified chief operating officer
on a timely basis, if at all, or that the Company will be able to successfully
integrate such person, if hired. After the integration of such person into the
management of the Company, Mr. Ellenbogen's time commitment is anticipated to
return to its previous level. See "Risk Factors--Dependence on Management and
Key Employees."
The Company believes that the agreements and transactions between the
Company and Hologic are commercially reasonable. The Company did not, however,
negotiate with any unaffiliated third parties prior to reaching an agreement
with Hologic and cannot therefore determine whether the terms of the
transactions are more or less favorable than could have been obtained from
third parties.
CERTAIN FINANCING TRANSACTIONS
In June 1989, the Company sold 234,375 shares of Series A Preferred Stock
and 250,000 shares of Series B Preferred Stock to a limited number of
investors pursuant to a private placement at prices of $10.00 and $.625
43
<PAGE>
per share, respectively (an aggregate of $2,343,750 and $156,250,
respectively). In January 1991 and July 1993 the Company sold an aggregate of
343,690 shares of Series C Preferred Stock and 254,585 shares of Series D
Preferred Stock to a limited number of investors pursuant to private
placements at prices of $10.00 and $1.50 per share, respectively (an aggregate
of $3,436,900 and $381,873, respectively). The holders of this Preferred Stock
also received warrants to purchase an aggregate of 361,002 shares of Common
Stock. The Series A Preferred Stock and Series C Preferred Stock are not
convertible and are redeemable by the Company at a purchase price of $10.00
per share. Each share of Series B Preferred Stock and Series D Preferred Stock
is convertible into ten shares of Common Stock.
The holders of the Series A Preferred Stock and Series C Preferred Stock
deferred and waived certain of the Company's mandatory redemption obligations
with respect to such Preferred Stock. The waivers remain effective through
November 1, 1996 and thereafter until the holders of not less than 60% of the
shares of the applicable series provide the Company with 60 days prior notice
of their intention to reinstate the Company's mandatory redemption obligations
with respect to the covered shares. All of these shares are redeemable within
one year of June 30, 1996. The Company has elected to redeem all of the
578,065 issued and outstanding shares of the Series A and Series C Preferred
Stock at the closing of the Offering, for an aggregate redemption price of
$5,780,650, in order to eliminate certain rights and preferences that the
holders of such stock would otherwise have had.
Upon the closing of the Offering, the Series B Preferred Stock and Series D
Preferred Stock will be automatically converted into an aggregate of 5,045,850
shares of Common Stock. In connection with the Offering, the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock have agreed to waive certain of their rights and
preferences that relate to the Offering and other continuing obligations of
the Company.
Purchasers of Company's Preferred Stock include:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------------------------
PURCHASER(1) SERIES A SERIES B SERIES C SERIES D
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Burr, Egan, Deleage & Co................... 102,001 108,801 143,131 106,024
Beta Partners Limited Partnership.......... 37,500 40,000 52,621 38,978
Pioneer Capital Corporation................ 37,500 40,000 52,621 38,978
Massachusetts Capital Resource Company..... 37,500 40,000 52,621 38,978
Claflin Capital Corporation................ 9,375 10,000 27,964 20,714
HLM Partners V Limited Partnership......... 10,499 11,199 14,732 10,913
</TABLE>
- --------
(1) Includes shares held by venture capital funds managed or controlled by the
purchasers listed above or by certain officers of one of those
corporations. See "Principal Stockholders."
CONSULTING SERVICES
In April 1996, the Company retained the services of Kissinger Associates,
Inc., a strategic consulting firm, to provide advice and assistance in
connection with the Company's efforts to expand the market for its products
and technology outside of the United States. The Company pays Kissinger
Associates an annual retainer fee of $100,000, and will be required in certain
instances to pay an additional fee based upon the value of each sale of
equipment or technology to a customer for which Kissinger Associates'
assistance has been requested. Ambassador L. Paul Bremer, III, a director of
the Company, is a Managing Director of Kissinger Associates.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 15, 1996
concerning the beneficial ownership of Common Stock by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each of the
executive officers named in the Summary Compensation Table and (iv) all
executive officers and directors of the Company as a group, after giving
effect to the redemption of all outstanding shares of non-convertible
redeemable Series A Preferred Stock and Series C Preferred Stock. This
information is based upon information received from or on behalf of the named
individuals. Unless otherwise noted, the beneficial owners listed have sole
voting and investment power over the shares listed.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
------------------------------
NUMBER OF
SHARES OF
COMMON STOCK
NAME AND ADDRESS OF BENEFICIALLY
BENEFICIAL OWNER OWNED(1) BEFORE OFFERING AFTER OFFERING
- ------------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Funds managed by Burr, Egan, 2,301,945 33.1% 25.7%
Deleage & Co.(2).............
One Post Office Square, Suite
3800
Boston, Massachusetts 02103
Beta Partners Limited 846,284 12.4 9.6
Partnership(3)(5)............
One Post Office Square, Suite
3800
Boston, Massachusetts 02103
Frank Kenny(4)(5)............. 846,284 12.4 9.6
One Post Office Square, Suite
3800
Boston, Massachusetts 02103
Massachusetts Capital Resource 846,284 12.4 9.6
Company(6)...................
420 Boylston Street
Boston, Massachusetts 02116
Pioneer Capital 803,970 11.7 9.1
Corporation(7)...............
60 State Street
Boston, Massachusetts 02109
Charles T. O'Neill, as 800,000 11.8 9.1
Trustee(8)...................
c/o O'Neill & Neylon
950 Winter Street
Waltham, Massachusetts 02154
Dr. Jay A. Stein(9)........... 762,000 11.2 8.7
c/o Vivid Technologies, Inc.
10E Commerce Way
Woburn, Massachusetts 01801
S. David Ellenbogen(10)....... 428,000 6.3 4.9
c/o Vivid Technologies, Inc.
10E Commerce Way
Woburn, Massachusetts 01801
James J. Aldo(11)............. 86,500 1.3 *
Daniel J. Silva(12)........... 57,000 * *
Glenn P. Muir(13)............. 35,250 * *
L. Paul Bremer, III........... -- -- --
Gerald Segel.................. -- -- --
All directors and officers as 24.6
a group (9 persons) (14)..... 2,222,134 31.6
</TABLE>
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- --------
* Less than 1% of the outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding prior to the
Offering includes (i) 1,746,520 shares of Common Stock outstanding as of
October 15, 1996, (ii) an aggregate of 5,045,850 shares of Common Stock
issuable upon conversion of all outstanding shares of Series B Preferred
Stock and Series D Preferred Stock and (iii) shares issuable pursuant to
options and warrants held by the respective person or group which may be
exercised within 60 days after October 15, 1996 ("presently exercisable
stock options" and "presently exercisable warrants," respectively), as set
forth below. The number of shares of Common Stock deemed outstanding after
the Offering includes an additional 2,000,000 shares of Common Stock which
are being offered for sale by the Company in the Offering. Beneficial
ownership is determined in accordance with rules of the Securities and
Exchange Commission that deem shares to be beneficially owned by any
person who has or shares voting or investment power with respect to such
shares. Presently exercisable options and presently exercisable warrants
are deemed to be outstanding and to be beneficially owned by the person or
group holding stock options or warrants for the purpose of computing the
percentage ownership of such person or group, but not treated as
outstanding for the purpose of computing the percentage ownership of any
other person or group.
(2) Comprised of (i) 1,492,700 shares and 106,794 shares issuable pursuant to
presently exercisable warrants held by Alta III Limited Partnership ("Alta
III"), (ii) 236,940 shares and 16,952 shares issuable pursuant to
presently exercisable warrants held by Gallion Partners II ("Gallion"),
(iii) 379,100 shares and 27,122 shares issuable pursuant to presently
exercisable warrants held by C.V. Sofinnova Partners Four ("Sofinnova"),
(iv) 37,490 shares and 2,682 shares issuable pursuant to presently
exercisable warrants held by Alta Jami Boston Limited Partnership ("Alta
Jami"), and (v) 2,020 shares and 145 shares issuable pursuant to presently
exercisable warrants held by Golden Coins N.V. ("Golden Coins"),
respectively. The respective general partners of Alta III, Alta Jami,
Gallion, Golden Coins and Sofinnova exercise sole voting and investment
power with respect to the shares held by the funds. The principals of
Burr, Egan, Deleage & Co. ("Burr Egan") are general partners of Alta III
Management Partners Limited Partnership (the general partner of Alta III)
and Alta Jami. As general partners of these funds, the principals of Burr
Egan may be deemed to share voting and investment power for the shares
held by the funds. Burr Egan serves as an advisor to Gallion, Sofinnova
and Golden Coins. The principals of Burr Egan disclaim beneficial
ownership of all shares held by the foregoing funds except to the extent
of their pecuniary interests therein. Excludes shares beneficial owned by
Beta Partners Limited Partnership. See footnote 3 below.
(3) Comprised of 789,780 shares and 56,504 shares issuable pursuant to
presently exercisable warrants. Certain principals of Burr Egan are
special limited partners of Beta Partners Limited Partnership ("Beta
Partners"). Burr Egan exercises no investment or voting power as to the
shares held by Beta Partners. Such principals disclaim beneficial
ownership of the shares held by Beta Partners except to the extent of this
pecuniary interests therein.
(4) Comprised of shares beneficially owned by Beta Partners. Mr. Kenny serves
as a general partner of Beta Management Partners Limited Partnership, the
general partner of Beta Partners. Mr. Kenny disclaims beneficial ownership
of such shares except to the extent of his pecuniary interests therein.
(5) Excludes an aggregate of 4,256,060 shares and 304,498 shares issuable
pursuant to presently exercisable warrants held by the funds managed by
Burr Egan, Pioneer Capital Corporation and Claflin Capital Management,
Inc., and by Massachusetts Capital Resource Company, Christopher W. Lynch,
Geneva Partnership and HLM Partners V Limited Partnership, which holders
have designed Mr. Kenny, pursuant to certain securities purchase
agreements, to serve as their designee on the Company's Board of
Directors. See "Management--Executive Officers and Directors."
(6) Comprised of 789,780 shares and 56,504 shares issuable pursuant to
presently exercisable warrants.
(7) Comprised of 750,290 shares and 53,680 shares issuable pursuant to
presently exercisable warrants held by Pioneer Ventures Limited
Partnership, a venture fund the general partner of which is a wholly-owned
subsidiary of Pioneer Capital Corporation which exercises voting and
investment authority with respect to the shares owned by Pioneer Ventures
Limited Partnership. Excludes 19,490 shares and 2,827 shares issuable
pursuant to presently exercisable warrants held by Geneva Partnership, a
family partnership of one
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<PAGE>
of the principals of Pioneer Capital Corporation, and 20,000 shares held by
Christopher W. Lynch, a principal of Pioneer Capital Corporation. Pioneer
Capital Corporation disclaims beneficial ownership of all such shares.
(8) Includes (i) 250,000 shares held by Mr. O'Neill as Trustee of the
Ellenbogen Family Irrevocable Trust of 1996; (ii) 350,000 shares held by
Mr. O'Neill as Trustee of the S. David Ellenbogen 1996 Retained Annuity
Trust; and (iii) 200,000 shares held by Mr. O'Neill as Trustee of the Jay
A. Stein 1996 Retained Annuity Trust. Mr. O'Neill disclaims beneficial
ownership of all such shares.
(9) Includes 72,000 shares held by Dr. Stein as Trustee. Also includes 200,000
shares held in trust by Mr. O'Neill as Trustee of the Jay A. Stein 1996
Retained Annuity Trust. Dr. Stein disclaims beneficial ownership of the
shares held by Dr. Stein as Trustee.
(10) Includes 60,000 shares held by Mr. Ellenbogen as Trustee. Also includes
350,000 shares held in trust by Mr. O'Neill, as Trustee of the S. David
Ellenbogen 1996 Retained Annuity Trust. Excludes 250,000 shares held in
trust by Mr. O'Neill, as Trustee of the Ellenbogen Family Irrevocable
Trust of 1996. Mr. Ellenbogen disclaims beneficial ownership of shares
held by Mr. Ellenbogen as Trustee and shares held in trust by Mr. O'Neill
as Trustee of the Ellenbogen Family Irrevocable Trust of 1996.
(11) Consists of 86,500 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(12) Consists of 57,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(13) Includes 31,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(14) Includes 181,600 shares issuable pursuant to presently exercisable stock
options and 56,504 shares issuable pursuant to presently exercisable
warrants. See footnotes 3, 11, 12 and 13 above.
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<PAGE>
DESCRIPTION OF SECURITIES
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, $.01 par value, and
1,000,000 shares of Preferred Stock, $.01 par value (the "Preferred Stock").
COMMON STOCK
As of October 15, 1996, after giving effect to the conversion of all
outstanding shares of Series B Preferred Stock and Series D Preferred Stock
into an aggregate of 5,045,850 shares of Common Stock, there were 6,792,370
shares of Common Stock outstanding, held of record by 49 stockholders. There
will be 8,792,370 shares of Common Stock outstanding after giving effect to
the sale of the shares of Common Stock offered hereby.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. The holders of Common Stock
do not have cumulative voting rights in the election of directors. Upon
liquidation or dissolution of the Company, the holders of Common Stock are
entitled to receive all assets available for distribution to the stockholders,
subject to any preferential or other rights of the holders of Preferred Stock.
The Common Stock has no preemptive or other subscription rights, and there are
no conversion rights or redemption or sinking fund provisions with respect to
such shares. All of the shares of Common Stock are, and the shares to be sold
in the Offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the consummation of the Offering, the Board of Directors may, without
further action of the stockholders of the Company, issue Preferred Stock in
one or more classes or series and fix the rights and preferences thereof,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any class or series, and the designations of such class or series.
The voting and other rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. Issuances of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
a majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
WARRANTS
In January 1992, the Company sold a warrant to Dominion Fund II, L.P.
("Dominion") for the purchase of 42,667 shares of Common Stock, at an exercise
price of $1.50 per share. This warrant was sold in connection with a loan made
to the Company by Dominion. In March 1992 and February 1994, the Company
issued warrants to the purchasers of its Series C Preferred Stock and Series D
Preferred Stock for the purchase of an aggregate of 361,002 shares of Common
Stock at an exercise price of $1.50 per share. All of the outstanding warrants
are currently exercisable. Warrants to purchase 53,680 shares of Common Stock
will expire in February 2000, and the remainder will expire five years after
the completion of the Offering.
ANTITAKEOVER EFFECT OF PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION
AND BYLAWS AND OF DELAWARE LAW
In addition to the Preferred Stock, the Company's Restated Certificate of
Incorporation includes several additional provisions which may render more
difficult an unfriendly tender offer, proxy contest, merger or other
48
<PAGE>
change in control of the Company. These provisions may discourage bids for the
Company and therefore may limit the price that certain investors might be
willing to pay in the future for shares of Common Stock.
The Company's Restated Certificate of Incorporation contains a so-called
"anti-greenmail" provision. The provision is intended to discourage
speculators who accumulate beneficial ownership of a significant block of
stock and then, under the threat of making a tender offer or proxy contest or
instigating some other corporate disruption, succeed in extracting from the
corporation a premium price to repurchase the shares acquired by the
speculator. This tactic has become known as greenmail. The anti-greenmail
provision prohibits the Company from purchasing any shares of Common Stock
from a related person at a per share price in excess of the fair market value
at the time of such purchase, unless the purchase is approved by two-thirds of
the holders of the outstanding shares of Common Stock, excluding any votes
cast by the Related Person. The term Related Person is defined in general to
mean any person, other than a founder of the Company (Mr. Ellenbogen and Dr.
Stein), who acquires more than 5% of the Company's voting stock. Stockholder
approval is not required for such purchases when the offer is made available
on the same terms to all holders of shares of Common Stock or when the
purchases are effected in the open market.
The Restated Certificate of Incorporation also contains a provision that
will require the affirmative vote of the holders of 66 2/3% of the outstanding
Common Stock to approve amendments to the Company's Restated Certificate of
Incorporation or to approve extraordinary transactions that are required to be
approved by stockholders under the Delaware General Corporation Law, including
mergers, sales of substantially all of the Company's assets and dissolution,
which actions are not approved by a majority of the Continuing Directors (as
defined below) of the Company. The Company's Restated Certificate of
Incorporation provides that the affirmative vote of the holders of only a
majority of the outstanding Common Stock is required to approve such matters
if they have been approved by the Continuing Directors. The term Continuing
Director is defined to mean (i) any member of the Board of Directors who is
unaffiliated with a Related Person and was a member of the Board of Directors
prior to the time any person became a Related Person and (ii) any successor to
such a Continuing Director who is not affiliated with any Related Person and
is recommended to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board of Directors. A majority of the
Continuing Directors can designate a new director to be a Continuing Director,
even though such person is affiliated with a Related Person.
The Continuing Directors are currently closely affiliated with management
and are anticipated to continue to be so into the foreseeable future.
Accordingly, the effect of the provision of the Company's Restated Certificate
of Incorporation described in the preceding paragraph would be to make it
unlikely that any transaction requiring a stockholder vote would receive the
requisite approval unless supported by management. The 66 2/3% voting
requirement would apply to recapitalizations, management-led buy-outs and
other management-led transactions requiring the vote of stockholders under the
Delaware General Corporation Law, if such transactions were not approved by
the Continuing Directors. However, because of the likelihood of the close
association of the Continuing Directors to management, it would be more likely
that such transactions would obtain the approval of the Continuing Directors
and require only majority stockholder approval.
The Restated Certificate of Incorporation provides for the classification of
the Company's Board of Directors into three classes, with the classes being
elected for staggered three-year terms. At each annual meeting of
stockholders, directors will be elected to succeed those in the class whose
term then expires, and each elected director shall serve for a term expiring
at the third succeeding annual meeting of stockholders after such director's
election, and until the director's successor is elected and qualified. Thus,
directors stand for election only once in three years. This provision also
restricts the ability of stockholders to enlarge the Board of Directors.
Changes in the number of Directors may be effected by a vote of a majority of
the Continuing Directors (as defined in the Restated Certificate of
Incorporation) or by the stockholders by vote of at least 80% of the shares of
the Company's voting stock outstanding, voting as a single class. Under this
provision, Directors may only be removed with or without cause by the
affirmative vote of the holders at least 80% of the combined voting power of
the outstanding shares of the Company's voting stock, voting together as a
single class.
49
<PAGE>
The Restated Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company may be
taken only at a duly called annual or special meeting of the stockholders, and
may not be taken by written consent. This provision could have the effect of
delaying until the next annual stockholders meeting stockholder actions which
are favored by the holders of a majority of the outstanding voting securities
of the Company. This provision may also discourage another person or entity
from making a tender offer for the Company's Common Stock, because such person
or entity, even if it acquired a majority of the outstanding voting securities
of the Company, would be able to take action as a stockholder (such as
electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.
Another provision included in the Company's Restated Certificate of
Incorporation requires the Board of Directors to consider social, economic and
other factors in evaluating whether certain types of corporate transactions
proposed by another party are in the best interests of the Company and its
stockholders. These transactions include (i) the purchase or acquisition
through exchange or otherwise of any of the Company's outstanding equity
securities, (ii) the merger or consolidation of the Company with another
corporation and (iii) the purchase or other acquisition of all or
substantially all of the Company's properties and assets.
Section 203 of the Delaware General Corporation Law prohibits a Delaware
corporation from engaging in a wide range of specified transactions with any
interested stockholder, defined to include, among others, any person or entity
who in the last three years obtained 15% or more of any class or series of
stock entitled to vote in the election of directors, unless, among other
exceptions, the transaction is approved by (i) the Board of Directors prior to
the date the interested stockholder obtained such status or (ii) the holders
of two-thirds of the outstanding shares of each class or series of stock
entitled to vote generally in the election of directors, not including those
shares owned by the interested stockholder. By virtue of the Company's
decision not to elect out of the statute's provisions, the statute applies to
the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is the American Stock
Transfer & Trust Company.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of the
Common Stock applicable to Non-United States Holders of such Common Stock. For
the purposes of this discussion, a "Non-United States Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in the United States or under
the laws of the United States or any state, or (iii) an estate or trust
treated as a United States Person under Section 7701(a)(30) of the Code. The
term "Non-United States Holder" does not include individuals who were United
States citizens within the ten-year period immediately preceding the date of
this Prospectus and whose loss of United States citizenship had as one of its
principal purposes the avoidance of United States taxes. This discussion does
not deal with all aspects of United States federal income and estate taxation
and does not deal with foreign, state and local tax consequences that may be
relevant to Non-United States Holders in light of their personal
circumstances. Furthermore, the following discussion is based on current
provisions of the United States Internal Revenue Code (the "Code") and
administrative and judicial interpretations as of the date hereof, all of
which are subject to change. Prospective non-United States investors are urged
to consult their tax advisors regarding the United States federal, state,
local and non-United States income and other tax consequences of owning and
disposing of Common Stock.
DIVIDENDS
Generally, any dividend paid to a Non-United States Holder of Common Stock
will be subject to United States withholding tax either at a rate of 30% of
the gross amount of the dividend or such lower rate as may be specified by an
applicable tax treaty. Under current United States Treasury regulations,
dividends paid to an address outside the United States are presumed to be paid
to a resident of such country (absent knowledge that such presumption is not
warranted) for purposes of the withholding discussed above and, under the
current interpretation of United States Treasury regulations, for purposes of
determining applicability of a tax treaty rate. However, under proposed United
States Treasury regulations not currently in effect, a Non-United States
Holder of Common Stock (including a beneficial owner of an interest in certain
Non-United States Holders) who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy certain certification and disclosure
requirements. Dividends received by a Non-United States Holder that are
effectively connected with a United States trade or business conducted by such
Non-United States Holder are exempt from such withholding tax. However, such
effectively connected dividends, net of certain deductions and credits, are
taxed at the same graduated rates applicable to United States persons.
Currently, certain certification and disclosure requirements must be complied
with in order to be exempt from withholding under the effectively connected
income exemption.
In addition to the graduated tax described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a
United States trade or business of the corporate Non-United States Holder may
also be subject to a branch profits tax at a rate of 30% or such lower rate as
may be specified by an applicable tax treaty.
A Non-United States Holder of Common Stock eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for
refund with the United States Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his Common Stock unless: (i) such gain is effectively connected with a United
States trade or business of the Non-United States Holder; (ii) the Non-United
States Holder is an individual who holds such Common Stock as a capital asset
and who is present in the United States for 183 days
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or more during the calendar year in which such sale or disposition occurs and
certain other conditions are met or (iii) the Company is or has been a "United
States real property holding corporation" for federal income tax purposes at
any time within the shorter of the five-year period preceding such disposition
or such holder's holding period. The Company has determined that it is not and
does not believe that it will become a "United States real property holding
corporation" for federal income tax purposes. Even if the Company were to
become a "United States real property holding corporation," gains realized on
a disposition of Common Stock by a Non-United States Holder which did not
directly or indirectly own more than 5% of the Common Stock during the shorter
of the periods described above generally would not be subject to United States
federal income tax, provided that the Common Stock is "regularly traded" on an
established securities market.
An individual Non-United States Holder with gain described in clause (i) of
the preceding paragraph will be taxed on the net gain derived from the sale
under regular graduated United States federal income tax rates. An individual
Non-United States Holder described in clause (ii) above will be subject to a
flat 30% tax on the gain derived from the sale, which may be offset by United
States capital losses (notwithstanding the fact that the individual is not
considered a resident of the United States). A corporate Non-United States
Holder with gain described in clause (i) of the preceding paragraph, it will
be taxed on its gain under regular graduated United States federal income tax
rates and, in addition, may be subject to the branch profits tax equal to 30%
of its effectively connected earnings and profits within the meaning of the
Code for the taxable year, as adjusted for certain items, unless it qualifies
for a lower rate under an applicable income tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the United States Internal Revenue
Service the amount of dividends paid, the name and address of the recipient of
such dividends, and the amount, if any, of tax withheld. A similar report is
sent to the recipient of such dividends. Pursuant to tax treaties or other
agreements, the United States Internal Revenue Service may make its reports
available to tax authorities in the recipient's country of residence.
Under current Treasury Regulations, dividends paid to a Non-United States
Holder at an address within the United States may be subject to backup
withholding at a rate of 31% if the Non-United States Holder fails to
establish that it is entitled to an exemption or to provide a correct taxpayer
identification number and other information to the payor. Under current
Treasury Regulations, backup withholding will generally not apply to dividends
paid to Non-United States Holders at an address outside the United States
(unless the payor has knowledge that the payee is a United States person).
Under proposed United States Treasury regulations not currently in effect,
however, a Non-United States Holder will be subject to back-up withholding
unless applicable certification requirements are met.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of Common Stock to or through the United States office of a broker
is subject to information reporting and backup withholding at a rate of 31%
unless the holder certifies its Non-United States Holder status under
penalties of perjury or otherwise establishes an exemption. Generally, the
payment of the proceeds of the disposition by a Non-United States Holder of
Common Stock outside the United States to or through a foreign office of a
broker will not be subject to backup withholding. However, information
reporting requirements (but not backup withholding) will apply to a payment of
disposition proceeds outside the United States through an office outside the
United States of a broker that is (a) a United States person, (b) a United
States "controlled foreign corporation" for United States tax purposes or (c)
a foreign person 50% or more of whose gross income for certain periods is from
the conduct of a United States trade or business unless such broker has
documentary evidence in its files of the owner's foreign status and has no
knowledge to the contrary or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the United
States Internal Revenue Service.
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ESTATE TAX
A Non-United States Holder who is an individual and who owns Common Stock at
the time of his death or has made certain lifetime transfers of an interest in
Common Stock will be required to include the value of such stock in his gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,792,370 shares of
Common Stock outstanding (assuming no exercise of outstanding options or
warrants). Of these shares, the 2,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except that any
shares purchased by "affiliates" of the Company, as that term is defined in
Rule 144 ("Rule 144") under the Securities Act ("Affiliates"), may generally
only be sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 6,792,370 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. Of the Restricted Shares, up to 2,207,330 shares may
be eligible for sale in the public market immediately after this offering
pursuant to Rule 144(k) under the Securities Act; all of these shares are
subject to the lock-up agreements described below (the "Lock-up Agreements").
All of the remaining Restricted Shares may be eligible for sale in the public
market in accordance with Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the date of this Prospectus; 4,585,040 of these shares
are subject to Lock-up Agreements. Certain security holders have the right to
have their Restricted Shares registered by the Company under the Securities
Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least two years is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of (i) one percent of the then outstanding shares of Common Stock
(approximately 87,924 shares immediately after this offering) or (ii) the
average weekly trading volume in the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of
such sale is filed. Sales under Rule 144 are also subject to certain
limitations on manner of sale, notice requirements, and availability of
current public information about the Company. In addition, under Rule 144(k),
a person who is not an Affiliate and has not been an Affiliate for at least
three months prior to the sale and who has beneficially owned Restricted
Shares for at least three years may resell such shares without compliance with
the foregoing requirements. In meeting the two and three year holding periods
described above, a holder of Restricted Shares can include the holding periods
of a prior owner who was not an Affiliate. The Securities and Exchange
Commission has announced a proposal to reduce the two-year Rule 144 and the
three-year Rule 144(k) holding periods by one year.
Rule 701 under the Securities Act provides that the shares of Common Stock
acquired on the exercise of currently outstanding options may be resold by
persons, other than Affiliates, beginning 90 days after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
Affiliates under Rule 144 without compliance with its two-year minimum holding
period, subject to certain limitations.
OPTIONS AND WARRANTS
As of October 15, 1996, options and warrants to purchase a total of
1,276,969 shares of Common Stock were outstanding and 384,350 of the shares
issuable pursuant to such options and warrants are not yet exercisable.
Holders of 1,276,969 of these options and warrants have executed Lock-up
Agreements. An additional 1,020,180 shares of Common Stock are available for
future grants under the Company's stock option plans. See "Management--Stock
Option Plans."
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
stock option plans that do not qualify for an exemption under Rule 701 from
the registration requirements of the Securities Act. The Company expects to
file these registration statements promptly following the closing of the
Offering, and such registration statements are expected to become effective
upon filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the Lock-up Agreements, to
the extent applicable.
54
<PAGE>
LOCK-UP AGREEMENTS
Certain security holders and all officers and directors of the Company, who
in the aggregate hold substantially all of the outstanding shares of Common
Stock and substantially all of the outstanding options or warrants to purchase
shares of Common Stock, have agreed, pursuant to the Lock-up Agreements, that
they will not, without the prior written consent of Lehman Brothers Inc.,
offer, sell, contract to sell or otherwise dispose of, directly or indirectly,
any shares of Common Stock beneficially owned by them for a period of 180 days
after the date of this Prospectus.
REGISTRATION RIGHTS
Upon the expiration of contractual lock-up periods, certain security holders
of the Company (the "Rights Holders") will be entitled to require the Company
to register under the Securities Act the sale of up to a total of 2,898,520
shares of outstanding Common Stock and up to 210,199 shares of Common Stock
issuable upon exercise of outstanding warrants (the "Registrable Shares")
under the terms of certain agreements between the Company and the Rights
Holders (the "Registration Agreements"). The Registration Agreements provide
that in the event the Company proposes to register any of its securities under
the Securities Act at any time or times, the Rights Holders, subject to
certain exceptions, shall be entitled to include Registrable Shares in such
registration. However, the managing underwriter of any such offering may
exclude for marketing reasons some or all of such Registrable Shares from such
registration. The Rights Holders have, subject to certain conditions and
limitations, additional rights to require the Company to prepare and file a
registration statement under the Securities Act with respect to their
Registrable Shares. The Company is generally required to bear the expenses of
all such registrations, except underwriting discounts and commissions. All
Rights Holders have signed Lock-up Agreements covering their Registrable
Shares.
55
<PAGE>
UNDERWRITING
The underwriters of the U.S. Offering of the Common Stock (the "U.S.
Underwriters"), for whom Lehman Brothers Inc., Cowen & Company and Needham &
Company, Inc. are serving as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions of the U.S. Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement, to purchase from the Company, and the Company has agreed to sell to
each U.S. Underwriter, the following number of shares of Common Stock at the
public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Lehman Brothers Inc................................................
Cowen & Company....................................................
Needham & Company, Inc.............................................
---
Total............................................................
===
</TABLE>
The managers of the International Offering named below (the "International
Managers"), for whom Lehman Brothers International (Europe), Cowen & Company
and Needham & Company, Inc. are acting as lead managers, have severally
agreed, subject to the terms and conditions of the International Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement, to purchase from the Company, and the Company has agreed to sell to
each International Manager, the following aggregate number of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ---------
<S> <C>
Lehman Brothers International (Europe).............................
Cowen & Company....................................................
Needham & Company, Inc.............................................
---
Total............................................................
===
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting Agreement
(collectively, the "Underwriting Agreements") provide that the obligations of
the U.S. Underwriters and the International Managers, respectively, to
purchase shares of Common Stock are subject to the approval of certain legal
matters by counsel and to certain other conditions and that if any of the
shares of Common Stock are purchased by the U.S. Underwriters pursuant to the
U.S. Underwriting Agreement or by the International Managers pursuant to the
International Underwriting Agreement, all the shares of Common Stock agreed to
be purchased by either the U.S. Underwriters or the International Managers, as
the case may be, pursuant to their respective Underwriting Agreement, must be
so purchased. The offering price and underwriting discounts and commissions
for the U.S. Offering and the International Offering are identical. The
closing of the International Offering is a condition to
56
<PAGE>
the closing of the U.S. Offering, and the closing of the U.S. Offering is a
condition to the closing of the International Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain selected dealers (who may include the U.S.
Underwriters and International Managers) at such public offering price less a
selling concession not to exceed $ per share. The Underwriters may allow
and the selected dealers may reallow a concession not to exceed $ per
share. After the initial offering of the Common Stock, the public offering
price, the concession to selected dealers and the reallowance to other dealers
may be changed by the U.S. Underwriters and the International Managers. The
Representatives have informed the Company that the Underwriters do not intend
to confirm sales of shares of Common Stock to any accounts over which they
exercise discretionary authority.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers (the "Agreement
Between") pursuant to which each U.S. Underwriter has agreed that, as part of
the distribution of the shares of Common Stock offered in the U.S. Offering,
(a) it is not purchasing any of such shares for the account of anyone other
than a U.S. or Canadian Person (as defined below) and (b) it has not offered
or sold, and will not offer, sell, resell or deliver, directly or indirectly,
any of such shares or distribute any prospectus relating to the U.S. Offering
outside the United States or Canada or to anyone other than a U.S. or Canadian
Person. In addition, pursuant to the Agreement Between, each International
Manager has agreed that, as part of the distribution of the shares of Common
Stock offered in the International Offering, (a) it is not purchasing any of
such shares for the account of any U.S. or Canadian Person and (b) it has not
offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
International Offering within the United States or Canada or to any U.S. or
Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Underwriting
Agreements and the Agreement Between, including: (i) certain purchases and
sales between the U.S. Underwriters and the International Managers; (ii)
certain offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investment discretion; (iii)
purchases, offers or sales by a U.S. Underwriter and (iv) other transactions
specifically approved by the U.S. Underwriters and International Managers. As
used herein, "U.S. or Canadian Person" means any resident or citizen of the
United States or Canada, any corporation, pension, profit sharing or other
trust or other entity organized under or governed by the laws of the United
States or Canada or any political subdivision thereof (other than the foreign
branch of any United States or Canadian Person), any estate or trust the
income of which is subject to United States or Canadian federal income
taxation regardless of the source of its income, and any United States or
Canadian branch of a person other than a United States or Canadian Person. The
term "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction. The term "Canada" means the provinces
of Canada, its territories, its possessions and other areas subject to its
jurisdiction.
Pursuant to the Agreement Between, sales may be made among the U.S.
Underwriters and the International Mangers of such number of shares of Common
Stock as may be mutually agreed. The price of any shares so sold shall be the
public offering prices as then in effect for Common Stock being sold by the
U.S. Underwriters and International Managers, less an amount not greater than
the selling concession unless otherwise determined by mutual agreement. To the
extent that there are sales pursuant to the Agreement Between, the number of
shares initially available for sale by the U.S. Underwriters and the
International Managers may be more or less than the amount specified on the
cover page of this Prospectus.
Each International Manager has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issue of
the shares of Common Stock, will not offer or sell any shares of Common Stock
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied
57
<PAGE>
and will comply with all applicable provisions of the Financial Services Act
1986 with respect to anything done by it in relation to the Common Stock in,
from or otherwise involving the United Kingdom and (iii) it has only issued or
passed on, and will only issue or pass on, to any person in the United
Kingdom, any document received by it in connection with the issue of the
Common Stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995.
Purchasers of the shares offered pursuant to the Offering may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page hereof.
The Company has granted to the U.S. Underwriters and the International
Mangers options to purchase up to an aggregate of and additional
shares of Common Stock, respectively, at the initial public offering price
less the aggregate underwriting discounts and commissions shown on the cover
page of this Prospectus, solely to cover over-allotments, if any. The options
may be exercised at any time up to 30 days after the date of this Prospectus.
To the extent that the U.S. Underwriters and the International Mangers
exercise such options, each of the U.S. Underwriters and the International
Managers, as the case may be, will be committed (subject to certain
conditions) to purchase a number of option shares proportionate to such U.S.
Underwriter's or International Manager's initial commitment.
The Company has agreed to indemnify the U.S. Underwriters and the
International Mangers against certain liabilities, including liabilities under
the Act, and to contribute to payments which the U.S. Underwriters and the
International Managers may be required to make in respect thereof.
The Company, the officers and directors of the Company and certain other
stockholders of the Company have agreed that they will not, without the prior
written consent of Lehman Brothers Inc., offer, sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock within 180 days
after the date of this Prospectus, other than (i) the shares of Common Stock
to be sold to the Underwriters in the Offering, (ii) the issuance of options
and sales of Common Stock pursuant to currently existing stock-based
compensation plans and (iii) the issuance of shares of Common Stock as
consideration for the acquisition of one or more businesses (provided that
such Common Stock may not be resold prior to the expiration of the 180-day
period referenced above). See "Shares Eligible for Future Sale."
Prior to the Offering there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation among the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price will be prevailing
market and economic conditions, estimates of the business potential and
prospects of the Company, the state of the Company's business operations, an
assessment of the Company's management, the consideration of the above factors
in relation to market valuations of companies in related business and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover page of this preliminary prospectus is subject to change as
a result of market conditions and other factors.
58
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Brown, Rudnick, Freed & Gesmer, Boston, Massachusetts.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. A
member of Brown, Rudnick, Freed & Gesmer, counsel to the Company, is Secretary
of the Company.
EXPERTS
The audited financial statements included in this Prospectus or elsewhere in
this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein upon the authority of said firm as experts in
giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
("Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules
thereto. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete and, in each
instance where such contract or document is filed as an exhibit to the
Registration Statement, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement, including the exhibits thereto, may be inspected
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission upon the payment of certain fees prescribed by the
Commission. In addition, the Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants (including the Company) that file electronically with the
Commission, which can be accessed at http://www.sec.gov.
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by its independent
accountants and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited consolidated financial
information.
59
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of September 30, 1994 and 1995 and June
30, 1996 Actual and
Pro Forma (Unaudited)................................................... F-3
Consolidated Statements of Operations for the Years Ended September 30,
1993, 1994 and 1995 and the Nine Months Ended June 30, 1995 and 1996
(Unaudited)............................................................. F-4
Consolidated Statements of Stockholders' Deficit for the Years Ended
September 30, 1993, 1994 and 1995 and the Nine Months Ended June 30,
1996 (Unaudited)........................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended September 30,
1993, 1994 and 1995 and the Nine Months Ended June 30, 1995 and 1996
(Unaudited)............................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vivid Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Vivid
Technologies, Inc. (a Massachusetts corporation) and subsidiaries as of
September 30, 1994 and 1995, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the three years
in the period ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vivid Technologies, Inc.
and subsidiaries as of September 30, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
November 27, 1995
F-2
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, 1996
------------------------ ------------------------
1994 1995 ACTUAL PRO FORMA
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 1,386,646 $ 2,561,912 $ 643,101 $ 643,101
Short-term investments.... 500,000 -- -- --
Accounts receivable....... 836,359 1,168,124 4,068,874 4,068,874
Inventories............... 2,943,352 3,184,468 4,173,867 4,173,867
Other current assets...... 37,604 57,382 156,790 156,790
----------- ----------- ----------- -----------
Total current assets...... 5,703,961 6,971,886 9,042,632 9,042,632
----------- ----------- ----------- -----------
Property and equipment, at
cost:
Machinery and equipment... 1,004,416 1,378,390 1,637,452 1,637,452
Furniture and fixtures.... 61,984 68,534 58,855 58,855
Leasehold improvements.... 117,394 120,540 139,706 139,706
Equipment under capital
leases................... -- -- 198,580 198,580
----------- ----------- ----------- -----------
1,183,794 1,567,464 2,034,593 2,034,593
Less--accumulated
depreciation and
amortization............. 594,018 867,088 999,557 999,557
----------- ----------- ----------- -----------
589,776 700,376 1,035,036 1,035,036
----------- ----------- ----------- -----------
Other assets, net.......... 71,327 67,264 130,841 130,841
----------- ----------- ----------- -----------
$6,365,064 $ 7,739,526 $10,208,509 $10,208,509
=========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit............ $ -- $ -- $ 1,000,000 $ 1,000,000
Obligation under capital
leases................... -- -- 65,326 65,326
Accounts payable.......... 1,230,700 726,571 1,353,157 1,353,157
Accrued expenses.......... 1,741,552 2,276,883 2,314,732 2,314,732
Currently redeemable
series A preferred
stock.................... -- -- 2,343,750 2,343,750
Currently redeemable
series C preferred
stock.................... -- -- 3,436,900 3,436,900
Customer deposits......... 677,390 -- -- --
----------- ----------- ----------- -----------
Total current
liabilities.............. 3,649,642 3,003,454 10,513,865 10,513,865
----------- ----------- ----------- -----------
Redeemable preferred stock,
net of current:
Series A--
234,375 shares
authorized, issued and
outstanding.............. 2,343,750 2,343,750 -- --
----------- ----------- ----------- -----------
Series C--
343,690 shares
authorized, issued and
outstanding ............. 3,436,900 3,436,900 -- --
----------- ----------- ----------- -----------
Commitments and
contingencies (notes 10
and 12)
Stockholders' deficit:
Convertible preferred
stock, $.01 par value--
Series B--
Authorized--250,000
shares, none pro forma
Issued and outstanding--
250,000 shares, none
pro forma
(liquidation preference
of $156,250)............ 2,500 2,500 2,500 --
Series D--
Authorized--254,585
shares, none pro forma
Issued and outstanding--
254,585 shares, none
pro forma
(liquidation preference
of $381,878)............ 2,546 2,546 2,546 --
Common stock, $.01 par
value--
Authorized--7,500,000
shares
Issued and outstanding--
1,647,600 shares in
1994, 1,674,350 shares
in 1995, 1,679,020
shares in 1996 and
6,724,870 shares pro
forma................... 16,476 16,743 16,790 67,249
Capital in excess of par
value.................... 532,238 538,546 541,644 496,231
Accumulated deficit....... (3,618,988) (1,604,913) (868,836) (868,836)
----------- ----------- ----------- -----------
Total stockholders'
deficit................ (3,065,228) (1,044,578) (305,356) (305,356)
----------- ----------- ----------- -----------
$ 6,365,064 $ 7,739,526 $10,208,509 $10,208,509
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------------------ ----------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $2,853,614 $13,801,281 $14,437,220 $ 10,727,126 $ 10,162,868
Cost of revenues........ 1,920,754 6,761,739 6,128,986 5,053,603 4,361,717
---------- ----------- ----------- ------------- -------------
Gross margin.......... 932,860 7,039,542 8,308,234 5,673,523 5,801,151
---------- ----------- ----------- ------------- -------------
Operating expenses:
Research and
development.......... 1,139,250 2,295,927 3,653,041 2,881,585 2,511,814
Selling and
marketing............ 316,698 716,312 1,077,235 795,650 987,120
General and
administrative....... 220,819 915,479 1,120,292 856,164 1,070,397
Litigation expenses... -- 199,388 308,482 226,644 182,817
---------- ----------- ----------- ------------- -------------
Total operating
expenses............ 1,676,767 4,127,106 6,159,050 4,760,043 4,752,148
---------- ----------- ----------- ------------- -------------
Income (loss) from
operations........... (743,907) 2,912,436 2,149,184 913,480 1,049,003
Interest income......... 6,538 1,818 53,378 43,434 42,731
Interest expense........ (121,190) (4,553) (98,487) (95,428) (40,657)
---------- ----------- ----------- ------------- -------------
Income (loss) before
provision for income
taxes................ (858,559) 2,909,701 2,104,075 861,486 1,051,077
Provision for income
taxes.................. -- 100,000 90,000 37,000 315,000
---------- ----------- ----------- ------------- -------------
Net income (loss)..... $ (858,559) $ 2,809,701 $ 2,014,075 $ 824,486 $ 736,077
========== =========== =========== ============= =============
Net income (loss) per
common and common
equivalent share....... $ (0.15) $ 0.39 $ 0.28 $ 0.11 $ 0.10
========== =========== =========== ============= =============
Weighted average number
of common and common
equivalent shares
outstanding............ 5,814,756 7,198,301 7,275,138 7,275,723 7,583,654
========== =========== =========== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES B SERIES D
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------- ------------------- CAPITAL
NUMBER $.01 NUMBER $.01 NUMBER $.01 IN EXCESS OF ACCUMULATED
OF SHARES PAR VALUE OF SHARES PAR VALUE OF SHARES PAR VALUE PAR VALUE DEFICIT TOTAL
--------- --------- --------- --------- --------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September
30, 1992............ 250,000 $2,500 133,333 $1,333 1,522,950 $15,230 $334,405 $(5,570,130) $(5,216,662)
Issuance of common
stock purchase
warrants........... -- -- -- -- -- -- 2,590 -- 2,590
Exercise of stock
options............ -- -- -- -- 22,800 228 3,652 -- 3,880
Conversion of
subordinated notes
payable to
convertible
preferred stock.... -- -- 121,252 1,213 -- -- 180,664 -- 181,877
Net loss............ -- -- -- -- -- -- -- (858,559) (858,559)
------- ------ ------- ------ --------- ------- -------- ----------- -----------
Balance, September
30, 1993............ 250,000 2,500 254,585 2,546 1,545,750 15,458 521,311 (6,428,689) (5,886,874)
Exercise of stock
options............ -- -- -- -- 101,850 1,018 10,927 -- 11,945
Net income.......... -- -- -- -- -- -- -- 2,809,701 2,809,701
------- ------ ------- ------ --------- ------- -------- ----------- -----------
Balance, September
30, 1994............ 250,000 2,500 254,585 2,546 1,647,600 16,476 532,238 (3,618,988) (3,065,228)
Exercise of stock
options............ -- -- -- -- 26,750 267 6,308 -- 6,575
Net income.......... -- -- -- -- -- -- -- 2,014,075 2,014,075
------- ------ ------- ------ --------- ------- -------- ----------- -----------
Balance, September
30, 1995............ 250,000 2,500 254,585 2,546 1,674,350 16,743 538,546 (1,604,913) (1,044,578)
Exercise of stock
options............ -- -- -- -- 4,670 47 3,098 -- 3,145
Net income.......... -- -- -- -- -- -- -- 736,077 736,077
------- ------ ------- ------ --------- ------- -------- ----------- -----------
Balance, June 30,
1996 (Unaudited).... 250,000 $2,500 254,585 $2,546 1,679,020 $16,790 $541,644 $ (868,836) $ (305,356)
======= ====== ======= ====== ========= ======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
--------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $(858,559) $2,809,701 $2,014,075 $ 824,486 $ 736,077
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating
activities--
Depreciation and
amortization......... 87,796 195,031 276,838 203,107 299,908
Gain on sale of
property and
equipment............ -- -- -- -- (14,866)
Changes in assets and
liabilities--
Accounts receivable.. 267,000 (761,359) (331,765) (461,168) (2,900,750)
Inventories.......... (149,881) (2,266,822) (241,116) (233,325) (989,399)
Other current
assets.............. (18,262) 6,755 (23,546) (37,790) (99,408)
Accounts payable..... 170,954 696,230 (504,129) (705,018) 626,586
Accrued expenses..... 262,896 1,235,351 535,331 470,778 37,849
Customer deposits.... 575,000 102,390 (677,390) (677,390) --
--------- ---------- ---------- ---------- -----------
Net cash provided by
(used in) operating
activities......... 336,944 2,017,277 1,048,298 (616,320) (2,304,003)
--------- ---------- ---------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment, net... (63,050) (584,136) (383,670) (285,038) (496,731)
Proceeds from sale of
property and
equipment............ -- -- -- -- 77,302
Decrease (increase) in
short-term
investments.......... -- (500,000) 500,000 500,000 --
Decrease (increase) in
other assets......... (37,699) (39,929) 4,063 -- (65,000)
--------- ---------- ---------- ---------- -----------
Net cash provided by
(used in) investing
activities......... (100,749) (1,124,065) 120,393 214,962 (484,429)
--------- ---------- ---------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payment of promissory
note payable......... (400,000) -- -- -- --
Proceeds from
convertible
subordinated demand
notes................ 600,000 -- -- -- --
Net proceeds from line
of credit............ -- -- -- -- 1,000,000
Proceeds from exercise
of stock options..... 3,880 11,945 6,575 3,575 3,145
Proceeds from the
issuance of common
stock purchase
warrants............. 2,590 -- -- -- --
Payments on capital
lease obligations.... -- -- -- -- (133,524)
--------- ---------- ---------- ---------- -----------
Net cash provided by
financing
activities......... 206,470 11,945 6,575 3,575 869,621
--------- ---------- ---------- ---------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 442,665 905,157 1,175,266 (397,783) (1,918,811)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 38,824 481,489 1,386,646 1,386,646 2,561,912
--------- ---------- ---------- ---------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 481,489 $1,386,646 $2,561,912 $ 988,863 $ 643,101
========= ========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
year for--
Interest.............. $ 32,216 $ 6,698 $ 98,487 $ 95,428 $ 40,652
========= ========== ========== ========== ===========
Income taxes.......... $ -- $ 48,000 $ 74,000 $ 74,000 $ 38,000
========= ========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING
AND FINANCING
ACTIVITIES:
Assets acquired under
capital leases....... $ -- $ -- $ -- $ -- $ 198,850
========= ========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Vivid Technologies, Inc. (the Company) is a leading developer, manufacturer
and marketer of automated inspection systems which detect plastic and other
explosives in airline baggage.
The Company currently sells the majority of its products to one customer,
BAA plc (BAA). BAA is scheduled to complete deployment of checked baggage
explosives detection systems at its seven airports by the end of 1997. As a
result, the Company expects that new orders from BAA will decrease during
fiscal 1997. The inability of the Company to obtain orders from customers
other than BAA would have a material adverse effect on the Company's business
and financial condition.
The Company is also party to certain litigation, the result of which could
have a material adverse effect on the Company's financial position or results
of operations (See Note 12).
The accompanying consolidated financial statements reflect the application
of the accounting policies as described below.
(A) Interim Financial Statements
The accompanying consolidated balance sheet as of June 30, 1996, the
consolidated statements of operations and cash flows for the nine months ended
June 30, 1995 and 1996, and the consolidated statement of stockholders'
deficit for the nine months ended June 30, 1996 are unaudited, but in the
opinion of management have been prepared on a basis substantially consistent
with the audited financial statements and include all adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation of the
results of these interim periods. The results of the nine months ended June
30, 1996 are not necessarily indicative of the results to be expected for the
year ended September 30, 1996.
(B) Pro Forma Presentation
The pro forma consolidated balance sheet as of June 30, 1996 reflects the
automatic conversion of all outstanding shares of Series B and Series D
convertible preferred stock into an aggregate of 5,045,850 shares of common
stock, which will occur upon the closing of the Company's proposed initial
public offering (See Note 5).
(C) Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is based on the pro
forma weighted average number of common and common equivalent shares
outstanding during the period, assuming the automatic conversion of all
outstanding shares of convertible preferred stock into 5,045,850 shares of
common stock. Pursuant to the requirements of the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common and common equivalent
shares issued during the 12 months immediately prior to the date of the
initial filing of the Company's registration statement have been included in
the calculation of weighted average number of common shares outstanding for
all periods presented using the treasury stock method. Fair market value for
the purpose of the calculation was assumed to be $13.00. Common stock
equivalents issued in earlier periods have been included when the effect would
be dilutive.
(D) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Vivid Technologies UK Ltd. and Vivid
Foreign Sales Corporation. All material intercompany transactions and balances
have been eliminated in consolidation.
F-7
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(E) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(F) Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities
of three months or less to be cash equivalents. Short-term investments have
maturities of greater than three months at the time of acquisition.
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under SFAS No. 115, investments for
which the Company has the positive intent and ability to hold to maturity are
reported at amortized cost, which approximates fair market value, and are
classified as held-to-maturity. At September 30, 1994 and 1995, these
investments consist of U.S. Government securities and are classified as cash
equivalents. Investments purchased to be held for indefinite periods of time,
and not intended at the time of purchase to be held until maturity, are
classified as available-for-sale. At September 30, 1994 and 1995 and June 30,
1996, these investments consist of a pooled fund, managed by the Company's
bank, which invests primarily in United States Government fixed-income
securities of a short-term nature and are included in cash equivalents and
reported at cost, which approximates fair market value.
(G) Concentration of Credit Risk and Significant Customers
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. Financial instruments that subject the Company to credit risk
consist primarily of cash and cash equivalents, short-term investments and
trade accounts receivable. The Company places its investments in highly rated
financial institutions. The Company has not experienced any losses on these
investments to date. Accounts receivable in the amounts of approximately
$836,000, $519,000 and $3,856,000 at September 30, 1994 and 1995 and June 30,
1996, respectively, were due from BAA, a customer outside the United States
who accounted for 62%, 88% and 76% of revenues in fiscal 1993, 1994 and 1995,
respectively, and 77% and 73% for the nine months ended June 30, 1995 and
1996, respectively. The Company has not experienced any losses related to
receivables from individual customers or groups of customers in the baggage
security and inspection industry.
(H) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, and accounts payable. The carrying amounts
of the Company's cash and cash equivalents, accounts receivable and accounts
payable approximate fair value due to the short-term nature of these
instruments.
(I) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials and work-in-process....... $2,943,352 $3,015,103 $3,699,222
Finished goods.......................... -- 169,365 474,645
---------- ---------- ----------
$2,943,352 $3,184,468 $4,173,867
========== ========== ==========
</TABLE>
Finished goods consist of materials, labor and overhead.
F-8
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(J) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations using the straight-line and declining-balance methods, which
allocate the cost of property and equipment over their estimated useful lives,
as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSETS CLASSIFICATION USEFUL LIFE
--------------------- -------------
<S> <C>
Machinery and equipment...................................... 5 Years
Furniture and fixtures....................................... 7 Years
Leasehold improvements....................................... Life of lease
Equipment under capital leases............................... Life of lease
</TABLE>
(K) Other Assets
Other assets consist primarily of patent costs, which are being amortized
over 10 years using the straight-line method and deposits. The Company
assesses the realizability of these intangible assets in accordance with SFAS
No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The Company has not recorded any impairment of its
intangible assets to date and periodically reviews the realizability of these
intangible assets.
(L) Revenue Recognition
The Company recognizes product revenue upon shipment. A provision is made at
that time for estimated warranty and installation costs to be incurred. Other
revenues are recorded at the time the product is shipped or the service is
rendered. Development revenues relate to research expenditures that are
incurred under a federal grant and are recorded as the development work is
completed.
At September 30, 1994, the Company had received a customer advance that
represented payments received from a customer prior to the shipment of the
product. This advance was secured by certain inventory of the Company.
(M) Research and Development and Software Development Costs
Research and development costs have been charged to operations as incurred.
SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed, requires the capitalization of certain computer
software development costs incurred after technological feasibility is
established. The Company believes that once technological feasibility of a
software product has been established, the additional development costs
incurred to bring the product to a commercially acceptable level are not
significant.
F-9
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes, the objective of which is to recognize the amount of current and
deferred income taxes at the date of the financial statements as a result of
all differences in the tax basis and financial statement carrying amount of
assets and liabilities as measured by enacted tax laws.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Net operating loss carryforwards................... $ 626,000 $ --
Research and development credit carryforwards...... 272,000 228,000
Nondeductible accruals............................. 136,000 190,000
Nondeductible reserves............................. 437,000 515,000
Unamortized start-up costs......................... 169,000 97,000
Other temporary differences........................ 24,000 9,000
Valuation allowance................................ (1,664,000) (1,039,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
At September 30, 1995, the Company has research and development credit
carryforwards for federal income tax purposes of approximately $228,000. The
research and development credit carryforwards expire from 2007 through 2010
and are subject to review and possible adjustment by the Internal Revenue
Service.
Under SFAS No. 109, the Company cannot recognize a deferred tax asset for
the future benefit of its deferred tax asset unless it concludes that it is
more likely than not that the deferred tax asset would be realized. Due to its
limited history of profitability, the early stage of development of the
Company's market and reliance on BAA, the Company has recorded a full
valuation allowance against its otherwise recognizable net deferred tax asset,
in accordance with SFAS No. 109. The reduction in the valuation allowance from
September 30, 1994 to September 30, 1995 is directly attributable to the
utilization of net operating loss carryforwards. Section 382 of the Internal
Revenue Code relates to the use of corporate tax attributes following a change
in ownership. Under this Section, a defined ownership change can result from
the issuance of new equity securities. The Company's tax credit carryforwards
available to be used in any given year may be limited in the event of such
ownership changes.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1994 1995
------ ------
<S> <C> <C>
Income tax provision at federal statutory rate............. 34.0% 34.0%
Increase (decrease) in tax resulting from--
State tax provision, net of federal benefit.............. 6.3 6.3
Net operating loss carryforwards......................... (38.9) (31.2)
Research and development tax credit...................... -- (6.8)
Alternative minimum taxes................................ 2.0 2.0
------ ------
Effective tax rate..................................... 3.4% 4.3%
====== ======
</TABLE>
The Company did not record a tax provision in fiscal 1993 due to its
operating loss.
F-10
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) LINE OF CREDIT
In March 1996, the Company renewed its secured demand line of credit with a
bank for $3,000,000. Borrowings under the line, which are limited to a
percentage of eligible accounts receivable and inventories, as defined, are
available through February 28, 1997. Borrowings under the line bear interest
at the bank's prime rate (8.25% at June 30, 1996). There were no amounts
outstanding under this line at September 30, 1994 and 1995. As of June 30,
1996, $1,000,000 was outstanding under this line of credit. The line of credit
is collateralized by substantially all assets of the Company.
(4) REDEEMABLE PREFERRED STOCK
At June 30, 1996, the Company has authorized 578,065 shares of redeemable
preferred stock, par value $.01 per share, of which 234,375 shares and 343,690
shares have been designed as Series A and Series C redeemable preferred stock,
respectively. The redeemable preferred stockholders have the following rights
and privileges:
(A) Voting
The holders of Series A and Series C redeemable preferred stock have no
voting rights, unless the Company fails to redeem the Series A or Series C
redeemable preferred stock, as required, upon which the Series A or the Series
C redeemable preferred stockholders shall be entitled to elect the least
amount of directors that would constitute a majority of the Board of
Directors. No other voting rights exist for holders of Series A and Series C
redeemable preferred stock.
(B) Liquidation
The Series C redeemable preferred stockholders have a liquidation preference
over Series A, Series B and Series D preferred stockholders and common
stockholders in the amount of $10 per share. The Series A redeemable preferred
stockholders have a liquidation preference over the Series B convertible
preferred stockholders and common stockholders in the amount of $10 per share.
(C) Dividends
Series C redeemable preferred stockholders are entitled to dividends, if and
when declared by the Board of Directors, at the rate of $.10 per share. After
all Series C redeemable preferred dividends have been paid, Series A
redeemable preferred stockholders are entitled to dividends, if and when
declared by the Board of Directors, at a rate of $.10 per share. Dividends are
not cumulative. To date, the Company has not declared or paid any dividends.
(D) Redemptions
The Company has the option to redeem Series A and Series C redeemable
preferred stock at any time for $10 per share plus any accrued but unpaid
dividends. The holders of the Series A preferred stock and Series C preferred
stock deferred and waived certain of the Company's mandatory redemption
obligations with respect to such preferred stock. The waivers remain effective
through November 1, 1996 and thereafter until the holders of not less than 60%
of the shares of the applicable series provide the Company with 60 days prior
notice of their intention to reinstate the Company's mandatory redemption
obligations with respect to the covered shares. Absent the waiver, the Company
is required to redeem the Series A and Series C redeemable preferred stock for
$10 per share, provided that funds are legally available, as follows:
F-11
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
SERIES C REDEEMABLE PREFERRED STOCK
. On the 90th day following the end of each fiscal year, the number of
shares equal to the lesser of 25% of net income, if any, for the fiscal
year or 33 1/3% of cash flows, as defined, for the fiscal year, divided
by the redemption price per share.
. On June 22, 1995, 75,000 shares of the outstanding shares of Series C
redeemable preferred stock, less any shares previously redeemed.
. On January 25, 1996, 90,000 shares of the outstanding shares of Series C
redeemable preferred stock.
. On June 22, 1996, all remaining outstanding shares of Series C
redeemable preferred stock.
SERIES A REDEEMABLE PREFERRED STOCK
. On the 90th day following the end of each fiscal year, the number of
shares equal to 25% of net income, if any, for the fiscal year, divided
by the redemption price per share, provided that the Series C redeemable
preferred stock has been fully redeemed.
. On June 22, 1996, 60,000 shares of the outstanding shares of Series A
redeemable preferred stock, less any shares previously redeemed.
. On January 25, 1997, 90,000 shares of the outstanding shares of Series A
redeemable preferred stock.
. On June 22, 1997, all remaining outstanding shares of Series A
redeemable preferred stock.
(5) CONVERTIBLE PREFERRED STOCK
At June 30, 1996, the Company has authorized 504,585 shares of convertible
preferred stock, par value $.01 per share, of which 250,000 shares and 254,585
shares have been designated as Series B and Series D convertible preferred
stock, respectively. The convertible preferred stockholders have the following
rights and privileges:
(A) Voting
The holders of Series B and Series D convertible preferred stock are
entitled to vote with the common stockholders as one class at the rate and
number of votes that they would receive upon conversion.
(B) Conversion
At June 30, 1996, each share of Series B and Series D convertible preferred
stock is convertible into 10 shares of common stock. This rate is adjustable
under certain circumstances in the event that the Company issues additional
shares of common stock, as defined, or effects a stock split or stock
dividend. The right of conversion is at the option of the holder; however, the
conversion is required upon the completion of an initial public offering,
provided that the gross proceeds to the Company exceed $5,000,000.
(C) Liquidation
The Series D convertible preferred stockholders have a liquidation
preference over Series A and Series B preferred stockholders and common
stockholders in the amount of $1.50 per share. The Series B preferred
stockholders have a liquidation preference over the common stockholders in the
amount of $.625 per share.
(D) Dividends
After all Series A and Series C redeemable preferred dividends have been
paid, Series B and Series D convertible preferred stockholders may receive
dividends, at a rate equal to dividends declared on common stock, before any
dividends are paid on common stock. Dividends are not cumulative. No cash
dividends were declared or paid as of June 30, 1996.
F-12
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) STOCK PURCHASE WARRANTS
In conjunction with a $400,000 promissory note issued in fiscal 1992 and
repaid in fiscal 1993, the Company sold a warrant, at nominal value, to
purchase 42,667 shares of the Company's common stock at $1.50 per share. The
warrant expires at various dates after February 2000 or five years after the
completion of an initial public offering of the Company's common stock with
aggregate proceeds of at least $5,000,000.
In conjunction with the issuance of certain convertible notes in fiscal
1993, the Company issued, at nominal value, warrants to purchase 361,002
shares of the Company's common stock for $1.50 per share. The warrants expire
the earlier of 10 years from the date of issue or five years after the
completion of an initial public offering of the Company's common stock, with
aggregate proceeds of at least $5,000,000.
(7) STOCK OPTIONS
The Company's 1989 Combination Stock Option Plan (the Plan) provides for the
grant to key employees incentive stock options to purchase shares of the
Company's common stock at a price not less than fair market value as
determined by the Board of Directors, or nonqualified options at a price
specified by the Board of Directors. As of June 30, 1996, the Company has
authorized 1,250,000 shares of common stock for issuance under the Plan, of
which options to purchase 1,096,950 shares have been granted and 179,020
shares have been exercised. These options generally vest over a five-year
period. A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
-------- ---------------
<S> <C> <C>
Outstanding, September 30, 1993.................. 642,500 $.10-- $.50
Granted........................................ 177,750 .50-- 1.00
Exercised...................................... (101,850) .10-- .50
Terminated..................................... (6,150) .10-- .50
-------- -----------
Outstanding, September 30, 1994.................. 712,250 .10-- .50
Granted........................................ 119,250 1.00
Exercised...................................... (26,750) .10-- .50
Terminated..................................... (47,330) .50-- 1.00
-------- -----------
Outstanding, September 30, 1995.................. 757,420 .10-- 1.00
Granted........................................ 68,500 1.00
Exercised...................................... (4,670) .50-- 1.00
Terminated..................................... (5,100) .50-- 1.00
-------- -----------
Outstanding, June 30, 1996....................... 816,150 $.10--$1.00
======== ===========
Exercisable, June 30, 1996....................... 487,150 $.10--$1.00
======== ===========
</TABLE>
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the
measurement of the fair value of stock options or warrants to be included in
the statement of operations or disclosed in the notes to financial statements.
The Company is required to adopt SFAS No. 123 in fiscal 1997 and has
determined that it will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123. The Company will be required
to disclose the pro forma net income or loss and per share amounts in the
notes to financial statements using the fair-value-based method beginning in
the year ending September 30, 1997, with comparable disclosures for the year
ended September 30, 1996. The Company has not determined the impact of these
pro forma adjustments. Subsequent to June 30, 1996, the Company granted
options to purchase 112,950 shares of common stock at prices ranging from
$3.00 to $9.50 per share.
F-13
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) RESERVED COMMON STOCK
The Company has reserved the following number of common shares as of June
30, 1996:
<TABLE>
<S> <C>
Conversion of Series B convertible preferred stock............... 2,500,000
Conversion of Series D convertible preferred stock............... 2,545,850
Exercise of stock purchase warrants.............................. 403,669
Exercise of stock options........................................ 1,070,980
---------
6,520,499
=========
</TABLE>
(9) GEOGRAPHICAL SALES DATA
Export sales as a percentage of total sales are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Europe........................ 90.0% 92.7% 90.6% 92.6% 93.2%
Other......................... -- 4.6 -- -- 0.1
-------- -------- -------- -------- --------
Total....................... 90.0% 97.3% 90.6% 92.6% 93.3%
======== ======== ======== ======== ========
</TABLE>
Substantially all of the Company's assets are located in the United States.
(10) RELATED PARTY TRANSACTIONS
(A) Management Services Agreement
The Company has an agreement with Hologic, Inc. (Hologic), an affiliated
company, whereby Hologic provides management, administrative and support
services. In addition, the Company subleased its facilities from Hologic under
a sublease agreement, which was terminated in February 1996, for approximately
$15,000 per month. The Company paid Hologic for all direct costs incurred, as
well as a portion of Hologic's overhead costs, as defined, representing a pro
rata portion of costs attributable to the Company. Expenses charged to
operations under these agreements were approximately $304,000, $544,000 and
$530,000 in fiscal 1993, 1994 and 1995, respectively, and approximately
$396,000 and $223,000 for the nine months ended June 30, 1995 and 1996,
respectively. The Company also made purchases of approximately $154,000,
$229,000 and $210,000 from Hologic in fiscal 1993, 1994 and 1995,
respectively. Of these amounts, approximately $291,000, $463,000 and $50,000
had not been paid as of September 30, 1994 and 1995 and June 30, 1996,
respectively.
(B) License and Technology Agreement
The Company has an agreement with Hologic whereby the Company has a
perpetual, exclusive, worldwide license to utilize certain of Hologic's
technology and patents for the purpose of developing the Company's products.
In September 1996, this license was amended to grant the Company a
nonexclusive license to utilize these patents and technology for new product
development for other applications. Royalty payments to Hologic under this
agreement are 5% of revenue, as defined, on the first $50 million in sales;
thereafter, payments are 3% on sales up to $200 million. No royalty payments
are made on aggregate revenues in excess of $200 million. The agreement
terminates by mutual agreement of the two parties or upon certain other
defined circumstances. During fiscal 1993, 1994 and 1995, the Company incurred
royalty expenses of approximately $138,000, $688,000 and $719,000,
respectively, and approximately $534,000 and $504,000 for the nine months
ended June 30, 1995 and 1996, respectively, of which approximately $189,000,
$351,000 and $504,000 had not been paid as of September 30, 1994 and 1995 and
June 30, 1996, respectively.
F-14
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(11) PROFIT-SHARING 401(K) PLAN
The Company has a qualified profit-sharing plan covering substantially all
of its employees. Contributions to the plan are at the discretion of the
Company's Board of Directors. There was no provision for contributions
recorded in fiscal 1993. The Company has recorded approximately $63,000 and
$65,000 as a provision for the profit-sharing contribution for fiscal 1994 and
1995, respectively, and approximately $34,000 and $33,000 for the nine months
ended June 30, 1995 and 1996, respectively.
(12) COMMITMENTS AND CONTINGENCIES
(A) Operating Leases
In March 1996, the Company moved into its new operating facility. The
Company is renting the facility under an operating lease which expires in
February 2001. The Company's future minimum lease payments under all operating
leases as of September 30, 1995 are approximately as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1996.............................. $ 302,000
1997.............................. 389,000
1998.............................. 389,000
1999.............................. 389,000
2000.............................. 389,000
Thereafter........................ 162,000
----------
$2,020,000
==========
</TABLE>
Rent expense charged to operations for the years ended September 30, 1993,
1994 and 1995, the nine months ended June 30, 1995 and the first five months
of fiscal 1996 was approximately $15,000 per month as a part of the management
services agreement with Hologic (see Note 10(a)). Rent expense charged to
operations since the Company moved operating facilities through June 30, 1996
was approximately $130,000.
(B) Capital Leases
The Company leases certain equipment under capital leases. The leases expire
through June 1997, and the interest rates range from 9.4% to 12.6%. Total
remaining payments, including interest, are approximately $80,000.
(C) Patent Infringement Claims
In October 1994, EG&G filed a patent infringement claim against the Company
in the United States District Court for the District of Massachusetts,
alleging that certain of the Company's products violate a patent held by EG&G.
EG&G is seeking damages and expenses from the Company and to enjoin the
Company from selling products that allegedly infringe the EG&G patent. In
December 1994, the Company filed an answer denying any infringement and a
counterclaim seeking invalidation of the EG&G patent and alleging that EG&G is
infringing three patents owned and licensed by the Company.
In May 1996, in response to allegations made by AS&E to third parties that
the Company was infringing AS&E's patents, the Company filed a request for
declaratory judgment that the Company is not infringing AS&E's patents in the
United States District Court for the District of Massachusetts. In August
1996, AS&E filed an answer and counterclaim alleging that the Company is
infringing one or more of eight AS&E patents.
The Company does not believe that it is infringing any valid patents of
either EG&G or AS&E and is vigorously defending its claims related to these
patents. However, there can be no assurance that the Company will prevail in
its litigation or reach a favorable settlement with either EG&G or AS&E. An
unfavorable outcome to the Company could result in an injunction prohibiting
the Company from using the
F-15
<PAGE>
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
technology found to be infringing, which technology may be critical to the
functioning of the Company's products, or could require the Company to pay
substantial damages. A settlement of either of these disputes could require
the Company to pay substantial settlement amounts and/or ongoing royalties.
Even if the Company were successful in its defense of these claims, the costs
of defense are likely to be substantial.
(13) ACCRUED EXPENSES
Accrued expenses in the accompanying consolidated balance sheets consist of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Payroll and payroll related.............. $ 410,566 $ 454,197 $ 388,479
Accrued warranty......................... 683,000 773,000 773,000
Accrued royalties........................ 189,127 350,948 503,692
Other.................................... 458,859 698,738 649,561
---------- ---------- ----------
$1,741,552 $2,276,883 $2,314,732
========== ========== ==========
</TABLE>
(14) RECAPITALIZATION
(A) Stock Plans
On October 8, 1996, subject to stockholder approval, the Company's Board of
Directors approved (i) the 1996 Equity Incentive Plan (the Equity Plan) and
(ii) the 1996 Nonemployee Director Stock Option Plan (the Director Plan).
Under the Equity Plan and the Director Plan, the Company is authorized to
grant options to purchase 750,000 shares and 125,000 shares, respectively, of
the Company's common stock.
(B) Authorized Common Stock
On September 26, 1996, the Company increased the number of authorized shares
of common stock to 10,000,000. On October 8, 1996, the Company's Board of
Directors approved, subject to stockholder approval, the filing of a Restated
Certificate of Incorporation (the Restated Certificate of Incorporation) which
includes an increase in the number of authorized shares of common stock to
30,000,000. The Restated Certificate of Incorporation will be filed upon the
closing of the initial public offering contemplated herein.
(C) Authorized Preferred Stock
The Restated Certificate of Incorporation also provides for a new Class of
undesignated preferred stock. Upon the filing of the Restated Certificate of
Incorporation, the Series A, B, C and D preferred stock will no longer be
authorized. The Company will be authorized to issue up to 1,000,000 shares of
this undesignated preferred stock.
(D) State of Incorporation
On October 8, 1996 the Board of Directors approved, subject to stockholders
approval, a change in the state of incorporation of the Company from
Massachusetts to Delaware.
F-16
<PAGE>
[Graphic consists of a schematic illustrating a possible configuration of the
deployment of the Company's products at an airport, both in a multi-level
checked baggage screening configuration in the baggage handling area and for
screening carry-on baggage at the pre-board screening checkpoint area.
Photographs of the Company's VIS-M systems with multiple workstations, VDS-3
system, APS system and an image of the contents of a bag created by an APS
system are superimposed on the graphic.]
The following legends appear on the graphic:
General Caption: Vivid's automated explosive detection systems are designed to
be used in a variety of multi-level checked baggage screening configurations in
an airport baggage handling area. Vivid's APS is designed to inspect carry-on
baggage at the pre-board screening checkpoint. More than 100 of the Company's
systems have been selected for use at sixteen airports in Europe.
Level 1 System: The VIS-M system automatically (without the use of an operator)
inspects up to 1,500 bags per hour. Baggage cleared by the system continues en
route to the aircraft.
Level 2 Workstation: Images from bags rejected by the Level 1 system are
reviewed by operators at remote VIS-M level 2 workstations. Baggage cleared by
the operator continue en route to the aircraft.
Level 3 System: Bags rejected by the Level 2 operator are forwarded to Level 3
for a more detailed automated analysis and operator review. Baggage rejected by
Level 3 operators are opened in the presence of the passenger.
Advanced Passenger Screening System: The recently introduced APS system is
designed to automatically detect explosive materials in carry-on items.
APS Image: Explosive materials is highlighted in bright red to assist the
operator. Weapons, such as guns or knives, are clearly visible to the operator
without enhancement.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company, or any U.S. Underwriter. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy, to
any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 23
Management............................................................... 37
Certain Transactions..................................................... 43
Principal Stockholders................................................... 45
Description of Securities................................................ 48
Certain United States Federal Tax Consequences to Non-United States
Holders................................................................. 51
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 59
Index to Consolidated Financial Statements............................... F-1
</TABLE>
------------------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not partici-
pating in this distribution, may be required to deliver a Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[VIVID LOGO]
COMMON STOCK
------------------
PROSPECTUS
, 1996
------------------
Lehman Brothers
Cowen & Company
Needham & Company, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The costs of issuance and distribution which will be borne by the Registrant
are as follows:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 11,709
NASD Filing Fee................................................. 4,364
Nasdaq National Market Listing Fee.............................. 17,500
Blue Sky Fees and Expenses...................................... 6,000
Transfer Agent and Registrar Fees............................... 3,500
Accounting Fees and Expenses.................................... 125,000*
Legal Fees and Expenses......................................... 275,000*
Printing and Engraving ......................................... 85,000*
Miscellaneous................................................... 121,927*
--------
Total....................................................... $650,000
========
</TABLE>
- --------
*Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Ninth of the Registrant's Certificate of Incorporation eliminates
the personal liability of directors to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty to the full extent permitted by
Delaware law. Article VII of the Registrant's Bylaws provides that the
Registrant may indemnify its officers and directors to the full extent
permitted by the Delaware General Corporation Law. Section 145 of the Delaware
General Corporation Law authorizes a corporation to indemnify directors,
officers, employees and agents of the corporation if such party acted in good
faith in a manner he believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, as determined in
accordance with the Delaware General Corporation Law. Section 145 further
provides that indemnification shall be provided if the party in question is
successful on the merits or otherwise. See "Management--Limitation of
Officers' and Directors' Liability; Indemnification Agreements" in Part I of
this Registration Statement for a description of indemnification agreements
the Registrant has entered into with its Directors. The effect of these
provisions and the indemnification agreements is to permit such
indemnification by the Registrant for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant also expects to
obtain directors and officers liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities issued
by the Registrant within the past three years which were not registered under
the Securities Act.
(1) Pursuant to an agreement entered into on February 2, 1994 (the
"Conversion Agreement"), on February 3, 1994, the Registrant converted notes
with an aggregate outstanding balance, including principal and accrued and
unpaid interest, of $1,818,773 into an aggregate of 163,690 shares of Series C
Preferred Stock and an aggregate of 121,252 shares of Series D Preferred
Stock. In connection with this transaction, certain warrants that were issued
in 1992 were modified. The following sets forth the name, number of shares and
consideration paid by each recipient under the Conversion Agreement.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF
NAME SERIES C PREFERRED STOCK SERIES D PREFERRED STOCK CONSIDERATION
---- ------------------------ ------------------------ -------------
<S> <C> <C> <C>
Burr, Egan, Deleage &
Co. ................... 76,863 56,937 $ 854,031
Pioneer Capital
Corporation............ 25,621 18,978 284,677
Beta Partners, Inc...... 25,621 18,978 284,677
Massachusetts Capital
Resource Company....... 25,621 18,978 284,677
Claflin Capital......... 9,964 7,381 110,711
------- ------- ----------
163,690 121,252 $1,818,773
</TABLE>
II-1
<PAGE>
(2) From October 1, 1993 through October 15, 1996, options to purchase a
total of 185,770 shares of Common Stock, granted under the Registrant's 1989
Combination Stock Option Plan were exercised at exercise prices ranging from
$0.10 to $1.00 per share, at an aggregate purchase price of $32,915.
(3) In July 1996, the Company issued 15,000 shares of Common Stock to BAA
plc in consideration of BAA's agreement to forgo a commission on certain sales
of the Registrant's products for which BAA provided assistance.
To the extent that the foregoing transactions constituted "sales" within the
meaning of the Securities Act, the securities issued in such transactions were
not registered under the Securities Act, as amended, in reliance upon the
exemptions from registration set forth in Section 3(b) and 4(2) of the
Securities Act, relating to sales by an issuer not involving any public
offering, and in reliance upon Regulation S of the Securities Act relating to
sales by an issuer of securities outside the United States. None of the
foregoing transactions, either individually or in the aggregate, involved a
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.01 Proposed form of US Underwriting Agreement.
1.02 Proposed form of International Underwriting Agreement.
2.01 Merger Agreement between the Registrant and the Registrant's
Massachusetts predecessor.
3.01 Certificate of Incorporation of the Registrant.
3.02 By-laws of the Registrant.
3.03 Form of Restated Certificate of Incorporation of the Registrant.
*4.01 Specimen Certificate for shares of the Registrant's Common Stock.
4.02 Description of Capital Stock (contained in the Certificate of
Incorporation of the Registrant, filed as Exhibit 3.01).
*5.01 Legal Opinion of Brown, Rudnick, Freed & Gesmer.
10.01 Contract for the Manufacture, Supply, Installation and Commissioning
of Hold Baggage Screening Equipment between the Registrant of BAA
plc.
10.02 Distribution and Development Agreement between the Registrant and
Gilardoni S.p.A.
10.03 First Amended and Restated Line of Credit Loan and Security Agreement
between the Registrant and BayBank, N.A. and corresponding Note of
the Company in favor of BayBank, N.A.
10.04 Form of Warrant to purchase Common Stock issued to certain investors.
10.05 Warrant to purchase Common Stock issued to Dominion Fund II, L.P.
10.06 1989 Combination Stock Option Plan of the Registrant.
10.07 1996 Non-Employee Director Stock Option Plan of the Registrant.
10.08 1996 Equity Incentive Plan of the Registrant.
10.09 Facility lease between the Registrant and Cummings Properties
Management, Inc.
10.10 Form of Indemnification Agreement for directors and officers of the
Registrant.
10.11 Series A and Series B Preferred Stock Purchase Agreement.
10.12 Series C and Series D Preferred Stock Purchase Agreement.
10.13 Conversion Agreement between the Registrant and certain investors.
10.14 Amended Shareholders Agreement among the Registrant's Massachusetts
predecessor, S. David Ellenbogen, Jay A. Stein and certain investors.
10.15 Management Agreement between the Registrant and Hologic, Inc.
10.16 License Agreement between the Registrant and Hologic, Inc.
*10.17 Description of Bonus Plan.
11.01 Statement re: Computation of Per Share Earnings.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.01 Subsidiaries of the Registrant.
24.01 Consent of Brown, Rudnick, Freed & Gesmer (contained in Exhibit 5.01).
24.02 Consent of Arthur Andersen LLP.
25.01 Power of Attorney (contained on page II-4).
27.01 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is given in the Consolidated Financial Statements or
Notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(c) The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF WOBURN, COMMONWEALTH OF
MASSACHUSETTS, ON OCTOBER 17, 1996.
Vivid Technologies, Inc.
/s/ S. David Ellenbogen
By: _________________________________
S. DAVID ELLENBOGEN, PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S. David Ellenbogen and William J. Frain his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, and, in
connection with any registration of additional securities pursuant to Rule
462(b) under the Securities Act of 1933, as amended, to sign any abbreviated
registration statement and any and all amendments thereto, and to file the
same, with all exhibits thereto and other documents in connection therewith,
in each case, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ S. David Ellenbogen Principal Executive October 17,
- ------------------------------------- Officer and 1996
S. DAVID ELLENBOGEN Director
/s/ William J. Frain Principal Financial October 17,
- ------------------------------------- and Accounting 1996
WILLIAM J. FRAIN Officer
/s/ Jay A. Stein Director October 17,
- ------------------------------------- 1996
JAY A. STEIN
/s/ L. Paul Bremer, III Director October 17,
- ------------------------------------- 1996
L. PAUL BREMER, III
/s/ Frank Kenny Director October 17,
- ------------------------------------- 1996
FRANK KENNY
/s/ Glenn P. Muir Director October 17,
- ------------------------------------- 1996
GLENN P. MUIR
/s/ Gerald Segel Director October 17,
- ------------------------------------- 1996
GERALD SEGEL
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.01 Proposed form of US Underwriting Agreement.....................
1.02 Proposed form of International Underwriting Agreement..........
2.01 Merger Agreement between the Registrant and the Registrant's
Massachusetts predecessor.....................................
3.01 Certificate of Incorporation of the Registrant.................
3.02 By-laws of the Registrant......................................
3.03 Form of Restated Certificate of Incorporation of the
Registrant....................................................
*4.01 Specimen Certificate for shares of the Registrant's Common
Stock.........................................................
4.02 Description of Capital Stock (contained in the Certificate of
Incorporation of the Registrant, filed as Exhibit 3.01).......
*5.01 Legal Opinion of Brown, Rudnick, Freed & Gesmer................
10.01 Contract for the Manufacture, Supply, Installation and
Commissioning of Hold Baggage Screening Equipment between the
Registrant of BAA plc. .......................................
10.02 Distribution and Development Agreement between the Registrant
and Gilardoni S.p.A. .........................................
10.03 First Amended and Restated Line of Credit Loan and Security
Agreement between the Registrant and BayBank, N.A. and
corresponding Note of the Company in favor of BayBank, N.A....
10.04 Form of Warrant to purchase Common Stock issued to certain
investors.....................................................
10.05 Warrant to purchase Common Stock issued to Dominion Fund II,
L.P. .........................................................
10.06 1989 Combination Stock Option Plan of the Registrant...........
10.07 1996 Non-Employee Director Stock Option Plan of the
Registrant....................................................
10.08 1996 Equity Incentive Plan of the Registrant...................
10.09 Facility lease between the Registrant and Cummings Properties
Management, Inc. .............................................
10.10 Form of Indemnification Agreement for directors and officers of
the Registrant................................................
10.11 Series A and Series B Preferred Stock Purchase Agreement.......
10.12 Series C and Series D Preferred Stock Purchase Agreement.......
10.13 Conversion Agreement between the Registrant and certain
investors.....................................................
10.14 Amended Shareholders Agreement among the Registrant's
Massachusetts predecessor, S. David Ellenbogen, Jay A. Stein
and certain investors.........................................
10.15 Management Agreement between the Registrant and Hologic,
Inc. .........................................................
10.16 License Agreement between the Registrant and Hologic, Inc. ....
*10.17 Description of Bonus Plan......................................
11.01 Statement re: Computation of Per Share Earnings................
21.01 Subsidiaries of the Registrant.................................
24.01 Consent of Brown, Rudnick, Freed & Gesmer (contained in Exhibit
5.01).........................................................
24.02 Consent of Arthur Andersen LLP.................................
25.01 Power of Attorney (contained on page II-4).....................
27.01 Financial Data Schedule........................................
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 1.01
Draft 10/17/96
2,000,000 Shares
VIVID TECHNOLOGIES, INC.
Common Stock
U.S. UNDERWRITING AGREEMENT
---------------------------
______ ___,1996
LEHMAN BROTHERS INC.
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
As Representatives of the several
U.S. Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Vivid Technologies, Inc., a Delaware corporation (the "Company"),
proposes to sell an aggregate of __________ shares (the "Firm Stock") of the
Company's Common Stock, par value $.01 per share (the "Common Stock"). In
addition, the Company proposes to grant to the Underwriters named in Schedule I
hereto (the "Underwriters") an option to purchase up to an additional _________
shares of the Common Stock on the terms and for the purposes set forth in
Section 2 (the "Option Stock"). The Firm Stock and the Option Stock, if
purchased, are hereinafter collectively called the "Stock." This is to confirm
the agreement concerning the purchase of the Stock from the Company by the
Underwriters.
It is understood by all parties that the Company is concurrently
entering into an agreement dated the date hereof (the "International
Underwriting Agreement") providing for the sale by the Company of an aggregate
of ________ shares of Common Stock (including the over-allotment option
thereunder) (the "International Stock") through arrangements with certain
underwriters outside the United States (the "International Managers"), for whom
Lehman Brothers International (Europe), Cowen & Company and Needham & Company,
Inc. are acting as lead managers (the "Lead Managers"). The U.S. Underwriters
and the International Managers simultaneously are entering into an agreement
between the U.S. and International underwriting syndicates (the "Agreement
Between U.S. Underwriters and International Managers") which provides for, among
other things, the transfer of shares of Common Stock between the two syndicates.
Two forms of prospectus are to be used in connection with the offer and sale of
shares of Common Stock contemplated by the foregoing, one relating to the Stock
and the other relating to the International Stock. The latter form of
prospectus will be identical to the former
<PAGE>
except for certain substitute pages as included in the registration statement
and amendments thereto referred to below. Except as used in the first paragraph
hereof and in Sections 2, 3, 4, 9 and 10 herein, and except as the context may
otherwise require, references herein to the Stock shall include all the shares
of the Common Stock which may be sold pursuant to either this Agreement or the
International Underwriting Agreement, and references herein to any prospectus
whether in preliminary or final form, and whether as amended or supplemented,
shall include both the U.S. and the international versions thereof.
1. Representations, Warranties and Agreements of the
Company. The Company represents, warrants and agrees that:
(a) Each of the registration statement on Form S-1, and any
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations (as hereinafter defined), and any amendments thereto, with
respect to the Stock has (i) been prepared by the Company in conformity
with the requirements of the United States Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rule and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. Copies
of each of such registration statement, including any registration
statement filed pursuant to Rule 462(b), and the amendments thereto have
been delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters and such copies, to the extent
applicable, were identical to the electronically transmitted copies thereof
filed with the Commission pursuant to the Commission's Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent
permitted by Regulation S-T. As used in this Agreement, "Effective Time"
means the date and the time as of which such registration statement, or the
most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus included in
such registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives pursuant
to Rule 424(a) of the Rules and Regulations; "Registration Statement" means
such registration statement, as amended at the Effective Time, including
all information contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations in accordance with
Section___hereof and deemed to be a part of the registration statement as
of the Effective Time pursuant to paragraph (b) of Rule 430A of the Rules
and Regulations; "Rule 462(b) Registration Statement" means any
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations, and after such filing, the term "Registration Statement" shall
include the Rule 462(b) Registration Statement; and "Prospectus" means such
final prospectus, as first filed with the Commission pursuant to paragraph
(1) or (4) of Rule 424(b) of the Rules and Regulations. The Commission has
not issued any order preventing or suspending the use of any Preliminary
Prospectus. For purposes of this Agreement, all references to any
Preliminary Prospectus, the Registration Statement, any Rule 462(b)
Registration Statement, the Prospectus, or any amendment or supplement to
-2-
<PAGE>
any of the foregoing, shall be deemed to include the respective copies
thereof filed with the Commission pursuant to EDGAR.
(b) The Registration Statement, including any Rule 462(b) Registration
Statement, conforms, and the Prospectus and any further amendments or
supplements to the Registration Statement, including any Rule 462(b)
Registration Statement, or the Prospectus, when they become effective or
are filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Securities Act and the Rules
and Regulations and do not and will not, as of the applicable Effective
Date (as to the Registration Statement and any amendment thereto) and as of
the applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an 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 not misleading; provided that no representation or
warranty is made as to information contained in or omitted from the
Registration Statement, including any Rule 462(b) Registration Statement,
or the Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein.
(c) The Company and each of its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the conduct of
its business requires such qualification, and has all power and authority
necessary to own or hold its properties and to conduct the business in
which it is engaged; and none of the subsidiaries is a "significant
subsidiary," as such term is defined in Rule 405 of the Rules and
Regulations .
(d) The Company has an authorized and outstanding capitalization as
set forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof contained in
the Prospectus. Upon the closing of the Offering, no shares of capital
stock of the Company will be outstanding other than the Common Stock; and
all of the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable and are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims.
(e) The unissued shares of the Stock to be issued and sold by the
Company to the U.S. Underwriters hereunder and the International Managers
under the International Underwriting Agreement have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein and the International Underwriting Agreement, will be duly
and validly issued, fully paid and non-assessable; and the Stock will
conform to the descriptions thereof contained in the Prospectus.
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(f) This Agreement has been duly authorized, executed and delivered by
the Company.
(g) The execution, delivery and performance of this Agreement and the
International Underwriting Agreement by the Company and the consummation of
the transactions contemplated hereby and thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions result
in any violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets;
and except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or qualifications
as may be required under the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and applicable state or foreign securities
laws and clearance by the National Association of Securities Dealers Inc.
in connection with the purchase and distribution of the Stock by the U.S.
Underwriters and the International Managers, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery and
performance of this Agreement or the International Underwriting Agreement
by the Company and the consummation of the transactions contemplated hereby
and thereby.
(h) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued
pursuant to employee benefit plans, stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or warrants.
(j) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental
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action, order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any change in the
capital stock or long-term debt of the Company or any of its subsidiaries
or any material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries taken as a whole, otherwise than as set forth
or contemplated in the Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated and have been prepared in conformity
with generally accepted accounting principles (except in the case of
unaudited interim financial statements for normal recurring adjustments)
applied on a consistent basis throughout the periods involved, except as
otherwise stated therein.
(l) Arthur Andersen LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letters referred to in Section 9(g) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations.
(m) The Company together with its subsidiaries have good and
marketable title to all real and personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect the
value of such property and do not materially interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries taken as a whole; and, except as set forth or contemplated in
the Prospectus, all real property and buildings held under lease by the
Company and its subsidiaries are held by it under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries taken as a whole.
(n) The Company together with its subsidiaries carry or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
properties and as is customary for companies engaged in similar businesses
in similar industries.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries own or possess adequate rights
to use all trademarks, trademark applications, trade names, service marks,
patents, patent applications, patent rights, copyrights, inventions, trade
secrets, know how, licenses, approvals and governmental authorizations that
are necessary to conduct their business as described in the Registration
Statement and Prospectus; the expiration of any trademarks, trademark
applications, trade names, service marks, patents, patent applications,
patent rights, copyrights, inventions, trade secrets, know how, licenses,
approvals and governmental
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<PAGE>
authorizations would not have a material adverse effect on the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company or its subsidiaries;
to the knowledge of the Company, none of the patents owned or licensed by
the Company are unenforceable or invalid; the Company has duly and properly
filed or caused to be filed with the United States Patent and Trademark
Office (the "PTO") and applicable foreign and international patent
authorities all patent applications described or referred to in the
Prospectus, and the Company is unaware of any facts which would preclude
the grant of a patent from any of its patent applications; the Company has
no knowledge of any facts which would preclude it from having clear title
to its patent applications referenced in the Prospectus; except as
described in the Prospectus, the Company has no knowledge of, and has
received no notice of, any material infringement or misappropriation by the
Company of any trademark, trademark application, trade name, service mark,
patent, patent application, patent right, mask work, copyright, invention,
know how, license, trade secret or other similar rights of others; the
Company has not terminated or breached and is not in violation of any
agreement covering its intellectual property rights; and the Company and
its subsidiaries taken as a whole have no reason to believe that the
conduct of their respective businesses will conflict with, and have not
received any notice of any claim of conflict with, any rights of third
parties to any of the intellectual property of the Company or its
subsidiaries.
(p) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property or assets of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, might have a material adverse
effect on the financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries taken
as a whole; and to the best of the Company's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or threatened by
others.
(q) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(r) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is required
to be described in the Prospectus which is not so described.
(s) No labor disturbance by the employees of the Company exists or, to
the knowledge of the Company, is imminent which might be expected to have a
material adverse effect on the financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries.
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(t) The Company and its subsidiaries are in compliance in all material
respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would have any
liability; the Company has not incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(u) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company which has had (nor does the Company have any
knowledge of any tax deficiency which, if determined adversely to the
Company or any of its subsidiaries, is reasonably likely to have) a
material adverse effect on the financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries taken as a whole, otherwise than as set forth in the
Prospectus.
(v) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course of
business, (iii) entered into and transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.
(w) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at
reasonable intervals.
(x) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties or assets is
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<PAGE>
subject or (iii) is in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it or its
property or assets may be subject.
(y) Neither the Company nor any of its subsidiaries, nor any director,
officer, agent, employee or other person associated with or acting on
behalf of the Company or any of its subsidiaries, has used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee
from corporate funds; violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(z) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its subsidiaries (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries in violation
of any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; there has been no material
spill, discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any of
its subsidiaries or with respect to which the Company or any of its
subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or
would not be reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and it subsidiaries; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(aa) Neither the Company nor any of its subsidiaries is, or will
become as a result of the consummation of the transactions contemplated by
this Agreement or the International Underwriting Agreement, an "investment
company" within the meaning of such term under the Investment Company Act
of 1940 and the rules and regulations of the Commission thereunder.
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<PAGE>
2. Purchase of the Stock by the U.S. Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell _________ shares of
the Firm Stock to the several U.S. Underwriters and each of the U.S.
Underwriters, severally and not jointly, agrees to purchase the number of shares
of the Firm Stock set opposite that U.S. Underwriter's name in Schedule 1
hereto. Each U.S. Underwriter shall be obligated to purchase form the Company
that number of shares of the Firm Stock which represents the same proportion of
the number of shares of the Firm Stock to be sold by the Company as the number
of shares of the Firm Stock set forth opposite the name of such U.S. Underwriter
in Schedule 1 represents of the total number of shares of the Firm Stock to be
purchased by all of the U.S. Underwriters pursuant to this Agreement. The
respective purchase obligations of the U.S. Underwriters with respect to the
Firm Stock shall be rounded among the Underwriters to avoid fractional shares,
as the Representatives may determine.
In addition, the Company grants to the U.S. Underwriters an option to
purchase up to _________ shares of Option Stock. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 4 hereof. Shares of Option Stock shall be
purchased severally for the account of the U.S. Underwriters in proportion to
the number of shares of Firm Stock set opposite the name of such U.S.
Underwriters in Schedule 1 hereto. The respective obligations of each U.S.
Underwriter with respect to the Option Stock shall be adjusted by the
Representatives so that commitments to purchase Option Stock shall be
proportionate to such U.S. Underwriter's initial commitment as provided in
Schedule 1. Such respective purchase obligations with respect to the Option
Stock shall be rounded among the U.S. Underwriters to avoid fractional shares,
as the Representatives may determine. The price of both the Firm Stock and any
Option Stock shall be $_____ per share.
3. Offering of Stock by the U.S. Underwriters. Upon authorization
by the Representatives of the release of the Firm Stock, the several U.S.
Underwriters propose to offer the Firm Stock for sale upon the terms and
conditions set forth in the Prospectus.
Each U.S. Underwriter agrees that, except to the extent permitted by
the Agreement Between U.S. Underwriters and International Managers, it will not
offer or sell any of the Stock outside of the United States.
4. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Testa, Hurwitz & Thibeault,
LLP, 125 High Street, Boston, MA 02110, at 10:00 A.M., Eastern time, on the
third full business day (unless otherwise required by the Commission pursuant to
Rule 15c6-1 of the Exchange Act) following the date of this Agreement or at such
other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to
as the "First Delivery Date." On the First Delivery Date, the Company shall
deliver or cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each U.S. Underwriter against payment to or
upon the order of the Company of the purchase price by wire transfer in next-day
funds. Time shall be of the essence, and delivery at the time and place
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specified pursuant to this Agreement is a further condition of the obligation of
each U.S. Underwriter hereunder. Upon delivery, the Firm Stock shall be
registered in such names and in such denominations as the Representatives shall
request in writing not less than two full business days prior to the First
Delivery Date. For the purpose of expediting the checking and packaging of the
certificates for the Firm Stock, the Company shall make the certificates
representing the Firm Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., Eastern time, on the business day
prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement the option granted in Section 2 may be exercised by written notice
being given to the Company by the Representatives. Such notice shall set forth
the aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representatives, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
third business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date").
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each U.S. Underwriter against payment to or
upon the order of the Company of the purchase price by wire transfer in next-day
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each U.S. Underwriter hereunder. Upon delivery, the Option Stock shall be
registered in such names and in such denominations as the Representatives shall
request in the aforesaid written notice. For the purpose of expediting the
checking and packaging of the certificates for the Option Stock, the Company
shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the Second Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than Commission's close of business on the
second business day following the execution and delivery of this Agreement
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Securities Act; to make no further amendment or any supplement to
the Registration Statement or to the Prospectus except as permitted herein;
to advise the Representatives, promptly after it receives notice thereof,
of the time when any
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amendment to the Registration Statement or any Rule 462(b) Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof; to advise the Representatives,
promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus, of the suspension of
the qualification of the Stock for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or suspending any such qualification, to use promptly its best
efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the U.S. Underwriters a signed copy of the Registration Statement,
including any Rule 462(b) Registration Statement, as originally filed with
the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement, including any Rule 462(b)
Registration Statement, as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than this
Agreement and the computation of per share earnings) and, (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required at any time
after the Effective Time in connection with the offering or sale of the
Stock or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the Securities Act, to notify the Representatives and,
upon their request, to prepare and furnish without charge to each U.S.
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or
effect such compliance. To the extent applicable, the copies of the
Registration Statement and each amendment thereto (including all exhibits
filed therewith), including any Rule 462(b) Registration Statement, any
Preliminary Prospectus or Prospectus (in each case, as amended or
supplemented) furnished to the U.S. Underwriters and counsel to the U.S.
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T;
(d) To file promptly with the Commission any amendment to the
Registration Statement, including any filing required under Rule 462(b), or
the Prospectus or any
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<PAGE>
supplement to the Prospectus that may, in the judgment of the Company or
the Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement, including any filing required under Rule 462(b), or
supplement to the Prospectus or any Prospectus pursuant to Rule 424 of the
Rules and Regulations, to furnish a copy thereof to the Representatives and
counsel for the U.S. Underwriters and obtain the consent of the
Representatives to the filing;
(f) As soon as practicable after the Effective Date, to make generally
available to the Company's shareholders and to deliver to the
Representatives an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11 (a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company,
Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder; and to the extent applicable, such reports or documents shall
be identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as
long as may be necessary to complete the distribution of the Stock;
(i) For a period of 180 days from the date of the Prospectus, not to
offer for sale, sell or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to, result in the disposition by
any person of), directly or indirectly, any shares of Common Stock (other
than the Stock and shares issued pursuant to employee benefit plans, stock
option plans or other employee compensation plans existing on the date
hereof or pursuant to currently outstanding options, warrants or rights),
or sell or grant options, rights or warrants with respect to any shares of
Common Stock (other than the grant of options pursuant to option plans
existing on the date hereof), without the prior written consent of Lehman
Brothers Inc.; and to cause each officer and director and each record owner
of shares of Common Stock and Preferred Stock of the Company other than
those record owners listed in writing by the Company to Lehman Brothers,
Inc. and approved by it prior to the First Delivery Date, to furnish to the
Representatives, prior to the First Delivery Date, a letter or letters, in
form and substance satisfactory to counsel for the U.S. Underwriters,
pursuant to which each such
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person shall agree not to offer for sale, sell or otherwise dispose of (or
enter into any transaction which is designed to, or could be expected to,
result in the disposition by any person of), directly or indirectly, any
shares of Common Stock for a period of 180 days from the date of the
Prospectus, without the prior written consent of Lehman Brothers Inc.; for
a period of 180 days from the date of the Prospectus, except as required by
law, the board of directors of the Company will not consent to any offer
for sale, sale or other disposal of (or consent to any transaction which is
designed, or could be expected to, result in the disposition by any person
of), directly or indirectly, any shares of Common Stock without the prior
written consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the listing of the
Stock on the Nasdaq National Market and to use its best efforts to complete
that listing, subject only to official notice of issuance and evidence of
satisfactory distribution, prior to the First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the U.S. Underwriters and receive and consider
its comments thereon, and to deliver promptly to the Representatives a
signed copy of each report on Form SR filed by it with the Commission;
(l) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement, the Agreement Between U.S. Underwriters and International
Managers and the Supplemental Agreement Among U.S. Underwriters and any other
related documents in connection with the offering, purchase, sale and delivery
of the Stock; (e) the costs of delivering and distributing the terms of
agreement relating to the organization of the domestic underwriting syndicate
and selling group to the members thereof by mail, telex or other means of
communications; (f) the filing fees incident to securing any required review by
the National Association of Securities Dealers, Inc. of the terms of sale of the
Stock; (g) any applicable listing or other fees; (h) the fees and expenses of
qualifying the Stock under the securities laws of the several jurisdictions as
provided in Section 5(h) and of
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preparing, printing and distributing a Blue Sky Memorandum (including related
fees and expenses of counsel to the Underwriters); (k) all other costs and
expenses incident to the performance of the obligations of the Company under
this Agreement; provided that, except as provided in this Section 6 and in
Section 11 the Underwriters shall pay their owns costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Stock which
they may sell and the expenses of advertising any offering of the Stock made by
the Underwriters.
7. Conditions of U.S. Underwriters' Obligations. The respective
obligations of the U.S. Underwriters hereunder are subject to the accuracy, when
made and on each Delivery Date, of the representations and warranties of the
Company contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 6(a); no stop order suspending the effectiveness
of the Registration Statement, including any Rule 462(b) Registration
Statement, or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
any request of the Commission for inclusion of additional information in
the Registration Statement or the Prospectus or otherwise shall have been
complied with.
(b) No U.S. Underwriter or International Manager shall have
discovered and disclosed to the Company on or prior to such Delivery Date
that the Registration Statement, any Rule 462(b) Registration Statement, or
the Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Testa, Hurwitz & Thibeault,
LLP, counsel for the U.S. Underwriters, is material or omits to state a
fact which, in the opinion of such counsel, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the International
Underwriting Agreement, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory in all
material respects to counsel for the U.S. Underwriters, and the Company
shall have furnished to such counsel all documents and information that
they may reasonably request to enable them to pass upon such matters.
(d) Brown, Rudnick, Freed & Gesmer shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the U.S. Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the effect set
forth in Annex A hereto;
In rendering such opinion, such counsel may state that (i) its opinion
is limited to matters governed by the Federal laws of the United States of
America and the General
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Corporation Law of the State of Delaware and that such counsel is not
admitted in the State of Delaware; and (ii) in giving the opinion referred
to in Section 7(i), state that it is relying upon opinions of foreign
counsel for certain subsidiaries and, with respect to matters of fact, upon
certificates of officers of the Company or its subsidiaries, provided that
such counsel shall state that it believes that the U.S. Underwriters and it
are justified in relying upon such opinions and certificates. Such counsel
shall also have furnished to the Representatives a written statement,
addressed to the Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representatives, to the effect that such
counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, the Representatives and counsel for the
Representatives at which the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although such counsel is
not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectuses (except for the statements made in the
Prospectus under the captions "Description of Capital Stock," and
"Business--Legal Proceedings" insofar as such statements constitute a
summary of documents referred to therein or matters of law constitute an
accurate summary of the matters described therein) and based on the
foregoing, no facts have come to the attention of such counsel which lead
it to believe that the Registration Statement, as of the Effective Date,
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 not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits 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 (it being understood that such counsel is not requested to and
need not express any comment with respect to the financial statements and
schedules and other financial and statistical data included in the
Registration Statement or Prospectus).
(e) Cooper & Dunham LLP shall have furnished to the Representatives
its written opinion, as patent counsel to the Company, addressed to the
U.S. Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect set forth in
Annex B hereto;
(f) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, such opinion or opinions,
dated such Delivery Date, with respect to the issuance and sale of the
Stock, the Registration Statement, the Prospectus and other related matters
as the Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the Representatives
shall have received from Arthur Andersen a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters and
dated the date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and
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are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(h) With respect to the letter of Arthur Andersen LLP referred to in
the preceding paragraph and delivered to the Representatives concurrently
with the execution of this Agreement (the "initial letter"), the Company
shall have furnished to the Representatives a letter (the "bring-down
letter") of such accountants, addressed to the Underwriters and dated such
Delivery Date (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date
of the bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five
days prior to the date of the bring-down letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(i) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the Company
in Section 1 are true and correct as of such Delivery Date; the Company has
complied with all its agreements contained herein; and the conditions set
forth in Sections 7(a) and 7(m) have been fulfilled; and
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue statement
of a material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and (B) since the Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the Registration Statement
or the Prospectus.
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or
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decree, otherwise than as set forth or contemplated in the Prospectus or
(ii) since such date there shall not have been any change in the capital
stock or long-term debt of the Company or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in clause
(i) or (ii), is, in the judgment of the Representatives, so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(k) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several U.S. Underwriters, impracticable
or inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(l) The Nasdaq National Market shall have approved the Stock for
listing, subject only to official notice of issuance and evidence of
satisfactory distribution.
(m) The closing under the International Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the First Delivery
Date.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the U.S. Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter,
its officers and employees and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock), to which
that
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Underwriter, officer, employee or controlling person may become
subject, under the Securities Act or otherwise, insofar as, such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
(A) in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (B) in any blue sky
application or other document prepared or executed by the Company (or based
upon any written information furnished by the Company) specifically for the
purpose of qualifying any or all of the Stock under the securities laws of
any state or other jurisdiction (any such application, document or
information being hereinafter called a "Blue Sky Application"), (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not misleading,
or (iii) any act or failure to act or any alleged act or failure to act by
any Underwriter in connection with, or relating in any manner to, the Stock
or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of
or based upon matters covered by clause (i) or (ii) above (provided that
the Company shall not be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent jurisdiction
that such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by such
U.S. Underwriter through its gross negligence or willful misconduct), and
shall reimburse each U.S. Underwriter and each such officer, employee or
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by that U.S. Underwriter, officer, employee or
controlling person in connection with investigating or defending or
preparing to defend against such loss, claim, damage, liability or action
as such expenses are incurred; and, provided, further, however, that the
Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written information
concerning such U.S. Underwriter furnished to the Company through the
Representatives by or on behalf of any U.S. Underwriter or any
International Manager specifically for inclusion therein. The foregoing
indemnity agreement is in addition to any liability which the Company may
otherwise have to any U.S. Underwriter or to any officer, employee or
controlling person of that Underwriter.
(b) Each U.S. Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, its officers and employees, each of its
directors, and each person, if any, who controls the Company within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company or any such director, officer or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
(A) in any Preliminary Prospectus,
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<PAGE>
the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the omission
or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon
and in conformity with written information concerning such U.S. Underwriter
furnished to the Company through the Representatives by or on behalf of
that U.S. Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person
for any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
U.S. Underwriter may otherwise have to the Company or any such director,
officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the identified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Section 8 except to the extent
it has been materially prejudiced by such failure and, provided further,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have to an indemnified party otherwise than
under this Section 8. If any such claim or action shall be brought against
an indemnified party, and it shall notify the indemnifying party thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of
such claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, that the Representatives shall have the right to employ counsel to
represent jointly the Representatives and those other U.S. Underwriters and
their respective officers, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity
may be sought by the U.S. Underwriters against the Company under this
Section 8 if, in the reasonable judgment of the Representatives, it is
advisable for the Representatives and those U.S. Underwriters, officers,
employees and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of such separate counsel
shall be paid by the Company. No indemnifying party shall (i) without, the
prior written consent of the indemnified parties (which consent shall not
be unreasonably withheld), settle or compromise or consent to the entry of
any judgment with respect to
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any pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or
not the indemnified parties are actual or potential parties to such claim
or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the
consent of the indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a), 8(b) or 8(c) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand
and the U.S. Underwriters on the other from the offering of the Stock or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the U.S. Underwriters on the other
with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the U.S. Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Stock purchased under this
Agreement (before deducting expenses) received by the Company, on the one
hand, and the total underwriting discounts and commissions received by the
U.S. Underwriters with respect to the shares of the Stock purchased under
this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the shares of the Stock under this Agreement, in each case
as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the, untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company or
the U.S. Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the U.S. Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section
were to be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as
a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section shall be deemed to include, for
purposes of this Section 8(d), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
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defending any such action or claim. Notwithstanding the provisions of this
Section 8(d), no U.S. Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Stock
underwritten by it and distributed to the public was offered to the public
exceeds the amount of any damages which such U.S. Underwriter has otherwise
paid or become liable, to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The U.S. Underwriters' obligations
to contribute as provided in this Section 8(e) are several in proportion to
their respective underwriting obligations and not joint.
(e) The U.S. Underwriters severally confirm that the statements with
respect to the public offering of the Stock by the U.S. Underwriters set
forth on the cover page of, the legend concerning over-allotments on the
inside front cover page and the concession and reallowance figures
appearing under the caption "Underwriting" in, the Prospectus are correct
and constitute the only information concerning such U.S. Underwriters
furnished in writing to the Company by or on behalf of the U.S.
Underwriters or International Managers specifically for inclusion in the
Registration Statement and the Prospectus.
9. Defaulting Underwriters.
If, on either Delivery Date, any U.S. Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting U.S. Underwriters shall be obligated to purchase the Stock which the
defaulting U.S. Underwriter agreed but failed to purchase on such Delivery Date
in the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting U.S. Underwriter in Schedule
1 hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting U.S. Underwriters in Schedule I
hereto; provided, however, that the remaining non-defaulting U.S. Underwriters
shall not be obligated to purchase any of the Stock on such Delivery Date if the
total number of shares of the Stock which the defaulting U.S. Underwriter or
Underwriters agreed but failed to purchase on such date exceeds 9.09% of the
total number of shares of the Stock to be purchased on such Delivery Date, and
any remaining non-defaulting U.S. Underwriter shall not be obligated to purchase
more than 110% of the number of shares of the Stock which it agreed to purchase
on such Delivery Date pursuant to the terms of Section 2. If the foregoing
maximums are exceeded, the remaining non-defaulting U.S. Underwriters, or those
other underwriters satisfactory to the Representatives who so agree, shall have
the right, but shall not be obligated, to purchase, in such proportion as may be
agreed upon among them, all the Stock to be purchased on such Delivery Date. If
the remaining U.S. Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting U.S.
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Second Delivery Date, the obligation of
the U.S. Underwriters to purchase, and of the Company to sell, the Option Stock)
shall terminate without liability on the part of any non-defaulting U.S.
Underwriter or the
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Company, except that the Company will continue to be liable for the payment of
expenses to the extent set forth in Sections 6 and 11. As used in this
Agreement, the term "Underwriter" includes, for all purposes of this Agreement
unless the context requires otherwise, any party not listed in Schedule 1 hereto
who, pursuant to this Section 9, purchases Firm Stock which a defaulting U.S.
Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Stock of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. Termination. The obligations of the U.S. Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 9(i) or 9(j), shall have occurred
or the event described in Section 7(k) shall not have occurred or if the
Underwriters shall decline to purchase the Stock for any reason permitted under
this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Company
shall fail to tender the Stock for delivery to the U.S. Underwriters by reason
of any failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
U.S. Underwriters' obligations hereunder required to be fulfilled by the Company
is not fulfilled, the Company will reimburse the U.S. Underwriters for all
reasonable out-of-pocket expenses (including fees and disbursements of counsel)
incurred by the U.S. Underwriters in connection with this Agreement and the
proposed purchase of the Stock, and upon demand the Company shall pay the full
amount thereof to the Representatives. If this Agreement is terminated pursuant
to Section 9 by reason of the default of one or more Underwriters, the Company
shall not be obligated to reimburse any defaulting Underwriter on account of
those expenses.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant to Section
8(d), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY 10285,
with a copy to Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston,
Massachusetts 02110, Attention: Edwin L. Miller, Jr., Esq.;
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(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: President (Fax: 908-906-1008), with a
copy to Brown, Rudnick, Freed & Gesmer, One Financial Center, Boston,
Massachusetts 02111, Attention: Lawrence M. Levy, Esq.;
provided, however, that any notice to an Underwriter pursuant to Section 8(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the U.S. Underwriters by Lehman Brothers Inc. on behalf of
the Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the U.S. Underwriters, the Company
and their respective personal representatives and successors. This Agreement
and the terms and provisions hereof are for the sole benefit of only those
persons, except that (A) the representations, warranties, indemnities and
agreements of the Company contained in this Agreement shall also be deemed to be
for the benefit of the person or persons, if any, who control any U.S.
Underwriter within the meaning of Section 15 of the Securities Act and for the
benefit of each International Manager (and controlling persons thereof) who
offers or sells shares of Common Stock in accordance with the terms of the
Agreement between U.S. Underwriters and International Managers and (B) the
indemnity agreement of the U.S. Underwriters contained in Section 8(c) of this
Agreement shall be deemed to be for the benefit of directors of the Company,
officers of the Company who have signed the Registration Statement and any
person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 13, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the U.S. Underwriters contained in
this Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. Definition of the Term "Business Day". For purposes of this
Agreement, "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
17. Jurisdiction. The parties hereto each hereby irrevocably submits
to the jurisdiction of any New York state or federal court sitting in the city
of New York, New York County, in any action or proceeding arising out of or
relating to this Agreement and the parties
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<PAGE>
hereto each hereby irrevocably agrees that all claims in respect of such action
or proceeding may be heard and determined in such New York state court or such
federal court. The parties hereto also each hereby irrevocably waives, to the
fullest extent it may effectively do so, the defense of an inconvenient forum to
the maintenance of such action or proceeding. The parties hereto each
irrevocably consent to the service of copies of the summons and complaint and
any other process which may be served in any such action or proceeding by
certified mail, return receipt requested, or by delivery of a copy of such
process to the parties at its address specified in Section 14 or by any other
method permitted by law. The parties hereto each agree that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or by any other manner provided by law.
18. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
If the foregoing correctly sets forth the agreement among the Company and
the U.S. Underwriters, please indicate your acceptance in the space provided for
that purpose below.
Very truly yours,
VIVID TECHNOLOGIES, INC.
By
--------------------
President
Accepted:
LEHMAN BROTHERS INC.
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
For themselves and as
Representatives of the
several Underwriters
named in Schedule 1 hereto
By: LEHMAN BROTHERS INC.
By
---------------------
Authorized Representative
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<PAGE>
SCHEDULE 1
Underwriters Number of Shares
- ------------ ----------------
Lehman Brothers Inc......................
Cowen & Company..........................
Needham & Company, Inc. .................
Total....................................
-----------------
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<PAGE>
ANNEX A
Matters to be Covered in Opinion of Company Counsel
---------------------------------------------------
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such
qualification (except where non-qualification would not have a material and
adverse affect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect")) and has the
corporate power and authority necessary to own or hold its properties and
conduct the businesses in which it is engaged; each of the U. S.
subsidiaries of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation; is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires
such qualification (except where non-qualification would not have a
Material Adverse Effect) and has all corporate power and authority
necessary to own or hold its properties and conduct the business in which
it is engaged;
(ii) The Company has capital stock authorized and outstanding as set
forth in the Prospectus under the captions "Capitalization" and
"Description of Capital Stock," and all of the issued and outstanding
shares of capital stock of the Company (including the Stock delivered on
the date of such opinion when issued in accordance with the terms of the
Underwriting Agreement) have been duly authorized and validly issued, are
fully paid and non-assessable and conform, in all material respects, to the
description thereof contained in the Prospectus; the certificates for the
Stock are in due and proper form under Delaware law; and all of the issued
and outstanding shares of capital stock of each U. S. subsidiary of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable and are owned of record, and to the best of such counsel's
knowledge beneficially, directly or indirectly by the Company, to the best
of such counsel's knowledge free and clear of all liens, encumbrances,
equities or claims;
(iii) There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's charter or by-laws or any agreement
or other instrument known to such counsel;
(iv) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending or threatened against the Company which are required to be
disclosed in the Prospectus;
(v) The Registration Statement, including any Rule 462(b) Registration
Statement, was declared effective under the Securities Act as of the date
and time
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<PAGE>
specified in such opinion, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and no stop order
suspending the effectiveness of the Registration Statement has been issued
and, to the knowledge of such counsel, no proceeding for that purpose is
pending or threatened by the Commission;
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, and the Prospectus and any further amendments or
supplements thereto (other than the financial statements and related
schedules and notes therein and other financial and statistical data, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and the Rules
and Regulations, and when they were filed with the Commission complied as
to form in all material respects with the requirements of the Securities
Act and the Rules and Regulations (other than the financial statements and
related schedules and notes therein and other financial and statistical
data, as to which such counsel need express no opinion);
(vii) The statements under the captions "Description of Capital
Stock" and "Shares Eligible For Future Sale" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or
matters of law, are accurate summaries in all material respects and fairly
and correctly present the information called for with respect to such
documents and matters;
(viii) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not been
described or filed as exhibits to the Registration Statement;
(ix) This Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(x) The issue and sale of the Stock being delivered on the date of
such opinion by the Company and the performance by the Company of its
obligations under this Agreement and the International Underwriting
Agreement and the consummation of the transactions contemplated hereby and
thereby do not conflict with or result in a material breach or violation of
any of the terms or provisions of, or constitute a material default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the Company or any of
its subsidiaries is subject, nor will such actions result in any violation
of the provisions of the charter or by-laws of the Company or any of its
subsidiaries or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties or
assets; and, except for the registration of the Stock under the Securities
Act and such consents, approvals,
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<PAGE>
authorizations, registrations or qualifications as may be required under
the Exchange Act, the rules and regulations of the NASD, and applicable
state or foreign securities laws in connection with the purchase and
distribution of the Stock by the U.S. Underwriters and International
Managers, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement or
the International Underwriting Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby; and
(xi) To the best of such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
Such counsel shall also have furnished to the Representatives a
written statement, addressed to the U.S. Underwriters and the International
Managers and dated as of the applicable Closing Date to the effect that (x)
such counsel has acted as counsel to the Company in connection with the
preparation of the Registration Statement and in connection therewith has
participated in conferences with officers and other representatives of the
Company, and representatives of the independent public accountants for the
Company, at which conferences the contents of the Registration Statement
and the Prospectus and related matters were discussed, and (y) based on the
foregoing, no facts have come to the attention of such counsel which lead
it to believe that the Registration Statement or Prospectus, as of the
Effective Date, 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 not misleading, or that any 462(b)
Registration Statement or the Prospectus, as of its date and as of a
Delivery Date, contains any untrue statement of a material fact or omits 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 (provided that such counsel need express no
view with respect to the financial statements and the related schedules and
notes and other financial or statistical data included therein). The
foregoing opinion and statement may be qualified by a statement to the
effect that such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement, any 462(b) Registration Statement or the Prospectus
except for the statements made in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible For Future Sale"
insofar as such statements relate to the Stock and concern legal matters.
-29-
<PAGE>
ANNEX B
-------
Matters to be Covered in Opinion of Patent Counsel to the Company
-----------------------------------------------------------------
(i) Schedules I and II to such opinion identify, as of
[applicable Closing Date], all U.S. patents and U.S. patent applications
known to such counsel and filed by the Company in which the Company
currently has an interest. As of [recent specified date], the Company was
listed in the records of the U.S. Patent and Trademark Office (the "PTO")
as a holder of record of each of the patents and patent applications listed
in Schedule I. The patent rights to the patents and patent applications
listed in Schedule I, to the best of such counsel's knowledge, have been
assigned to the Company. Based on a search of the documents of record in
the PTO as of [recent specified date], a review of the Company records
through that date, and a review of the certificate of an officer of the
Company, such counsel has no knowledge of any facts which would preclude
the Company from having clear title to the patents and patent applications
listed in Schedule I. As of [recent specified date], the Company was a
licensee of each of the patents and patent applications listed in Schedule
II. The patent rights to the patents and patent applications listed in
Schedule II, to the best of such counsel's knowledge, have been assigned to
the licensor of each such patent or patent application. Based on a search
of the documents of record in the PTO as of [recent specified date], such
counsel has no knowledge of any facts which would preclude the Company from
having valid license rights under the patents and patent applications
listed in Schedule II.
(ii) To the best of such counsel's knowledge, none of the claims
of the patents set forth in Schedules I and II is invalid or unenforceable.
Each of the applications set forth in Schedule[s] I [and II] is pending in
the PTO, and such counsel is unaware of any defects in the prosecution of
any such application that would irrevocably foreclose the grant of patent
rights thereunder.
(iii) To the best of such counsel's knowledge, other than the
actions pending in the United States District Court between the Company and
EG&G (the "EG&G Action") and between the Company and AS&E (the "AS&E
Action"), there is no pending or threatened action, suit, proceeding, or
claim by others that the Company is infringing any patent.
(iv) To the best of such counsel's knowledge, other than review
of pending patent applications and the EG&G Action, there are no legal or
governmental proceedings pending relating to the patents or applications
set forth in Schedules I and II, other than review of pending applications
for patent, including appeal proceedings, and to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or others.
(v) To the best of such counsel's knowledge, other than the EG&G
Action, there is no pending action, suit, proceeding or claim by others
challenging the validity or enforceability of any claim of the patents set
forth in Schedules I and II. To
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<PAGE>
the best of such counsel's knowledge, there is no interference proceeding
or public use proceeding with respect to any patent or patent application
set forth in Schedules I or II.
(vi) Based on a review of material including U.S. Patent No.
4,366,382 and the Company's automated inspection systems as they have been
and are currently made, no valid claim of U.S. Patent No. 4,366,382 is
infringed by such systems.
(vii) Based on a review of material including U.S. Patent Nos.
4,482,957; 4,511,799; 4,768,214; 4,799,247; 4,825,454; 4,893,015;
5,253,283; and 5,313,511 and the Company's automated inspection systems as
they have been and are made, no valid claim of such patents is infringed by
such systems.
<PAGE>
EXHIBIT 1.02
DRAFT 10/17/96
--------------
2,000,000 Shares
VIVID TECHNOLOGIES, INC.
Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
-------------------------------------
______ ___,1996
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
As Lead Managers of the several
International Managers named in Schedule 1,
c/o Lehman Brothers International (Europe)
1 Broadgate
London EC2M 7HA
England
Dear Sirs:
Vivid Technologies, Inc., a Delaware corporation (the "Company"),
proposes to sell an aggregate of __________ shares (the "Firm Stock") of the
Company's Common Stock, par value $.01 per share (the "Common Stock"). In
addition, the Company proposes to grant to the International Managers named in
Schedule I hereto (the "International Managers") an option to purchase up to an
additional _________ shares of the Common Stock on the terms and for the
purposes set forth in Section 2 (the "Option Stock"). The Firm Stock and the
Option Stock, if purchased, are hereinafter collectively called the "Stock."
This is to confirm the agreement concerning the purchase of the Stock from the
Company by the International Managers.
It is understood by all parties that the Company is concurrently
entering into an agreement dated the date hereof (the "U.S. Underwriting
Agreement") providing for the sale by the Company of an aggregate of ________
shares of Common Stock (including the over-allotment option thereunder) (the
"U.S. Stock") through arrangements with certain underwriters in the United
States and Canada (the "U.S. Underwriters"), for whom Lehman Brothers Inc.,
Cowen & Company and Needham & Company, Inc. are acting as representatives (the
"Representatives"). The International Managers and the U.S. Underwriters
simultaneously are entering into an agreement between the U.S. and International
underwriting syndicates (the "Agreement Between U.S. Underwriters and
International Managers") which provides for, among other things, the transfer of
shares of Common Stock between the two syndicates. Two forms of prospectus are
to be used in connection with the offer and sale of shares of Common Stock
contemplated by the foregoing, one relating to the Stock and the other relating
to the U.S.
<PAGE>
Stock. The latter form of prospectus will be identical to the former except for
certain substitute pages as included in the registration statement and
amendments thereto referred to below. Except as used in the first paragraph
hereof and in Sections 2, 3, 4, 9 and 10 herein, and except as the context may
otherwise require, references herein to the Stock shall include all the shares
of the Common Stock which may be sold pursuant to either this Agreement or the
U.S. Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
both the U.S. and the international versions thereof.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) Each of the registration statement on Form S-1, and any
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations (as hereinafter defined), and any amendments thereto, with
respect to the Stock has (i) been prepared by the Company in conformity
with the requirements of the United States Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rule and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. Copies
of each of such registration statement, including any registration
statement filed pursuant to Rule 462(b), and the amendments thereto have
been delivered by the Company to you as the lead managers (the "Lead
Managers") of the International Managers and such copies, to the extent
applicable, were identical to the electronically transmitted copies thereof
filed with the Commission pursuant to the Commission's Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent
permitted by Regulation S-T. As used in this Agreement, "Effective Time"
means the date and the time as of which such registration statement, or the
most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus included in
such registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives pursuant
to Rule 424(a) of the Rules and Regulations; "Registration Statement" means
such registration statement, as amended at the Effective Time, including
all information contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations in accordance with
Section___hereof and deemed to be a part of the registration statement as
of the Effective Time pursuant to paragraph (b) of Rule 430A of the Rules
and Regulations; "Rule 462(b) Registration Statement" means any
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations, and after such filing, the term "Registration Statement" shall
include the Rule 462(b) Registration Statement; and "Prospectus" means such
final prospectus, as first filed with the Commission pursuant to paragraph
(1) or (4) of Rule 424(b) of the Rules and Regulations. The Commission has
not issued any order preventing or suspending the use of any Preliminary
Prospectus. For purposes of this Agreement, all references to any
Preliminary Prospectus, the Registration Statement, any
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<PAGE>
Rule 462(b) Registration Statement, the Prospectus, or any amendment or
supplement to any of the foregoing, shall be deemed to include the
respective copies thereof filed with the Commission pursuant to EDGAR.
(b) The Registration Statement, including any Rule 462(b) Registration
Statement, conforms, and the Prospectus and any further amendments or
supplements to the Registration Statement, including any Rule 462(b)
Registration Statement, or the Prospectus, when they become effective or
are filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Securities Act and the Rules
and Regulations and do not and will not, as of the applicable Effective
Date (as to the Registration Statement and any amendment thereto) and as of
the applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an 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 not misleading; provided that no representation or
warranty is made as to information contained in or omitted from the
Registration Statement, including any Rule 462(b) Registration Statement,
or the Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by or on
behalf of any International Manager specifically for inclusion therein.
(c) The Company and each of its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the conduct of
its business requires such qualification, and has all power and authority
necessary to own or hold its properties and to conduct the business in
which it is engaged; and none of the subsidiaries is a "significant
subsidiary," as such term is defined in Rule 405 of the Rules and
Regulations.
(d) The Company has an authorized and outstanding capitalization as
set forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof contained in
the Prospectus. Upon the closing of the Offering, no shares of capital
stock of the Company will be outstanding other than the Common Stock; and
all of the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable and are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims.
(e) The unissued shares of the Stock to be issued and sold by the
Company to the International Managers hereunder and the U.S. Underwriters
under the U.S. Underwriting Agreement have been duly and validly authorized
and, when issued and delivered against payment therefor as provided herein
and the U.S. Underwriting Agreement, will be duly and validly issued, fully
paid and non-assessable; and the Stock will conform to the descriptions
thereof contained in the Prospectus.
-3-
<PAGE>
(f) This Agreement has been duly authorized, executed and delivered by
the Company.
(g) The execution, delivery and performance of this Agreement and the
U.S. Underwriting Agreement by the Company and the consummation of the
transactions contemplated hereby and thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions result
in any violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets;
and except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or qualifications
as may be required under the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and applicable state or foreign securities
laws and clearance by the National Association of Securities Dealers Inc.
in connection with the purchase and distribution of the Stock by the
International Managers and the U.S. Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery and
performance of this Agreement or the U.S. Underwriting Agreement by the
Company and the consummation of the transactions contemplated hereby and
thereby.
(h) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued
pursuant to employee benefit plans, stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or warrants.
(j) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity,
-4-
<PAGE>
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, there has not been
any change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries taken as a whole,
otherwise than as set forth or contemplated in the Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated and have been prepared in conformity
with generally accepted accounting principles (except in the case of
unaudited interim financial statements for normal recurring adjustments)
applied on a consistent basis throughout the periods involved, except as
otherwise stated therein.
(l) Arthur Andersen LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letters referred to in Section 9(g) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations.
(m) The Company together with its subsidiaries have good and
marketable title to all real and personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect the
value of such property and do not materially interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries taken as a whole; and, except as set forth or contemplated in
the Prospectus, all real property and buildings held under lease by the
Company and its subsidiaries are held by it under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries taken as a whole.
(n) The Company together with its subsidiaries carry or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
properties and as is customary for companies engaged in similar businesses
in similar industries.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries own or possess adequate rights
to use all trademarks, trademark applications, trade names, service marks,
patents, patent applications, patent rights, copyrights, inventions, trade
secrets, know how, licenses, approvals and governmental authorizations that
are necessary to conduct their business as described in the Registration
Statement and Prospectus; the expiration of any trademarks, trademark
applications, trade names, service marks, patents, patent applications,
patent rights,
-5-
<PAGE>
copyrights, inventions, trade secrets, know how, licenses, approvals and
governmental authorizations would not have a material adverse effect on the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company or its
subsidiaries; to the knowledge of the Company, none of the patents owned or
licensed by the Company are unenforceable or invalid; the Company has duly
and properly filed or caused to be filed with the United States Patent and
Trademark Office (the "PTO") and applicable foreign and international
patent authorities all patent applications described or referred to in the
Prospectus, and the Company is unaware of any facts which would preclude
the grant of a patent from any of its patent applications; the Company has
no knowledge of any facts which would preclude it from having clear title
to its patent applications referenced in the Prospectus; except as
described in the Prospectus, the Company has no knowledge of, and has
received no notice of, any material infringement or misappropriation by the
Company of any trademark, trademark application, trade name, service mark,
patent, patent application, patent right, mask work, copyright, invention,
know how, license, trade secret or other similar rights of others; the
Company has not terminated or breached and is not in violation of any
agreement covering its intellectual property rights; and the Company and
its subsidiaries taken as a whole have no reason to believe that the
conduct of their respective businesses will conflict with, and have not
received any notice of any claim of conflict with, any rights of third
parties to any of the intellectual property of the Company or its
subsidiaries.
(p) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property or assets of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, might have a material adverse
effect on the financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries taken
as a whole; and to the best of the Company's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or threatened by
others.
(q) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(r) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is required
to be described in the Prospectus which is not so described.
(s) No labor disturbance by the employees of the Company exists or, to
the knowledge of the Company, is imminent which might be expected to have a
material
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<PAGE>
adverse effect on the financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries.
(t) The Company and its subsidiaries are in compliance in all material
respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would have any
liability; the Company has not incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(u) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company which has had (nor does the Company have any
knowledge of any tax deficiency which, if determined adversely to the
Company or any of its subsidiaries, is reasonably likely to have) a
material adverse effect on the financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries taken as a whole, otherwise than as set forth in the
Prospectus.
(v) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course of
business, (iii) entered into and transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.
(w) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at
reasonable intervals.
(x) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any material
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indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any
of its properties or assets is subject or (iii) is in violation in any
material respect of any law, ordinance, governmental rule, regulation or
court decree to which it or its property or assets may be subject.
(y) Neither the Company nor any of its subsidiaries, nor any director,
officer, agent, employee or other person associated with or acting on
behalf of the Company or any of its subsidiaries, has used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee
from corporate funds; violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(z) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its subsidiaries (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries in violation
of any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; there has been no material
spill, discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any of
its subsidiaries or with respect to which the Company or any of its
subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or
would not be reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and it subsidiaries; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(aa) Neither the Company nor any of its subsidiaries is, or will
become as a result of the consummation of the transactions contemplated by
this Agreement or the International Underwriting Agreement, an "investment
company" within the meaning of such term under the Investment Company Act
of 1940 and the rules and regulations of the Commission thereunder.
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<PAGE>
2. Purchase of the Stock by the International Managers. On the
basis of the representations and warranties contained in, and subject to the
terms and conditions of, this Agreement, the Company agrees to sell _________
shares of the Firm Stock to the several International Managers and each of the
International Managers, severally and not jointly, agrees to purchase the number
of shares of the Firm Stock set opposite that International Manager's name in
Schedule 1 hereto. Each International Manager shall be obligated to purchase
form the Company that number of shares of the Firm Stock which represents the
same proportion of the number of shares of the Firm Stock to be sold by the
Company as the number of shares of the Firm Stock set forth opposite the name of
such International Manager in Schedule 1 represents of the total number of
shares of the Firm Stock to be purchased by all of the International Managers
pursuant to this Agreement. The respective purchase obligations of the
International Managers with respect to the Firm Stock shall be rounded among the
International Managers to avoid fractional shares, as the Lead Managers may
determine.
In addition, the Company grants to the International Managers an
option to purchase up to _________ shares of Option Stock. Such option is
granted solely for the purpose of covering over-allotments in the sale of Firm
Stock and is exercisable as provided in Section 4 hereof. Shares of Option
Stock shall be purchased severally for the account of the International Managers
in proportion to the number of shares of Firm Stock set opposite the name of
such International Managers in Schedule 1 hereto. The respective obligations of
each International Manager with respect to the Option Stock shall be adjusted by
the Lead Managers so that commitments to purchase Option Stock shall be
proportionate to such International Manager's initial commitment as provided in
Schedule 1. Such respective purchase obligations with respect to the Option
Stock shall be rounded among the International Managers to avoid fractional
shares, as the Lead Managers may determine. The price of both the Firm Stock
and any Option Stock shall be $_____ per share.
3. Offering of Stock by the International Managers. Upon
authorization by the Lead Managers of the release of the Firm Stock, the several
International Managers propose to offer the Firm Stock for sale upon the terms
and conditions set forth in the Prospectus.
Each International Manager agrees that, except to the extent permitted
by the Agreement Between U.S. Underwriters and International Managers, it will
not offer or sell any of the Stock outside of the United States.
4. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Testa, Hurwitz & Thibeault,
LLP, 125 High Street, Boston, MA 02110, at 10:00 A.M., Eastern time, on the
third full business day (unless otherwise required by the Commission pursuant to
Rule 15c6-1 of the Exchange Act) following the date of this Agreement or at such
other date or place as shall be determined by agreement between the Lead
Managers and the Company. This date and time are sometimes referred to as the
"First Delivery Date." On the First Delivery Date, the Company shall deliver or
cause to be delivered certificates representing the Firm Stock to the Lead
Managers for the account of each International Manager against payment to or
upon the order of the Company of the purchase
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price by wire transfer in next-day funds. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each International Manager hereunder. Upon
delivery, the Firm Stock shall be registered in such names and in such
denominations as the Lead Managers shall request in writing not less than two
full business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm Stock,
the Company shall make the certificates representing the Firm Stock available
for inspection by the Lead Managers in New York, New York, not later than 2:00
P.M., Eastern time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement the option granted in Section 2 may be exercised by written notice
being given to the Company by the Lead Managers. Such notice shall set forth
the aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Lead Managers, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
third business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date").
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the Lead
Managers and the Company) at 10:00 A.M., New York City time, on the Second
Delivery Date. On the Second Delivery Date, the Company shall deliver or cause
to be delivered the certificates representing the Option Stock to the Lead
Managers for the account of each International Manager against payment to or
upon the order of the Company of the purchase price by wire transfer in next-day
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each International Manager hereunder. Upon delivery, the Option Stock shall be
registered in such names and in such denominations as the Lead Managers shall
request in the aforesaid written notice. For the purpose of expediting the
checking and packaging of the certificates for the Option Stock, the Company
shall make the certificates representing the Option Stock available for
inspection by the Lead Managers in New York, New York, not later than 2:00 P.M.,
New York City time, on the business day prior to the Second Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the Lead Managers
and to file such Prospectus pursuant to Rule 424(b) under the Securities
Act not later than Commission's close of business on the second business
day following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under
the Securities Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus except as permitted herein; to
advise the
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<PAGE>
Lead Managers, promptly after it receives notice thereof, of the time when
any amendment to the Registration Statement or any Rule 462(b) Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the Lead
Managers with copies thereof; to advise the Lead Managers, promptly after
it receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the qualification of the
Stock for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the Lead Managers and to counsel
for the International Managers a signed copy of the Registration Statement,
including any Rule 462(b) Registration Statement, as originally filed with
the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
(c) To deliver promptly to the Lead Managers such number of the
following documents as the Lead Managers shall reasonably request: (i)
conformed copies of the Registration Statement, including any Rule 462(b)
Registration Statement, as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than this
Agreement and the computation of per share earnings) and, (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required at any time
after the Effective Time in connection with the offering or sale of the
Stock or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the Securities Act, to notify the Lead Managers and,
upon their request, to prepare and furnish without charge to each
International Manager and to any dealer in securities as many copies as the
Lead Managers may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or
effect such compliance. To the extent applicable, the copies of the
Registration Statement and each amendment thereto (including all exhibits
filed therewith), including any Rule 462(b) Registration Statement, any
Preliminary Prospectus or Prospectus (in each case, as amended or
supplemented) furnished to the International Managers and counsel to the
International Managers will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T;
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<PAGE>
(d) To file promptly with the Commission any amendment to the
Registration Statement, including any filing required under Rule 462(b), or
the Prospectus or any supplement to the Prospectus that may, in the
judgment of the Company or the Lead Managers, be required by the Securities
Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement, including any filing required under Rule 462(b), or
supplement to the Prospectus or any Prospectus pursuant to Rule 424 of the
Rules and Regulations, to furnish a copy thereof to the Lead Managers and
counsel for the International Managers and obtain the consent of the Lead
Managers to the filing;
(f) As soon as practicable after the Effective Date, to make generally
available to the Company's shareholders and to deliver to the Lead Managers
an earnings statement of the Company and its subsidiaries (which need not
be audited) complying with Section 11 (a) of the Securities Act and the
Rules and Regulations (including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Lead Managers copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder; and to the extent applicable, such reports or documents shall
be identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(h) Promptly from time to time to take such action as the Lead
Managers may reasonably request to qualify the Stock for offering and sale
under the securities laws of such jurisdictions as the Lead Managers may
request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Stock;
(i) For a period of 180 days from the date of the Prospectus, not to
offer for sale, sell or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to, result in the disposition by
any person of), directly or indirectly, any shares of Common Stock (other
than the Stock and shares issued pursuant to employee benefit plans, stock
option plans or other employee compensation plans existing on the date
hereof or pursuant to currently outstanding options, warrants or rights),
or sell or grant options, rights or warrants with respect to any shares of
Common Stock (other than the grant of options pursuant to option plans
existing on the date hereof), without the prior written consent of Lehman
Brothers Inc.; and to cause each officer and director and each record owner
of shares of Common Stock and Preferred Stock of the Company other than
those record owners listed in writing by the Company to Lehman Brothers,
Inc. and approved by it prior to the First Delivery Date, to furnish to
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<PAGE>
the Lead Managers, prior to the First Delivery Date, a letter or letters,
in form and substance satisfactory to counsel for the International
Managers, pursuant to which each such person shall agree not to offer for
sale, sell or otherwise dispose of (or enter into any transaction which is
designed to, or could be expected to, result in the disposition by any
person of), directly or indirectly, any shares of Common Stock for a period
of 180 days from the date of the Prospectus, without the prior written
consent of Lehman Brothers Inc.; for a period of 180 days from the date of
the Prospectus, except as required by law, the board of directors of the
Company will not consent to any offer for sale, sale or other disposal of
(or consent to any transaction which is designed, or could be expected to,
result in the disposition by any person of), directly or indirectly, any
shares of Common Stock without the prior written consent of Lehman Brothers
Inc.;
(j) Prior to the Effective Date, to apply for the listing of the Stock
on the Nasdaq National Market and to use its best efforts to complete that
listing, subject only to official notice of issuance and evidence of
satisfactory distribution, prior to the First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the International Managers and receive and
consider its comments thereon, and to deliver promptly to the Lead Managers
a signed copy of each report on Form SR filed by it with the Commission;
(l) To apply the net proceeds from the sale of the Stock being sold by
the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement, the Agreement Between U.S. Underwriters and International
Managers and the Supplemental Agreement Among U.S. Underwriters and any other
related documents in connection with the offering, purchase, sale and delivery
of the Stock; (e) the costs of delivering and distributing the terms of
agreement relating to the organization of the domestic underwriting syndicate
and selling group to the members thereof by mail, telex or other means of
communications; (f) the filing fees incident to securing any required review by
the National Association of Securities Dealers, Inc. of the terms of sale of
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<PAGE>
the Stock; (g) any applicable listing or other fees; (h) the fees and expenses
of qualifying the Stock under the securities laws of the several jurisdictions
as provided in Section 5(h) and of preparing, printing and distributing a Blue
Sky Memorandum (including related fees and expenses of counsel to the
International Managers); (k) all other costs and expenses incident to the
performance of the obligations of the Company under this Agreement; provided
that, except as provided in this Section 6 and in Section 11 the International
Managers shall pay their owns costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Stock which they may sell
and the expenses of advertising any offering of the Stock made by the
International Managers.
7. Conditions of International Managers' Obligations. The
respective obligations of the International Managers hereunder are subject to
the accuracy, when made and on each Delivery Date, of the representations and
warranties of the Company contained herein, to the performance by the Company of
its obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6(a); no stop order suspending the effectiveness of
the Registration Statement, including any Rule 462(b) Registration
Statement, or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
any request of the Commission for inclusion of additional information in
the Registration Statement or the Prospectus or otherwise shall have been
complied with.
(b) No U.S. Underwriter or International Manager shall have discovered
and disclosed to the Company on or prior to such Delivery Date that the
Registration Statement, any Rule 462(b) Registration Statement, or the
Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Testa, Hurwitz & Thibeault,
LLP, counsel for the International Managers, is material or omits to state
a fact which, in the opinion of such counsel, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the International
Underwriting Agreement, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory in all
material respects to counsel for the International Managers, and the
Company shall have furnished to such counsel all documents and information
that they may reasonably request to enable them to pass upon such matters.
(d) Brown, Rudnick, Freed & Gesmer shall have furnished to the Lead
Managers its written opinion, as counsel to the Company, addressed to the
International Managers and dated such Delivery Date, in form and substance
reasonably satisfactory to the Lead Managers, to the effect set forth in
Annex A hereto;
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<PAGE>
In rendering such opinion, such counsel may state that (i) its opinion
is limited to matters governed by the Federal laws of the United States of
America and the General Corporation Law of the State of Delaware and that
such counsel is not admitted in the State of Delaware; and (ii) in giving
the opinion referred to in Section 7(i), state that it is relying upon
opinions of foreign counsel for certain subsidiaries and, with respect to
matters of fact, upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that it believes that
the International Managers and it are justified in relying upon such
opinions and certificates. Such counsel shall also have furnished to the
Lead Managers a written statement, addressed to the International Managers
and dated such Delivery Date, in form and substance satisfactory to the
Lead Managers, to the effect that such counsel has participated in
conferences with officers and other Lead Managers of the Company,
representatives of the independent public accountants for the Company, the
Lead Managers and counsel for the Lead Managers at which the contents of
the Registration Statement and the Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectuses
(except for the statements made in the Prospectus under the captions
"Description of Capital Stock," and "Business--Legal Proceedings" insofar
as such statements constitute a summary of documents referred to therein or
matters of law constitute an accurate summary of the matters described
therein) and based on the foregoing, no facts have come to the attention of
such counsel which lead it to believe that the Registration Statement, as
of the Effective Date, 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 not misleading, or that the
Prospectus contains any untrue statement of a material fact or omits 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 (it being understood that such counsel is
not requested to and need not express any comment with respect to the
financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus).
(e) Cooper & Dunham LLP shall have furnished to the Lead Managers its
written opinion, as patent counsel to the Company, addressed to the
International Managers and dated such Delivery Date, in form and substance
reasonably satisfactory to the Lead Managers, to the effect set forth in
Annex B hereto;
(f) The Lead Managers shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the International Managers, such opinion or
opinions, dated such Delivery Date, with respect to the issuance and sale
of the Stock, the Registration Statement, the Prospectus and other related
matters as the Lead Managers may reasonably require, and the Company shall
have furnished to such counsel such documents as they reasonably request
for the purpose of enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the Lead Managers
shall have received from Arthur Andersen a letter, in form and substance
satisfactory to the Lead
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<PAGE>
Managers, addressed to the International Managers and dated the date hereof
(i) confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01
of Regulation S-X of the Commission, (ii) stating, as of the date hereof
(or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in
the Prospectus, as of a date not more than five days prior to the date
hereof), the conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by accountants'
"comfort letters" to underwriters in connection with registered public
offerings.
(h) With respect to the letter of Arthur Andersen LLP referred to in
the preceding paragraph and delivered to the Lead Managers concurrently
with the execution of this Agreement (the "initial letter"), the Company
shall have furnished to the Lead Managers a letter (the "bring-down
letter") of such accountants, addressed to the International Managers and
dated such Delivery Date (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date of the bring-down letter),
the conclusions and findings of such firm with respect to the financial
information and other matters covered by the initial letter and (iii)
confirming in all material respects the conclusions and findings set forth
in the initial letter.
(i) The Company shall have furnished to the Lead Managers a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date; the
Company has complied with all its agreements contained herein; and the
conditions set forth in Sections 7(a) and 7(m) have been fulfilled; and
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue statement
of a material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and (B) since the Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the Registration Statement
or the Prospectus.
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or
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interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock or long-term debt of the Company
or any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company, otherwise
than as set forth or contemplated in the Prospectus, the effect of which,
in any such case described in clause (i) or (ii), is, in the judgment of
the Lead Managers, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(k) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several International Managers,
impracticable or inadvisable to proceed with the public offering or
delivery of the Stock being delivered on such Delivery Date on the terms
and in the manner contemplated in the Prospectus.
(l) The Nasdaq National Market shall have approved the Stock for
listing, subject only to official notice of issuance and evidence of
satisfactory distribution.
(m) The closing under the International Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the First Delivery
Date.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the International Managers.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each International
Manager, its officers and employees and each person, if any, who controls
any International Manager within the meaning of the Securities Act, from
and against any
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loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock), to which
that International Manager, officer, employee or controlling person may
become subject, under the Securities Act or otherwise, insofar as, such
loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto or (B) in any blue
sky application or other document prepared or executed by the Company (or
based upon any written information furnished by the Company) specifically
for the purpose of qualifying any or all of the Stock under the securities
laws of any state or other jurisdiction (any such application, document or
information being hereinafter called a "Blue Sky Application"), (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not misleading,
or (iii) any act or failure to act or any alleged act or failure to act by
any International Manager in connection with, or relating in any manner to,
the Stock or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability or action
arising out of or based upon matters covered by clause (i) or (ii) above
(provided that the Company shall not be liable under this clause (iii) to
the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such International Manager through its gross
negligence or willful misconduct), and shall reimburse each International
Manager and each such officer, employee or controlling person promptly upon
demand for any legal or other expenses reasonably incurred by that
International Manager, officer, employee or controlling person in
connection with investigating or defending or preparing to defend against
such loss, claim, damage, liability or action as such expenses are
incurred; and, provided, further, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement
or alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any such amendment or supplement, or in any Blue Sky Application, in
reliance upon and in conformity with written information concerning such
International Manager furnished to the Company through the Lead Managers by
or on behalf of any International Manager or any International Manager
specifically for inclusion therein. The foregoing indemnity agreement is in
addition to any liability which the Company may otherwise have to any
International Manager or to any officer, employee or controlling person of
that International Manager.
(b) Each International Manager, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each
of its directors, and each person, if any, who controls the Company within
the meaning of the Securities Act, from and against any loss, claim, damage
or liability, joint or several, or any action in respect thereof, to which
the Company or any such director, officer or controlling person may
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become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any
Blue Sky Application or (ii) the omission or alleged omission to state in
any Preliminary Prospectus, the Registration Statement or the Prospectus,
or in any amendment or supplement thereto, or in any Blue Sky Application
any material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information concerning such International Manager furnished to the Company
through the Lead Managers by or on behalf of that International Manager
specifically for inclusion therein, and shall reimburse the Company and any
such director, officer or controlling person for any legal or other
expenses reasonably incurred by the Company or any such director, officer
or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or
action as such expenses are incurred. The foregoing indemnity agreement is
in addition to any liability which any International Manager may otherwise
have to the Company or any such director, officer, employee or controlling
person.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the identified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have under this Section 8 except to the extent
it has been materially prejudiced by such failure and, provided further,
that the failure to notify the indemnifying party shall not relieve it from
any liability which it may have to an indemnified party otherwise than
under this Section 8. If any such claim or action shall be brought against
an indemnified party, and it shall notify the indemnifying party thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of
such claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, that the Lead Managers shall have the right to employ counsel to
represent jointly the Lead Managers and those other International Managers
and their respective officers, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity
may be sought by the International Managers against the Company under this
Section 8 if, in the reasonable judgment of the Lead Managers, it is
advisable for the Lead Managers and those International Managers, officers,
employees and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of
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such separate counsel shall be paid by the Company. No indemnifying party
shall (i) without, the prior written consent of the indemnified parties
(which consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the
consent of the indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify
and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a), 8(b) or 8(c) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand
and the International Managers on the other from the offering of the Stock
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the International Managers on the
other with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as
any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the International Managers on
the other with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Stock
purchased under this Agreement (before deducting expenses) received by the
Company, on the one hand, and the total underwriting discounts and
commissions received by the International Managers with respect to the
shares of the Stock purchased under this Agreement, on the other hand, bear
to the total gross proceeds from the offering of the shares of the Stock
under this Agreement, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by
reference to whether the, untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or the International Managers, the
intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Company and the International Managers agree that it would not be just and
equitable if contributions pursuant to this Section were to be determined
by pro rata allocation (even if the International Managers were treated as
one entity for such purpose) or by any other method of allocation which
does not take into account the equitable considerations referred to herein.
The amount paid or payable by an
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indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section shall be
deemed to include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no International Manager shall be required
to contribute any amount in excess of the amount by which the total price
at which the Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such
International Manager has otherwise paid or become liable, to pay by reason
of any untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
International Managers' obligations to contribute as provided in this
Section 8(e) are several in proportion to their respective underwriting
obligations and not joint.
(e) The International Managers severally confirm that the statements
with respect to the public offering of the Stock by the International
Managers set forth on the cover page of, the legend concerning over-
allotments on the inside front cover page and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
International Managers furnished in writing to the Company by or on behalf
of the International Managers or International Managers specifically for
inclusion in the Registration Statement and the Prospectus.
9. Defaulting International Managers.
If, on either Delivery Date, any International Manager defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting International Managers shall be obligated to purchase the Stock which
the defaulting International Manager agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting International
Manager in Schedule 1 hereto bears to the total number of shares of the Firm
Stock set opposite the names of all the remaining non-defaulting International
Managers in Schedule I hereto; provided, however, that the remaining non-
defaulting International Managers shall not be obligated to purchase any of the
Stock on such Delivery Date if the total number of shares of the Stock which the
defaulting International Manager or Managers agreed but failed to purchase on
such date exceeds 9.09% of the total number of shares of the Stock to be
purchased on such Delivery Date, and any remaining non-defaulting International
Manager shall not be obligated to purchase more than 110% of the number of
shares of the Stock which it agreed to purchase on such Delivery Date pursuant
to the terms of Section 2. If the foregoing maximums are exceeded, the
remaining non-defaulting International Managers, or those other underwriters
satisfactory to the Lead Managers who so agree, shall have the right, but shall
not be obligated, to purchase, in such proprotion as may be agreed upon among
them, all the Stock to be purchased on such Delivery Date. If the remaining
International Managers or other underwriters satisfactory to the Lead Managers
do not elect to purchase the shares which the defaulting International Manager
or
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Managers agreed but failed to purchase on such Delivery Date, this Agreement
(or, with respect to the Second Delivery Date, the obligation of the
International Managers to purchase, and of the Company to sell, the Option
Stock) shall terminate without liability on the part of any non-defaulting
International Manager or the Company, except that the Company will continue to
be liable for the payment of expenses to the extent set forth in Sections 6 and
11. As used in this Agreement, the term "International Manager" includes, for
all purposes of this Agreement unless the context requires otherwise, any party
not listed in Schedule 1 hereto who, pursuant to this Section 9, purchases Firm
Stock which a defaulting International Manager agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting International
Manager of any liability it may have to the Company for damages caused by its
default. If other underwriters are obligated or agree to purchase the Stock of
a defaulting or withdrawing International Manager, either the Lead Managers or
the Company may postpone the Delivery Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the International Managers may be necessary in the Registration
Statement, the Prospectus or in any other document or arrangement.
10. Termination. The obligations of the International Managers
hereunder may be terminated by the Lead Managers by notice given to and received
by the Company prior to delivery of and payment for the Firm Stock if, prior to
that time, any of the events described in Sections 9(i) or 9(j), shall have
occurred or the event described in Section 7(k) shall not have occurred or if
the International Managers shall decline to purchase the Stock for any reason
permitted under this Agreement.
11. Reimbursement of International Managers' Expenses. If (a) the
Company shall fail to tender the Stock for delivery to the International
Managers by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed, or because any
other condition of the International Managers' obligations hereunder required to
be fulfilled by the Company is not fulfilled, the Company will reimburse the
International Managers for all reasonable out-of-pocket expenses (including fees
and disbursements of counsel) incurred by the International Managers in
connection with this Agreement and the proposed purchase of the Stock, and upon
demand the Company shall pay the full amount thereof to the Lead Managers. If
this Agreement is terminated pursuant to Section 9 by reason of the default of
one or more International Managers, the Company shall not be obligated to
reimburse any defaulting International Manager on account of those expenses.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the International Managers, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers International
(Europe), 1 Broadgate, London, EC2M 7HA, England, Attention: Syndicate
Department (Fax:________), with a copy, in the case of any notice pursuant
to Section 8(d), to the Director of Litigation, Office of the General
Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th Floor, New
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<PAGE>
York, NY 10285, with a copy to Testa, Hurwitz & Thibeault, LLP, 125 High
Street, Boston, Massachusetts 02110, Attention: Edwin L. Miller, Jr., Esq.;
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: President (Fax: 908-906-1008), with a
copy to Brown, Rudnick, Freed & Gesmer, One Financial Center, Boston,
Massachusetts 02111, Attention: Lawrence M. Levy, Esq.;
provided, however, that any notice to an International Manager pursuant to
Section 8(d) shall be delivered or sent by mail, telex or facsimile transmission
to such International Manager at its address set forth in its acceptance telex
to the Lead Managers, which address will be supplied to any other party hereto
by the Lead Managers upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the International Managers by Lehman Brothers Inc. on
behalf of the Lead Managers.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the International Managers, the
Company and their respective personal representatives and successors. This
Agreement and the terms and provisions hereof are for the sole benefit of only
those persons, except that (A) the representations, warranties, indemnities and
agreements of the Company contained in this Agreement shall also be deemed to be
for the benefit of the person or persons, if any, who control any International
Manager within the meaning of Section 15 of the Securities Act and for the
benefit of each International Manager (and controlling persons thereof) who
offers or sells shares of Common Stock in accordance with the terms of the
Agreement between International Managers and International Managers and (B) the
indemnity agreement of the International Managers contained in Section 8(c) of
this Agreement shall be deemed to be for the benefit of directors of the
Company, officers of the Company who have signed the Registration Statement and
any person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 13, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the International Managers
contained in this Agreement or made by or on behalf on them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Stock and shall remain in full force and effect, regardless of any investigation
made by or on behalf of any of them or any person controlling any of them.
15. Definition of the Term "Business Day". For purposes of this
Agreement, "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
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17. Jurisdiction. The parties hereto each hereby irrevocably submits
to the jurisdiction of any New York state or federal court sitting in the city
of New York, New York County, in any action or proceeding arising out of or
relating to this Agreement and the parties hereto each hereby irrevocably agrees
that all claims in respect of such action or proceeding may be heard and
determined in such New York state court or such federal court. The parties
hereto also each hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding. The parties hereto each irrevocably consent to the
service of copies of the summons and complaint and any other process which may
be served in any such action or proceeding by certified mail, return receipt
requested, or by delivery of a copy of such process to the parties at its
address specified in Section 14 or by any other method permitted by law. The
parties hereto each agree that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or by any other manner provided by law.
18. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[Remainder of Page Intentionally Left Blank]
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If the foregoing correctly sets forth the agreement among the Company and
the International Managers, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
VIVID TECHNOLOGIES, INC.
By
-----------------------
President
Accepted:
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
For themselves and as
Lead Managers of the
several International Managers
named in Schedule 1 hereto
By: LEHMAN BROTHERS INTERNATIONAL (EUROPE)
By
-------------------------
Authorized Representative
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SCHEDULE 1
Underwriters Number of Shares
- ------------ ----------------
Lehman Brothers International (Europe)...................
Cowen & Company..........................................
Needham & Company, Inc. .................................
Total.................................................... ----------------
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ANNEX A
Matters to be Covered in Opinion of Company Counsel
---------------------------------------------------
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such
qualification (except where non-qualification would not have a material and
adverse affect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect")) and has the
corporate power and authority necessary to own or hold its properties and
conduct the businesses in which it is engaged; each of the U. S.
subsidiaries of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation; is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires
such qualification (except where non-qualification would not have a
Material Adverse Effect) and has all corporate power and authority
necessary to own or hold its properties and conduct the business in which
it is engaged;
(ii) The Company has capital stock authorized and outstanding as set
forth in the Prospectus under the captions "Capitalization" and
"Description of Capital Stock," and all of the issued and outstanding
shares of capital stock of the Company (including the Stock delivered on
the date of such opinion when issued in accordance with the terms of the
Underwriting Agreement) have been duly authorized and validly issued, are
fully paid and non-assessable and conform, in all material respects, to the
description thereof contained in the Prospectus; the certificates for the
Stock are in due and proper form under Delaware law; and all of the issued
and outstanding shares of capital stock of each U. S. subsidiary of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable and are owned of record, and to the best of such counsel's
knowledge beneficially, directly or indirectly by the Company, to the best
of such counsel's knowledge free and clear of all liens, encumbrances,
equities or claims;
(iii) There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's charter or by-laws or any agreement
or other instrument known to such counsel;
(iv) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending or threatened against the Company which are required to be
disclosed in the Prospectus;
(v) The Registration Statement, including any Rule 462(b) Registration
Statement, was declared effective under the Securities Act as of the date
and time
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specified in such opinion, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and no stop order
suspending the effectiveness of the Registration Statement has been issued
and, to the knowledge of such counsel, no proceeding for that purpose is
pending or threatened by the Commission;
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, and the Prospectus and any further amendments or
supplements thereto (other than the financial statements and related
schedules and notes therein and other financial and statistical data, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and the Rules
and Regulations, and when they were filed with the Commission complied as
to form in all material respects with the requirements of the Securities
Act and the Rules and Regulations (other than the financial statements and
related schedules and notes therein and other financial and statistical
data, as to which such counsel need express no opinion);
(vii) The statements under the captions "Description of Capital
Stock" and "Shares Eligible For Future Sale" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or
matters of law, are accurate summaries in all material respects and fairly
and correctly present the information called for with respect to such
documents and matters;
(viii) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not been
described or filed as exhibits to the Registration Statement;
(ix) This Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(x) The issue and sale of the Stock being delivered on the date of
such opinion by the Company and the performance by the Company of its
obligations under this Agreement and the International Underwriting
Agreement and the consummation of the transactions contemplated hereby and
thereby do not conflict with or result in a material breach or violation of
any of the terms or provisions of, or constitute a material default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the Company or any of
its subsidiaries is subject, nor will such actions result in any violation
of the provisions of the charter or by-laws of the Company or any of its
subsidiaries or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties or
assets; and, except for the registration of the Stock under the Securities
Act and such consents, approvals,
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authorizations, registrations or qualifications as may be required under
the Exchange Act, the rules and regulations of the NASD, and applicable
state or foreign securities laws in connection with the purchase and
distribution of the Stock by the U.S. Underwriters and International
Managers, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement or
the International Underwriting Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby; and
(xi) To the best of such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
Such counsel shall also have furnished to the Lead Managers a written
statement, addressed to the U.S. Underwriters and the International
Managers and dated as of the applicable Closing Date to the effect that (x)
such counsel has acted as counsel to the Company in connection with the
preparation of the Registration Statement and in connection therewith has
participated in conferences with officers and other representatives of the
Company, and representatives of the independent public accountants for the
Company, at which conferences the contents of the Registration Statement
and the Prospectus and related matters were discussed, and (y) based on the
foregoing, no facts have come to the attention of such counsel which lead
it to believe that the Registration Statement or Prospectus, as of the
Effective Date, 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 not misleading, or that any 462(b)
Registration Statement or the Prospectus, as of its date and as of a
Delivery Date, contains any untrue statement of a material fact or omits 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 (provided that such counsel need express no
view with respect to the financial statements and the related schedules and
notes and other financial or statistical data included therein). The
foregoing opinion and statement may be qualified by a statement to the
effect that such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement, any 462(b) Registration Statement or the Prospectus
except for the statements made in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible For Future Sale"
insofar as such statements relate to the Stock and concern legal matters.
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ANNEX B
-------
Matters to be Covered in Opinion of Patent Counsel to the Company
-----------------------------------------------------------------
(i) Schedules I and II to such opinion identify, as of
[applicable Closing Date], all U.S. patents and U.S. patent applications
known to such counsel and filed by the Company in which the Company
currently has an interest. As of [recent specified date], the Company was
listed in the records of the U.S. Patent and Trademark Office (the "PTO")
as a holder of record of each of the patents and patent applications listed
in Schedule I. The patent rights to the patents and patent applications
listed in Schedule I, to the best of such counsel's knowledge, have been
assigned to the Company. Based on a search of the documents of record in
the PTO as of [recent specified date], a review of the Company records
through that date, and a review of the certificate of an officer of the
Company, such counsel has no knowledge of any facts which would preclude
the Company from having clear title to the patents and patent applications
listed in Schedule I. As of [recent specified date], the Company was a
licensee of each of the patents and patent applications listed in Schedule
II. The patent rights to the patents and patent applications listed in
Schedule II, to the best of such counsel's knowledge, have been assigned to
the licensor of each such patent or patent application. Based on a search
of the documents of record in the PTO as of [recent specified date], such
counsel has no knowledge of any facts which would preclude the Company from
having valid license rights under the patents and patent applications
listed in Schedule II.
(ii) To the best of such counsel's knowledge, none of the claims
of the patents set forth in Schedules I and II is invalid or unenforceable.
Each of the applications set forth in Schedule[s] I [and II] is pending in
the PTO, and such counsel is unaware of any defects in the prosecution of
any such application that would irrevocably foreclose the grant of patent
rights thereunder.
(iii) To the best of such counsel's knowledge, other than the
actions pending in the United States District Court between the Company and
EG&G (the "EG&G Action") and between the Company and AS&E (the "AS&E
Action"), there is no pending or threatened action, suit, proceeding, or
claim by others that the Company is infringing any patent.
(iv) To the best of such counsel's knowledge, other than review
of pending patent applications and the EG&G Action, there are no legal or
governmental proceedings pending relating to the patents or applications
set forth in Schedules I and II, other than review of pending applications
for patent, including appeal proceedings, and to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or others.
(v) To the best of such counsel's knowledge, other than the EG&G
Action, there is no pending action, suit, proceeding or claim by others
challenging the validity or enforceability of any claim of the patents set
forth in Schedules I and II. To
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<PAGE>
the best of such counsel's knowledge, there is no interference proceeding
or public use proceeding with respect to any patent or patent application
set forth in Schedules I or II.
(vi) Based on a review of material including U.S. Patent No.
4,366,382 and the Company's automated inspection systems as they have been
and are currently made, no valid claim of U.S. Patent No. 4,366,382 is
infringed by such systems.
(vii) Based on a review of material including U.S. Patent Nos.
4,482,957; 4,511,799; 4,768,214; 4,799,247; 4,825,454; 4,893,015;
5,253,283; and 5,313,511 and the Company's automated inspection systems as
they have been and are made, no valid claim of such patents is infringed by
such systems.
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<PAGE>
EXHIBIT 2.01
AGREEMENT OF MERGER
AGREEMENT OF MERGER entered into this eighth day of October, 1996 between
Vivid Technologies, Inc., a Massachusetts corporation ("Parent"), and Vivid
Technologies, Inc., a Delaware corporation ("Subsidiary").
RECITALS
--------
WHEREAS, the authorized capital stock of Parent consists of (i) 7,500,000
shares of Common Stock, $.01 par value per share ("Parent Common Stock"),
1,725,520 of which are issued and outstanding as of the date hereof; and (ii)
1,082,650 shares of Preferred Stock, $.01 par value per share, of which (A)
234,375 shares are designated Parent Series A Preferred Stock, all of which is
issued and outstanding as of the date hereof, (B) 250,000 shares are designated
Parent Series B Preferred Stock, all of which is issued and oustanding as of the
date hereof, (C) 343,690 shares are designated Parent Series C Preferred Stock,
all of which is issued and outstanding as of the date hereof, and (D) 254,585
shares are designated Parent Series D Preferred Stock, all of which is issued
and outstanding as of the date hereof, ("Parent Preferred Stock").
WHEREAS, the authorized capital stock of Subsidiary consists of (i)
10,000,000 shares of Common Stock, $.01 par value per share ("Subsidiary Common
Stock"), 100 of which are issued and outstanding and held by Parent as of the
date hereof; (ii) 1,082,650 shares of Preferred Stock, $.01 par value per share,
of which (A) 234,375 shares are designated Subsidiary Series A Preferred Stock,
(B) 250,000 shares are designated Subsidiary Series B Preferred Stock, (C)
343,690 shares are designated Subsidiary Series C Preferred Stock, (D) 254,585
shares are designated Subsidiary Series D Preferred Stock, none of which are
issued and outstanding as of the date hereof; ("Subsidiary Preferred Stock"),
and
WHEREAS, the parties deem it advisable and in the best interests of such
corporations and their stockholders that Parent be merged with and into
Subsidiary (the "Merger") in accordance with the provisions of the Massachusetts
Business Corporation Law ("MBCL") and the Delaware General Corporation Law
("DGCL") and desire to state herein the mode of carrying the same into effect
and certain other details and provisions of the Merger;
NOW, THEREFORE, in consideration of the premises and the agreements herein
contained, the parties agree as follows:
1. Constituent Corporations and Merger. Parent shall be merged into
-----------------------------------
Subsidiary and Subsidiary shall be the surviving corporation (the "Surviving
Corporation").
2. Surviving Corporation.
---------------------
(a) The name by which the Surviving Corporation shall be known is:
Vivid Technologies, Inc.
(b) The corporate purposes of the Surviving Corporation shall be the
purposes set forth in the Certificate of Incorporation of Subsidiary.
<PAGE>
(c) The Certificate of Incorporation and Bylaws of the Surviving
Corporation shall be the Certificate of Incorporation and Bylaws of Subsidiary.
(d) The officers and directors of the Surviving Corporation shall be
those of Subsidiary on the date hereof, and shall be set forth in the Articles
of Merger filed with the Secretary of State of the Commonwealth of
Massachusetts.
3. Effective Time. The Merger shall become effective when the
--------------
Certificate of Merger and the Articles of Merger are filed in the Offices of the
Secretary of State of Delaware and the Secretary of State of the Commonwealth of
Massachusetts, respectively (the "Effective Time").
4. Effect of Merger. From and after the Effective Time, the effect of
----------------
the Merger shall be as provided in Section 80 of the MBCL and Sections 252 and
259 of the DGCL, including the following: (i) the separate corporate existence
of Parent shall cease and all of its assets, property, rights and powers as well
as all debts due it and all choses in action belonging to it shall be
transferred to and vested in the Subsidiary as the Surviving Corporation without
further act or deed; and (ii) Subsidiary as the Surviving Corporation shall
continue in existence and retain all of its assets, property, leasehold
interests, rights and powers as well as all debts due it and all choses in
action belonging to it without impairment; and, further, the rights of creditors
of Parent, lessors of property leased by Parent and parties contracting with
Parent shall not in any manner be impaired by the Merger, and Subsidiary as the
Surviving Corporation shall remain liable for all of its liabilities and
obligations existing prior to the Effective Time and shall be deemed to have
assumed the obligations of Parent existing prior to the Effective Time to the
same extent as if Subsidiary had itself incurred such obligations.
5. Further Assurance. If at any time Parent shall consider or be advised
-----------------
that any acknowledgements or further assurances or assignments in law or other
similar actions are necessary or desirable to acknowledge, confirm, vest or
perfect in and to the Surviving Corporation any rights, title or interests of
Parent, or otherwise to carry out the provisions hereof, Parent and its
respective officers and directors shall and will execute and deliver any and all
such acknowledgements, assurances or assignments in law, and do all things
necessary or proper to acknowledge, confirm, vest or perfect such rights, title
or interests in the Surviving Corporation, and to otherwise carry out the
provisions of this Agreement.
6. Statutory Agent. From and after the Effective Time, until thereafter
---------------
changed as permitted by law, the Secretary of State of the Commonwealth of
Massachusetts shall serve as the statutory agent of the Surviving Corporation
upon whom any process, notice or demand against either Parent or the Surviving
Corporation may be served for any prior obligations for so long as any liability
remains outstanding against Parent or the Surviving Corporation in the
Commonwealth of Massachusetts.
7. Conversion of Shares.
--------------------
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof,
(A) each share of Parent Common Stock issued and outstanding
shall be converted into and be deemed to become one share of Subsidiary Common
Stock.
(B) each share of Parent Series A Preferred Stock issued and
outstanding shall be converted into and be deemed to become one share of
Subsidiary Series A Preferred Stock.
-2-
<PAGE>
(C) each share of Parent Series B Preferred Stock issued and
outstanding shall be converted into and be deemed to become one share of
Subsidiary Series B Preferred Stock.
(D) each share of Parent Series C Preferred Stock issued and
outstanding shall be converted into and be deemed to become one share of
Subsidiary Series C Preferred Stock.
(E) each share of Parent Series D Preferred Stock issued and
outstanding shall be converted into and be deemed to become one share of
Subsidiary Series D Preferred Stock.
(b) From and after the Effective Time, (i) each certificate
theretofore representing shares of issued and outstanding Parent Common Stock,
upon surrender to Subsidiary, shall entitle the holder to receive in exchange
therefor a certificate or certificates representing the number of shares of
Subsidiary Common Stock, into which the stock theretofore represented by the
certificate so surrendered shall have been converted in accordance with the
paragraph above and (ii) each certificate theretofore representing shares of
issued and outstanding Parent Series A Preferred Stock, Parent Series B
Preferred Stock, Parent Series C Preferred Stock, and Parent Series D Preferred
Stock upon surrender to Subsidiary, shall entitle the holder to receive in
exchange therefor a certificate or certificates representing the number of
shares of Subsidiary Series A Preferred Stock, Subsidiary Series B Preferred
Stock, Subsidiary Series C Preferred Stock, or Subsidiary Series D Preferred
Stock into which the stock theretofore represented by the certificate so
surrendered shall have been converted in accordance with the paragraph above.
(c) Each share, if any, of capital stock held in Parent's treasury at
the Effective Time shall automatically be cancelled.
(d) At the Effective Time, the 100 shares of Subsidiary Common Stock
presently issued and outstanding and held by Parent shall be cancelled.
8. Dissenter's Rights. Any holder of record of shares of Parent's
------------------
capital stock who shall, at or before the taking of the vote of Parent
stockholders to adopt this Agreement of Merger and the Merger contemplated
hereby, have filed with Subsidiary written objection and not have voted for the
Merger and who shall have, after the taking of such vote, properly demanded
payment for such shares in accordance with Section 89 of the MBCL, shall not
thereafter have any rights as a stockholder except as provided in Section 96 of
the MBCL.
9. Abandonment. This Agreement may be terminated and the Merger
-----------
abandoned by the mutual consent of the Boards of Directors of Parent and
Subsidiary at any time prior to the filing date with the Delaware Secretary of
State and the Massachusetts Secretary of State, whether or not at the time of
such termination and abandonment this Agreement has been adopted by the
stockholders of Parent.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute this Agreement of Merger effective as of the date first
above written.
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<PAGE>
VIVID TECHNOLOGIES, INC.,
a Massachusetts corporation.
By: ________________________________
S. David Ellenbogen, President.
A T T E S T:
___________________________
Lawrence M. Levy,
Clerk.
VIVID TECHNOLOGIES, INC.,
a Delaware corporation.
By: ________________________________
S. David Ellenbogen, President
A T T E S T:
___________________________
Lawrence M. Levy, Secretary
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<PAGE>
EXHIBIT 3.01
CERTIFICATE OF INCORPORATION
----------------------------
OF
--
VIVID TECHNOLOGIES, INC.
------------------------
The undersigned, a natural person, for the purposes of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and generally known as the
"General Corporation Law of the State of Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
-----
"Corporation") is Vivid Technologies, Inc.
SECOND: The address, including street, number, city, and county, of
------
the registered office of the Corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, Dover, County of Kent, Delaware 19901, and the
name of the registered agent of the Corporation in the State of Delaware at such
address is The Prentice Hall Corporation System, Inc.
THIRD: The nature of the business and the purposes to be conducted and
-----
promoted by the Corporation, shall be to (a) engage in the general business of
designing, developing, manufacturing, marketing and selling products relating to
inspection and security of baggage and other goods, and any other type of
electrical, electronics or mechanical devices, and all products and services
related thereto, and (b) conduct any lawful business, to promote any lawful
purpose, and to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH: A statement of the designations and powers, preferences and
------
rights, and the qualifications, limitations or restrictions of the classes of
capital stock of the Corporation shall be as follows:
Section 1. Designation and Definitions.
---------------------------------------
(a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is:
(i) 10,000,000 shares of Common Stock, $.01 par value per share
("Common Stock").
(ii) 1,082,650 shares of Preferred Stock, $.01 par value per share, of
which (A) 234,375 shares are designated Series A Preferred Stock, ("Series A
Preferred"), (B) 250,000 shares are designated Series B Preferred Stock,
("Series B Preferred"), (C) 343,690 shares are designated Series C Preferred
Stock, ("Series C Preferred"), and (D) 254,585 shares are designated Series D
Preferred Stock ("Series D Preferred"), with the rights, preferences and
<PAGE>
privileges specified herein. The shares of Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred are hereinafter sometimes
collectively referred to as the "Preferred Stock."
For the purposes of this Certificate of Incorporation the following
definitions shall apply to Article Fourth:
A. "Board of Directors" shall mean the Board of Directors of this
Corporation.
B. "Consolidated Cash Flow" shall mean the net increase in cash or cash
equivalents of the Corporation and its Subsidiaries for a given fiscal year, as
shown on the Statement of Cash Flows of the Corporation for such fiscal year
(which statement shall be certified by independent certified public accountants
of nationally recognized standing selected by the Corporation), determined in
accordance with generally accepted accounting principles consistently applied,
subject to the following adjustments: (x) excluding net cash provided by or used
in financing activities and short-term investments; (y) subtracting cash
received from borrowings against accounts receivable; and (z) adding fifty
percent (50%) of domestic accounts receivable current within ninety (90) days
and fifty percent (50%) of foreign accounts receivable insured or backed by
Letter of Credit.
C. "Consolidated Net Income" shall mean the net income of the Corporation
and its Subsidiaries for a given fiscal year, as shown on the statement of
operations of the Corporation for such fiscal year, (which statement shall be
certified by independent certified public accountants of nationally recognized
standing selected by the Corporation), after all expenses, taxes and other
proper charges and after eliminating all intercompany items determined in
accordance with generally accepted accounting principles consistently applied.
D. "Junior Shares" shall mean all shares of Common Stock of this
Corporation.
E. "Purchase Agreement" shall mean that certain Series C and Series D
Stock Purchase Agreement, dated as of January 25, 1991, among the Corporation
and certain investors, as such agreement may from time to time be amended in
accordance with its terms.
F. "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting shares shall at the time be owned directly or indirectly by
this Corporation or by one or more subsidiaries, or by this Corporation and one
or more subsidiaries.
Section 2. Dividend Rights.
- ---------------------------
The holders of the Series C Preferred shall be entitled to receive
dividends, when, as and if declared by the Board of Directors, out of any funds
legally available therefor at the rate of $.10 per share in each fiscal year of
the Corporation and no more, payable in preference and priority to any payment
of any dividend on the shares of the Series A Preferred, the Series B Preferred,
the Series D Preferred or the Junior Shares. After proper payment to the Series
C Preferred holders, the holders of the Series A Preferred shall be entitled to
receive dividends, when, as and if declared by the Board of Directors, out of
the funds legally available therefor, at the rate of $.10 per share in each
fiscal year of the Corporation and no more, payable in preference and priority
to any payment of any dividend in the shares of the Series B Preferred, the
Series D Preferred or the Junior Shares. After proper payment to the Series C
Preferred holders and Series A Preferred holders, the holders of the Series B
Preferred and Series D Preferred shall be entitled to receive dividends, when,
and if declared by the Board of Directors, out of any funds legally available
therefor in an amount per share in each fiscal year of the Corporation equal to
an amount to be
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<PAGE>
paid as a dividend on the Junior Shares, such amount to be payable in preference
and priority to such payment of any dividend on the Junior Shares. The right to
dividends on the shares of Series C Preferred and Series A Preferred shall not
be cumulative, and no right shall accrue to the holders of the Class A Preferred
Stock by reason of the Board's failure to pay or declare and set apart dividends
thereon for any given period as herein provided.
Section 3. Liquidation Preference.
- ----------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, voluntarily or involuntarily, the holders of each
share of Series C Preferred, prior to any distribution to the holders of Series
D Preferred, Series A Preferred, the Series B Preferred or Junior Shares, shall
be entitled to receive pro rata a preferential amount equal to $10.00 per share
of Series C Preferred held by them (subject to appropriate adjustment in the
event of stock dividends, stock splits or similar events), herein referred to as
the "Series C Liquidation Preference." After payment or setting apart of
payment of the Series C Liquidation Preference, the holders of the Series D
Preferred prior to any distribution to the holders of Series A Preferred, the
Series B Preferred or Junior Shares shall be entitled to receive pro rata a
preferential amount equal to $1.50 per share of Series D Preferred held by them
(subject to appropriate adjustment in the event of stock dividends, stock splits
or similar events), herein referred to as the "Series D Liquidation Preference."
After payment or setting apart of payment of the Series C Liquidation Preference
and the Series D Liquidation Preference, the holders of the Series A Preferred,
prior to any distribution to the holders of Series B Preferred or Junior Shares,
shall be entitled to receive pro rata a preferential amount equal to $10.00 per
share of Series A Preferred held by them (subject to appropriate adjustment in
the event of stock dividends, stock splits or similar events), herein referred
to as the "Series A Liquidation Preference." After payment or setting apart of
payment of the Series C Liquidation Preference, Series D Liquidation Preference
and Series A Liquidation Preference, the holders of the Series B Preferred,
prior to any distribution to the holders of Junior Shares, shall be entitled to
receive pro rata a preferential amount equal to $.625 per share of Series B
Preferred held by them (subject to appropriate adjustment in the event of stock
dividends, stock splits or similar events), herein referred to as the "Series B
Liquidation Preference." After payment or setting apart of payment of the
Series C Liquidation Preference, the Series D Liquidation Preference, the Series
A Liquidation Preference and the Series B Liquidation Preference, the remaining
assets of the Corporation, if any, shall be distributed among the holders of the
Junior Shares. If upon such liquidation, dissolution or winding up, the assets
of the Corporation are insufficient (after payment of the Liquidation Preference
of any series of preferred stock ranking senior on liquidation to the Series C
Preferred) to provide for the payment of the Series C Liquidation Preference for
each share of Series C Preferred outstanding, such assets as are available shall
be paid out pro rata among the shares of Series C Preferred. If, after payment
of the Series C Liquidation Preference to the holders of the Series C Preferred,
the assets of the Corporation are insufficient to provide for the payment of the
Series D Liquidation Preference for each share of Series D Preferred
outstanding, such assets as are available shall be paid out pro rata among the
shares of Series D Preferred. If, after payment of the Series D Liquidation
Preference to the holders of the Series D Preferred, the assets of the
Corporation are insufficient to provide for the payment of the Series A
Liquidation Preference for each share of Series A Preferred outstanding, such
assets as are available shall be paid out pro rata among the shares of Series A
Preferred. If, after payment of the Series A Liquidation Preference to the
holders of the Series A Preferred, the assets of the Corporation are
insufficient to provide for the payment of the Series B Liquidation Preference
for each share of Series B Preferred outstanding, such assets as are available
shall be paid out pro rata among the shares of Series B Preferred.
-3-
<PAGE>
(b) A merger or consolidation of the Corporation with or into another
corporation or entity (whether or not the Corporation is the surviving entity
if, after the merger or consolidation more than 50% of the voting stock of the
Corporation is owned by persons who were not holders of voting stock of the
Corporation prior to the merger or consolidation), or the sale of all or
substantially all the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up the corporation for purposes of this
Section 3 if the holders of at least 60% of the then outstanding shares of
Preferred Stock and of any class or series of stock ranking on liquidation on a
parity with the Preferred Stock, acting together as a single class, so elect by
giving written notice thereof to the Corporation at least ten days before the
effective date of such event. If no such notice is given, the provisions of
Section 5(e) shall apply.
Section 4. Redemption of Series A Preferred and Series C Preferred.
- --------------------------------------------------------------------
The Series A Preferred and Series C Preferred shall be subject to
redemption by the Corporation in accordance with the following provisions:
(a) Optional Redemption of the Series A Preferred and the Series C
--------------------------------------------------------------
Preferred.
- ---------
The Corporation, at the option of the Board of Directors, may redeem, from
the holders of Series A Preferred and Series C Preferred on a pro rata basis,
all or any part of the Series A Preferred and Series C Preferred at any time or
from time to time by paying therefor in cash Ten Dollars ($10.00) per share (the
"Series A Redemption Price" and the "Series C Redemption Price"), plus an amount
equal to any accrued but unpaid dividends on the Series A Preferred and Series C
Preferred on the date fixed for redemption. The Corporation, at the option of
the Board of Directors, may also redeem any shares of Deferred Redeemable
Preferred (as defined in paragraph (e) below), on a pro rata basis as between
the Series A Preferred and Series C Preferred included in such Deferred
Redeemable Preferred, at any time or from time to time by paying therefor in
cash the Series A Redemption Price or the Series C Redemption Price, as the case
may be, plus an amount equal to any accrued but unpaid dividends thereon the
date fixed for redemption.
(b) Mandatory Redemption of Series C Preferred.
------------------------------------------
The Corporation shall redeem the Series C Preferred, on a pro rata basis,
in accordance with the provision of this paragraph (b), in the following amounts
and on the following dates (each such date hereinafter referred to as a " Series
C Sinking Fund Payment Date"):
(i) on the ninetieth (90) day following the end of each fiscal year
of the Corporation, a whole number of shares of Series C Preferred determined by
dividing (x) an amount equal to the lesser of (1) twenty-five percent (25%) of
the Consolidated Net Income of the Corporation for such fiscal year, or (2)
thirty-three and one-third percent (33-1/3%) of the Consolidated Cash Flow of
the Corporation for such fiscal year, in either case by (y) the Series C
Redemption Price per share.
(ii) on June 22, 1995, shares of Series C Preferred having an
aggregate Series C Redemption Price of $750,000;
(iii) on January 25, 1996, shares of Series C Preferred having an
aggregate Series C Redemption Price of $900,000; and
(iv) on June 22, 1996, all of the then outstanding shares of Series C
Preferred.
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<PAGE>
The Corporation shall be entitled to reduce its redemption obligation
under clauses (i), (ii) and (iii) above by the number of shares of Series C
Preferred, if any, previously redeemed by the Corporation under this Section 4
and not previously credited against the Corporation's obligations under clauses
(i), (ii) and (iii).
On or before each Series C Sinking Fund Payment Date, the Corporation
shall by action of its Board of Directors, after full payment or provision for
payment has been made for all then accrued but unpaid dividends on the Series C
Preferred, set aside in cash, out of the funds of the Corporation legally
available therefor (the "Series C Sinking Fund"), for payment on such Series C
Sinking Fund Payment Date, and the Corporation shall pay to the holders of the
Series C Preferred on such Series C Sinking Fund Payment Date, a sum equal to
the Series C Redemption Price determined as set forth in the preceding
paragraph.
If, on any Series C Sinking Fund Payment Date, the funds of the
Corporation legally available therefor shall be insufficient to discharge the
Corporation's obligations under this paragraph (b) in full, funds to the extent
legally available for such purpose shall be set aside therefor, and the
Corporation's obligation to pay the balance of the Series C Redemption Price
payable on such date shall continue. Thereafter, such continuing obligation
shall be satisfied out of funds legally available therefor within fifteen (15)
days after the end of each fiscal quarter of the Corporation, by action of the
Board of Directors, until such obligation is fully discharged.
On any Series C Sinking Fund Payment Date, the money in the Series C
Sinking Fund shall be used to redeem that number of shares of Series C Preferred
which the Corporation is obligated to redeem on such Date; provided, that if the
funds legally available to pay the aggregate Series C Redemption Price therefor
on such Series C Sinking Fund Payment Date are insufficient to discharge the
Corporation's obligation in full, the funds available shall be used to redeem,
on a pro rata basis among the holders of the Series C Preferred, the number of
shares of Series C Preferred having an aggregate Redemption Price as nearly
equal as possible to the amount of the funds available therefor. Upon
retirement of all shares of Series C Preferred, any money remaining in the
Series C Sinking Fund in excess of that required to complete payment for any
shares purchased or agreed to be purchased, or to redeem shares called for
redemption through the operation of the Series C Sinking Fund, shall become a
part of the Series A Sinking Fund, as defined in paragraph (c) below.
(c) Mandatory Redemption of the Series A Preferred.
----------------------------------------------
The Corporation shall redeem the Series A Preferred, on a pro rata basis,
in accordance with the provision of this paragraph (c), in the following amounts
and on the following dates (each such date hereinafter referred to as a "Series
A Sinking Fund Payment Date"):
(i) on the ninetieth (90) day following the end of each fiscal year
of the Corporation in which or following which all shares of Series C Preferred
shall have been redeemed pursuant to paragraph (b) above, a whole number of
shares of Series A Preferred determined by dividing (x) an amount equal to
twenty-five percent (25%) of the Consolidated Net Income of the Corporation for
such fiscal year, by (y) the Series A Redemption Price per share;
(ii) on June 22, 1996, shares of Series A Preferred having an
aggregate Series A Redemption Price of $600,000;
(iii) on January 25, 1997, shares of Series A Preferred having an
aggregate Series A Redemption Price of $900,000; and
-5-
<PAGE>
(iv) on June 22, 1997, all of the then outstanding shares of Series A
Preferred.
The Corporation shall be entitled to reduce its redemption obligation
under clauses (i), (ii) and (iii) above by the number of shares of Series A
Preferred, if any, previously redeemed by the Corporation under this Section 4
and not previously credited against the Corporation's obligations under clauses
(i), (ii) and (iii).
On or before each Series A Sinking Fund Payment Date, the Corporation
shall by action of its Board of Directors, after full payment or provision for
payment has been made for all then accrued but unpaid dividends on the Series A
Preferred, set aside in cash, out of the funds of the Corporation legally
available therefor (the "Series A Sinking Fund"), for payment on such Series A
Sinking Fund Payment Date, and the Corporation shall pay to the holders of the
Series A Preferred on such Series A Sinking Fund Payment Date, a sum equal to
the Series A Redemption Price determined as set forth in the preceding
paragraph.
If, on any Series A Sinking Fund Payment Date, the funds of the
Corporation legally available therefor shall be insufficient to discharge the
Corporation's obligations under this paragraph (c) in full, funds to the extent
legally available for such purpose shall be set aside therefor, and the
Corporation's obligation to pay the balance of the Series A Redemption Price
payable on such date shall continue. Thereafter, such continuing obligation
shall be satisfied out of funds legally available therefor within fifteen (15)
days after the end of each fiscal quarter of the Corporation, by action of the
Board of Directors, until such obligation is fully discharged.
On any Series A Sinking Fund Payment Date, the money in the Series A
Sinking Fund shall be used to redeem that number of shares of Series A Preferred
which the Corporation is obligated to redeem on such Date; provided, that if the
funds legally available to pay the aggregate Series A Redemption Price therefor
on such Series A Sinking Fund Payment Date are insufficient to discharge the
Corporation's obligation in full, the funds available shall be used to redeem,
on a pro rata basis among the holders of the Series A Preferred, the number of
shares of Series A Preferred having an aggregate Redemption Price as nearly
equal as possible to the amount of the funds available therefor. Upon
retirement of all shares of Series A Preferred, any money remaining in the
Series A Sinking Fund in excess of that required to complete payment for any
shares purchased or agreed to be purchased, or to redeem shares called for
redemption through the operation of the Series A Sinking Fund, shall become a
part of the general funds of the Corporation.
(d) Notice of Redemption.
--------------------
Notice of any proposed redemption of Series A Preferred or Series C
Preferred (sometimes collectively referred to as "Redeemable Preferred")
pursuant to this paragraph (4) shall be given by the Corporation by mailing,
postage pre-paid, a copy of such notice at least 20 days (10 days in the case of
a redemption pursuant to subparagraph (i) of paragraphs (b) or (c) of this
Section (4)) prior to the date fixed for such redemption to the holders of
record of the Redeemable Preferred, at their respective addresses appearing on
the books of the Corporation or given by such holder to the Corporation for the
purposes of notice, or if no such address appears or is given, at the principal
office of the Corporation. Such notice shall state the Sinking Fund Payment
Date to which such notice relates, the number of shares of Redeemable Preferred
to be redeemed from all holders thereof and from such holder and the Redemption
Price per share, and shall call upon such holder to surrender to the Corporation
on said date at the place designated in the notice such holder's certificate or
certificates representing the shares to be redeemed. On or after the date fixed
for redemption and stated in such notice, each holder of shares of Redeemable
-6-
<PAGE>
Preferred called for redemption shall surrender the certificate evidencing such
shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the Redemption Price therefor. If
less than all the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
From and after the date fixed in such notice of redemption (unless default be
made by the Corporation in providing moneys for the payment of the Redemption
Price and any accrued but unpaid dividends) then, notwithstanding that the
certificates evidencing any shares of Redeemable Preferred so called for
redemption shall not have been surrendered, all rights of the holders thereof
with respect to the shares so called for redemption shall forthwith after such
date cease and terminate, except only the right of the holders to receive the
Redemption Price without interest upon surrender of their certificates therefor
and accrued but unpaid dividends on the shares of Redeemable Preferred being
redeemed.
(e) Deferral of Redemption.
----------------------
If, under the rules and regulations of the United States Small Business
Administration (the "SBA Rules"), the number of shares of Redeemable Preferred
to be redeemed from any holder or holders of Redeemable Preferred subject to the
SBA Rules exceeds the maximum amount permitted by the SBA Rules to be redeemed
in any year, then, and in such event, the holder of such shares shall notify the
Corporation of the amount by which such redemption would exceed the maximum
amount permitted by the SBA Rules, and the redemption of such number of shares
of Redeemable Preferred shall be deferred (such deferred shares being
hereinafter referred as the "Deferred Redeemable Preferred"). Upon receipt of
notice from any holder or holders of Deferred Redeemable Preferred that such
shares may be redeemed under the SBA Rules, the Corporation shall, within ten
(10) days thereafter, redeem such shares as provided in Paragraph (d) above.
Nothing herein shall prevent the Corporation from making optional redemptions of
shares of Deferred Redeemable Preferred pursuant to paragraph (a) above.
Section 5. Conversion of Series B and Series D Preferred.
- ---------------------------------------------------------
The holders of Series B Preferred and Series D Preferred (for the purposes
of this Section 5 collectively referred to as "Convertible Preferred") shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(i) Series B Preferred. Each share of Series B Preferred shall be
------------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Convertible Preferred, into such number of fully paid and nonassessable
shares of Common Stock, as is determined by dividing $.625 by the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion.
The price at which shares of Common Stock shall be deliverable upon conversion
(the "Conversion Price") shall initially be $.0625 per share of Common Stock.
Such initial Conversion Price shall be subject to adjustment as hereinafter
provided.
(ii) Series D Preferred. Each share of Series D Preferred shall be
------------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Convertible Preferred, into such number of fully paid and nonassessable
shares of Common Stock, as is determined by dividend $1.50 by the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion.
The Conversion Price in respect of Series D Preferred shall initially be $.15
per share of Common Stock. Such initial Conversion Price shall be subject to
adjustment as hereinafter provided.
-7-
<PAGE>
(b) Mechanics of Conversion.
-----------------------
No fractional shares of Common Stock shall be issued upon conversion of
Convertible Preferred. In lieu of any fractional share to which a holder of
Convertible Preferred would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the then effective applicable
Conversion Price. Before any holder of Convertible Preferred shall be entitled
to convert the same into full shares of Common Stock, the holder shall surrender
the certificate or certificates therefor, duly endorsed for transfer, at the
office of the Corporation or of any transfer agent for the Convertible
Preferred, and shall give written notice to the Corporation at such office that
he elects to convert the same. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Convertible
Preferred, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid and a check payable to
the holder in the amount of any cash amounts payable as the result of a
conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Convertible Preferred to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the conversion is in
connection with an offering of securities registered pursuant to the Securities
Act of 1933, the conversion may, at the option of any holder surrendering
Convertible Preferred for conversion, be conditioned upon the closing thereof,
in which event the person(s) entitled to receive the Common Stock issuable upon
such conversion of the Convertible Preferred shall not be deemed to have
converted such Convertible Preferred until immediately prior to such closing.
(c) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Section 5(c), the
-------------------
following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to subscribe for,
-------
purchase or otherwise acquire either Common Stock or Convertible Securities.
(2) "Original Issue Date" shall mean the date on which a share of
-------------------
Convertible Preferred was first issued.
(3) "Convertible Securities" shall mean any evidences of indebtedness,
----------------------
shares (other than Common Stock and Convertible Preferred) or other securities
convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all shares of Common
---------------------------------
Stock issued (or, pursuant to Section 5(c)(iii), deemed to be issued) by the
Corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(A) upon conversion of shares of Convertible Preferred;
(B) as a dividend or distribution on Convertible Preferred;
(C) by way of a dividend or other distribution on shares of Common
Stock excluded from the definition of Additional Shares of Common Stock by the
foregoing clauses (A) and (B), this clause (C) or the following clause (D); and
-8-
<PAGE>
(D) to employees and consultants of the corporation in accordance
with Section 5.12 of the Purchase Agreement, up to a maximum of 1,000,000
shares, as adjusted for any dividend or distribution on shares of Common Stock.
(ii) No Adjustment of Conversion Price. No adjustment in the
---------------------------------
Conversion Price of a particular share of Convertible Preferred shall be made in
respect of the issuance of additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to such issue, for such share of
Convertible Preferred.
(iii) Deemed Issue of Additional Shares of Common.
-------------------------------------------
(1) Options and Convertible Securities. In the event the Corporation at
----------------------------------
any time after the Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 5(c)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the applicable Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the consideration
payable to the corporation, or for any decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, or for
the termination of the right to exercise or convert such Options or Convertible
Securities, then the applicable Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase,
decrease or termination becoming effective, be recomputed to reflect such
increase, decrease or termination insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities; and
(C) no readjustment pursuant to clause (B) above shall have the
effect of increasing the applicable Conversion Price to any amount which exceeds
the lower of (i) the applicable Conversion Price on the original adjustment
date, or (ii) the applicable Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
(2) Stock Dividends and Subdivisions. In the event the Corporation at any
--------------------------------
time or from time to time after the Original Issue Date shall declare or pay any
dividend on the Common
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<PAGE>
Stock payable in Common Stock, or effect a subdivision of the outstanding shares
of Common Stock, into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
then and in any such event, Additional Shares of Common Stock shall be deemed to
have been issued:
(A) in the case of any such dividend, immediately after the close of
business on the record date for the determination of holders of any class of
securities entitled to receive such dividend, or
(B) in the case of any such subdivision, at the close of business on
the date immediately prior to the date upon which such corporate action becomes
effective.
(iv) Adjustment of Applicable Conversion Price Upon
----------------------------------------------
Issuance of Additional Shares of Common Stock.
---------------------------------------------
In the event the Corporation shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 5(c)(ii)) without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such applicable Conversion Price
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest tenth of a cent) determined by multiplying such applicable Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such applicable Conversion Price; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued;
and provided further, that for the purposes of this clause (iv), all shares of
Common Stock issuable upon conversion of outstanding Convertible Securities
shall be deemed to be outstanding, and immediately after any Additional Shares
of Common Stock are deemed issued pursuant to Section (iii), such Additional
Shares of Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of this Section
------------------------------
5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Corporation excluding amounts paid or payable for
accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be computed
at the fair value thereof at the time of such issue, as determined in good faith
by the Board of Directors; and
(C) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (A) and (B) above, as determined in
good faith by the Board of Directors.
-10-
<PAGE>
(2) Options and Convertible Securities. The consideration per share
----------------------------------
received by the Corporation for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 5(c)(iii)(l), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(3) Stock Dividends and Stock Subdivisions. Any Additional Shares of
--------------------------------------
Common Stock deemed to have been issued, relating to stock dividends and stock
subdivisions, shall be deemed to have been issued for no consideration.
(vi) Adjustments for Combinations or Consolidation
---------------------------------------------
of Common Stock.
---------------
In the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the applicable Conversion Price in effect immediately
prior to such combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation be proportionately increased.
(d) Mandatory Conversion.
--------------------
Each share of Convertible Preferred shall automatically be converted into
shares of Common Stock at the then effective applicable Conversion Price upon
the closing of a public offering pursuant to an effective registration statement
under the Securities Act of 1933 covering the offer and sale of Common Stock to
the public, resulting in not less than $5,000,000 of gross proceeds to the
Corporation; provided that the provisions of Section 5(c) hereof shall apply
with respect to the Common Stock sold in such public offering. All holders of
record of shares of Convertible Preferred will be given at least twenty (20)
days' prior written notice of the date fixed and place designated for mandatory
conversion of the Convertible Preferred and the event which will result in the
automatic conversion of the Convertible Preferred into Common Stock. Such
notice shall be sent by first-class mail, postage prepaid, to each record holder
of Convertible Preferred at such holder's address appearing on the stock
register of the Corporation. On or before the date so fixed for conversion,
each holder of shares of Convertible Preferred shall surrender his or its
certificate or certificates for all such shares to the Corporation at the place
designated in such notice and shall thereafter receive certificates for the
number of shares of Common Stock to which such holder is entitled. The
mechanics for conversion and other provisions relating to conversion of
Convertible Preferred into Common Stock and payments in lieu of fractions set
forth elsewhere in this Article shall apply to the mandatory conversion of the
Convertible Preferred.
-11-
<PAGE>
(e) Effect of Merger or Acquisition on Convertible Preferred.
--------------------------------------------------------
In the event of a sale by the Corporation of all or substantially all of
its assets or a merger or consolidation of the Corporation with or into another
corporation or entity, and in the case of successive such sales, mergers and
consolidations, except for any such transactions as are treated as a liquidation
under Section 3(b) hereof, thereafter the shares of Convertible Preferred then
outstanding shall be convertible into the number and kind of securities of the
acquiring or surviving corporation (or such other entity whose securities are
delivered in exchange for the Common Stock of the Corporation) to which the
holders of the Convertible Preferred would have been entitled if such holders
had converted their Convertible Preferred into Common Stock or the common stock
of any successor to the Corporation upon the consummation of such sale, merger
or consolidation; and such shares shall thereafter be subject to adjustment in
the manner and to the extent set forth herein.
(f) No Impairment.
-------------
The Corporation will not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Convertible Preferred against
impairment.
(g) Certificate as to Adjustments.
-----------------------------
Upon the occurrence of each adjustment or readjustment of the applicable
Conversion Price pursuant to this Section 5, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Convertible Preferred a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall,
upon the written request at any time of any holder of Convertible Preferred,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the applicable Conversion Price at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of Convertible Preferred.
(h) Notices of Record Date, etc.
----------------------------
In the event that the Corporation shall propose at any time:
(i) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any class
or series of its stock any additional shares of stock of any class or series or
other rights;
(iii) to subdivide or combine its outstanding Common Stock;
(iv) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
-12-
<PAGE>
(v) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Convertible Preferred:
(1) at least 20 days' prior written notice of the date on which a
record shall be taken for such dividend, distribution, subscription rights,
subdivision or combination (and specifying the date on which the holders of
Common Stock shall be entitled thereto) or for determining rights to vote in
respect of the matters referred to in (iv) and (v) above; and
(2) in the case of the matters referred to in (iv) and (v) above, at
least 20 days' prior written notice of the date when the same shall take place
(and specifying the date on which the holders of Common Stock shall be entitled
to exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event).
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Convertible Preferred at the address for
each such holder as shown on the books of the Corporation.
(i) Reservation of Common Stock.
---------------------------
The Corporation shall at all times when the Convertible Preferred shall be
outstanding, reserve and keep available out of its authorized but unissued
stock, for the purpose of effecting the conversion of the Convertible Preferred,
such number of its duly authorized shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Convertible
Preferred. Before taking any action which would cause an adjustment reducing
the applicable Conversion Price below the then par value of the shares of Common
Stock issuable upon conversion of the Convertible Preferred, the corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and non-assessable shares of such Common Stock at such adjusted applicable
Conversion Price.
(j) Cancellation of Convertible Preferred.
-------------------------------------
All shares of Convertible Preferred which shall have been surrendered for
conversion or redeemed as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall forthwith cease and terminate except
only the right of the holders thereof to receive shares of Common Stock in
exchange therefor and payment of any accrued and unpaid dividends thereon. Any
shares of Convertible Preferred so converted or redeemed shall be retired, and
cancelled and shall not be reissued, and the Corporation may from time to time
take such appropriate action as may be necessary to reduce the authorized
Convertible Preferred accordingly.
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<PAGE>
Section 6. Voting Rights of Preferred Stock.
- --------------------------------------------
(a) General.
-------
Except as set forth in paragraphs (b) and (c) hereof and except as
otherwise required by law:
(i) the shares of Series A Preferred and Series C Preferred shall
not be entitled to any voting rights; and
(ii) each share of Convertible Preferred issued and outstanding shall
have the number of votes equal to the number of shares of Common Stock into
which the Convertible Preferred is convertible as adjusted from time to time
pursuant to Section 5 hereof and shall vote with the Common Stock as one class.
(b) Matters Affecting Preferred Stock.
---------------------------------
So long as any Preferred Stock shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of not less than 60% of the outstanding shares of such series as is
affected by the following actions:
(i) amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or bylaws if such action would alter
or change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit, such series of Preferred Stock; or
(ii) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Series A Preferred or Series C Preferred;
or
(iii) reclassify any Junior Shares into shares having any preference
or priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series A Preferred or Series C Preferred.
(c) Series C Voting Rights Event.
----------------------------
If at any time a Series C Voting Right Event (as defined below) shall
occur, the holders of Series C Preferred as a class shall be entitled to elect
the smallest number of directors as would constitute a majority of the
authorized number of directors of the Board of Directors, and the holders of
Series B Preferred, Series D Preferred and Common Stock as a class shall be
entitled to elect the remaining members of the Board of Directors. At such time
as the Series C Voting Right Event which gave rise to the exercise of the voting
rights provided for in this paragraph (c) has been cured and all other events
creating a Series C Voting Right Event, if any, shall have been cured, the
voting rights of the holders of Series C Preferred as provided in this paragraph
(c) shall cease, unless and until another Series C Voting Right Event shall
occur.
At any time after the voting power to elect a majority of the Board of
Directors shall have become vested in the holders of Series C Preferred as
provided in this paragraph (c), the President of the Corporation may, and upon
the written request of any holder of Series C Preferred addressed to him at the
principal office of the Corporation shall, call a special meeting of all
shareholders for the election of directors, to be held at the place and upon the
notice provided in the by-laws of the Corporation for the holding of meetings of
shareholders. If such meeting shall
-14-
<PAGE>
not be so called within ten (10) days after personal service of the request, or
written fifteen (15) days after mailing of the same by registered mail within
the United States of America, then the holders of at least 50% of the shares of
Series C Preferred may designate in writing one of their number to call such
meeting, and the person so designated may call such meeting at the place and
upon the notice above provided, and for that purpose shall have access to the
stock books of the Corporation. At any meeting so called or at any annual
meeting held while the holders of Series C Preferred have the voting power to
elect a majority of the Board of Directors, the holders of a majority of the
then outstanding Series C Preferred present in person or by proxy shall be
sufficient to constitute a quorum for the election of directors as herein
provided. The terms of office of all persons who are directors of the
Corporation at the time of such meeting shall terminate upon the election at
such meeting by the holders of Series C Preferred of the number of directors
they are entitled to elect, and the persons so elected as directors by such
holders together with such persons, if any, as may be elected as directors by
the holders of the Series B Preferred, Series D Preferred and Common Stock shall
constitute the duly elected directors of the Corporation.
Whenever the holders of Series C Preferred shall be divested of such voting
power as provided in this paragraph (c), the term of office of all persons who
are at the time directors of the Corporation shall terminate upon the election
of their successors by the holders of the shares of the Corporation then having
the right to vote for the election of directors. At any time after the voting
power to elect a majority of the Board shall again have become vested in the
holders of the Series B Preferred, Series D Preferred and Common Stock, the
Corporation may hold a shareholders' meeting for the election of directors, to
be held at the place and upon the notice provided in the bylaws of the
Corporation for the holding of meetings and shareholders.
A "Series C Voting Right Event" shall occur upon the failure by the
Corporation to pay in full the Series C Redemption Price required to be paid by
it on any Series C Sinking Fund Payment Date, in accordance with paragraph (b)
of Section 4 hereof.
(d) Series A Voting Rights Event.
----------------------------
If at any time a Series A Voting Right Event (as defined below) shall
occur, the holders of Series A Preferred as a class shall be entitled to elect
the smallest number of directors as would constitute a majority of the
authorized number of directors of the Board of Directors, and the holders of
Series B Preferred, Series D Preferred and Common Stock as a class shall be
entitled to elect the remaining members of the Board of Directors. At such time
as the Series A Voting Right Event which gave rise to the exercise of the voting
rights provided for in this paragraph (d) has been cured and all other events
creating a Series A Voting Right Event, if any, shall have been cured, the
voting rights of the holders of Series A Preferred as provided in this paragraph
(d) shall cease, unless and until another Series A Voting Right Event shall
occur. During any time that the holders of the Series A Preferred have the right
to elect a majority of the Board, such holders shall not, without the approval
of a majority of the directors of the Corporation not elected by such holders,
provide for redemption of any shares of Series A Preferred pursuant to Section
4(a) hereof.
At any time after the voting power to elect a majority of the Board of
Directors shall have become vested in the holders of Series A Preferred as
provided in this paragraph (d) above, the President of the Corporation may, and
upon the written request of any holder of Series A Preferred addressed to him at
the principal office of the Corporation, shall, call a special meeting of all
shareholders for the election of directors, to be held at the place and upon the
notice provided in the bylaws of the Corporation for the holding of meetings of
shareholders. If such meeting shall not be so called within ten days after
personal service of the request, or within
-15-
<PAGE>
fifteen days after mailing of the same by registered mail within the United
States of America, then the holders of at least 50% of the shares of Series A
Preferred may designate in writing one of their number to call such meeting, and
the person so designated may call such meeting at the place and upon the notice
above provided, and for that purpose shall have access to the stock books of the
Corporation. At any meeting so called or at any annual meeting held while the
holders of Series A Preferred have the voting power to elect a majority of the
Board of Directors, the holders of a majority of the then outstanding Series A
Preferred present in person or by proxy shall be sufficient to constitute a
quorum for the election of directors as herein provided. The terms of office of
all persons who are directors of the Corporation at the time of such meeting
shall terminate upon the election at such meeting by the holders of Series A
Preferred of the number of directors they are entitled to elect, and the persons
so elected as directors by such holders together with such persons, if any, as
may be elected as directors by the holders of the Series B Preferred, Series D
Preferred and Common Stock shall constitute the duly elected directors of the
Corporation.
Whenever the holders of Series A Preferred shall be divested of such voting
power as provided in this paragraph (d), the term of office of all persons who
are at the time directors of the Corporation shall terminate upon the election
of their successors by the holders of the shares of the Corporation then having
the right to vote for the election of directors. At any time after the voting
power to elect a majority of the Board shall again have become vested in the
holders of the Series B Preferred, Series D Preferred and Common Stock, the
Corporation may hold a shareholders' meeting for the election of directors, to
be held at the place and upon the notice provided in the bylaws of the
Corporation for the holding of meetings and shareholders.
A "Series A Voting Right Event" shall occur upon the failure by the
Corporation to pay in full the Series A Redemption Price required to be paid by
it on any Series A Sinking Fund Payment Date, in accordance with paragraph (c)
of Section 4 hereof.
(e) Series A and Series C Voting Right Event.
----------------------------------------
If, at any time or from time to time, both a Series A Voting Right Event
and a Series C Voting Right Event shall exist together, then the holders of
Series A Preferred and the holders of Series C Preferred shall vote together as
one class to elect a majority of the Board of Directors, in accordance with the
rights and obligations set forth in paragraphs (c) and (d) above.
FIFTH: The name and the mailing address of the incorporator is as
-----
follows:
NAME ADDRESS
---- -------
Philip J. Flink c/o Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
SIXTH: The Corporation shall have perpetual existence.
-----
SEVENTH: Whenever a compromise or arrangement is proposed between
-------
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 29l of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this
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<PAGE>
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, agrees to any
compromise or arrangement and to any reorganization of this Corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
------
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
(a) The business of the Corporation shall be conducted by the officers
of the Corporation under the supervision of the Board of Directors.
(b) The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the Bylaws. No
election of Directors need be by written ballot.
(c) The Board of Directors of the Corporation may adopt, amend or
repeal the Bylaws of the Corporation at any time after the original adoption of
the Bylaws according to Section 109 of the General Corporation Law of the State
of Delaware; provided, however, that any amendment to provide for the
classification of directors of the Corporation for staggered terms pursuant to
the provisions of subsection (d) of Section 141 of the General Corporation Law
of the State of Delaware shall be set forth in an amendment to this Certificate
of Incorporation, in an initial Bylaw, or in a Bylaw adopted by the stockholders
of the Corporation entitled to vote.
NINTH:
-----
(a) The Corporation may, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which a person indemnified may be entitled under any By-Law,
agreement, vote of stockholders or disinterested Directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
Director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(b) No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from which
the director derived an improper
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<PAGE>
personal benefit. No amendment to or repeal of this paragraph (b) of this
Article Ninth shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such Director occurring prior to such amendment.
TENTH: From time to time, subject to the provisions of this
-----
Certificate of Incorporation, any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article Tenth.
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<PAGE>
Signed on the 26th day of September, 1996.
_________________________________
Philip J. Flink
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<PAGE>
EXHIBIT 3.02
BYLAWS
of
VIVID TECHNOLOGIES, INC.
A Delaware Corporation
Adopted: September 26, 1996
Secretary: _________________
Lawrence M. Levy
<PAGE>
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. Stockholders.................................................. 1
Section 1.1. Annual Meeting.............................................. 1
Section 1.2. Special Meetings............................................ 1
Section 1.3. Notice of Meeting........................................... 1
Section 1.4. Quorum...................................................... 2
Section 1.5. Voting and Proxies.......................................... 2
Section 1.6. Action at Meeting........................................... 2
Section 1.7. Action Without Meeting...................................... 2
Section 1.8. Voting of Shares of Certain Holders......................... 2
Section 1.9. Stockholder Lists........................................... 3
ARTICLE II. Board of Directors............................................ 3
Section 2.1. Powers...................................................... 3
Section 2.2. Number of Directors; Qualifications......................... 4
Section 2.3. Nomination of Directors.................................... 4
Section 2.4. Election of Directors....................................... 4
Section 2.5. Vacancies................................................... 5
Section 2.6. Change in Size of the Board................................. 5
Section 2.7. Tenure and Resignation..................................... 5
Section 2.8. Removal..................................................... 5
Section 2.9. Meetings.................................................... 5
Section 2.10. Notice of Meeting.......................................... 6
Section 2.11. Agenda..................................................... 6
Section 2.12. Quorum..................................................... 6
Section 2.13. Action at Meeting.......................................... 6
Section 2.14. Action Without Meeting..................................... 6
Section 2.15. Committees................................................. 6
ARTICLE III. Officers................................................... 7
Section 3.1. Enumeration................................................. 7
Section 3.2. Election.................................................... 7
Section 3.3. Qualification............................................... 7
Section 3.4. Tenure...................................................... 7
Section 3.5. Removal..................................................... 7
Section 3.6. Resignation................................................. 8
Section 3.7. Vacancies................................................... 8
Section 3.8. Chairman of the Board....................................... 8
Section 3.9. President................................................... 8
Section 3.10. Vice-President(s).......................................... 8
Section 3.11. Chief Financial Officer, Treasurer
and Assistant Treasurers................................... 8
Section 3.12. Secretary and Assistant Secretaries........................ 9
Section 3.13. Other Powers and Duties.................................... 9
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IV. Capital Stock................................................. 9
Section 4.1. Stock Certificates.......................................... 9
Section 4.2. Transfer of Shares.......................................... 10
Section 4.3. Record Holders.............................................. 10
Section 4.4. Record Date................................................. 10
Section 4.5. Transfer Agent and Registrar for
Shares of stock of the Corporation.......................... 11
Section 4.6. Loss of Certificates........................................ 11
Section 4.7. Restrictions on Transfer.................................... 11
Section 4.8. Multiple Classes of Stock................................... 12
ARTICLE V. Dividends...................................................... 12
Section 5.1. Declaration of Dividends.................................... 12
Section 5.2. Reserves.................................................... 12
ARTICLE VII Indemnification............................................... 13
Section 7.1. Definitions................................................. 13
Section 7.2. Right to Indemnification in General......................... 15
Section 7.3. Proceedings Other Than Proceedings by
or in the Right of the Corporation.......................... 15
Section 7.4. Proceedings by or in the Right of the
Corporation................................................. 16
Section 7.5. Indemnification of a Party Who is
Wholly or Partly Successful................................. 16
Section 7.6. Indemnification for Expenses of a
Witness..................................................... 16
Section 7.7. Advancement of Expenses..................................... 17
Section 7.8. Notification and Defense of Claim........................... 17
Section 7.9. Procedures.................................................. 18
Section 7.10. Action by the Corporation.................................. 19
Section 7.11. Non-Exclusivity............................................ 19
Section 7.12. Insurance.................................................. 20
Section 7.13. No Duplicative Payment..................................... 20
Section 7.14. Expenses of Adjudication................................... 20
Section 7.15. Severability............................................... 20
ARTICLE VIII. Miscellaneous Provisions.................................... 20
Section 8.1. Certificate of Incorporation................................ 20
Section 8.2. Fiscal Year................................................. 21
Section 8.3. Corporate Seal.............................................. 21
Section 8.4. Execution of Instruments.................................... 21
Section 8.5. Voting of Securities........................................ 21
Section 8.6. Evidence of Authority....................................... 21
Section 8.7. Corporate Records........................................... 21
Section 8.8. Charitable Contributions.................................... 22
ARTICLE IX. Amendments.................................................... 22
</TABLE>
-III-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.1. Amendment by Stockholders................................... 22
Section 9.2. Amendment by Board of Directors............................. 22
</TABLE>
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<PAGE>
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<PAGE>
BYLAWS
OF
VIVID TECHNOLOGIES, INC.
(A Delaware Corporation)
ARTICLE I.
----------
Stockholders
------------
Section 1.1. Annual Meeting. The annual meeting of the stockholders of
----------- --------------
the corporation shall be held on such date as shall be fixed by the Board of
Directors, at such time and place within or without the State of Delaware as may
be designated in the notice of meeting. If the day fixed for the annual meeting
shall fall on a legal holiday, the meeting shall be held on the next succeeding
day not a legal holiday. If the annual meeting is omitted on the day herein
provided, a special meeting may be held in place thereof, and any business
transacted at such special meeting in lieu of annual meeting shall have the same
effect as if transacted or held at the annual meeting.
Section 1.2. Special Meetings. Special meetings of the stockholders may
----------- ----------------
be called at any time by the president or by the board of directors. Special
meetings of the stockholders shall be held at such time, date and place within
or outside of the State of Delaware as may be designated in the notice of such
meeting.
Section 1.3. Notice of Meeting. A written notice stating the place,
----------- -----------------
date, and hour of each meeting of the stockholders, and, in the case of a
special meeting, the purposes for which the meeting is called, shall be given to
each stockholder entitled to vote at such meeting, and to each stockholder who,
under the Certificate of Incorporation or these Bylaws, is entitled to such
notice, by delivering such notice to such person or leaving it at their
residence or usual place of business, or by mailing it, postage prepaid, and
addressed to such stockholder at his address as it appears upon the books of the
corporation, at least ten (10) days and not more than sixty (60) before the
meeting. Such notice shall be given by the secretary, an assistant secretary, or
any other officer or person designated either by the secretary or by the person
or persons calling the meeting.
The requirement of notice to any stockholder may be waived (i) by a written
waiver of notice, executed before or after the meeting by the stockholder or his
attorney thereunto duly authorized, and filed with the records of the meeting,
(ii) if communication with such stockholder is unlawful, (iii) by attendance at
the meeting without protesting prior thereto or at its commencement the lack of
notice, or (iv) as otherwise excepted by law. A waiver of notice of any regular
or special meeting of the stockholders need not specify the purposes of the
meeting.
If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken, except that if the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
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<PAGE>
Section 1.4. Quorum. The holders of a majority in interest of all stock
----------- ------
issued, outstanding and entitled to vote at a meeting shall constitute a quorum.
Any meeting may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present.
Section 1.5. Voting and Proxies. Stockholders shall have one vote for
----------- ------------------
each share of stock entitled to vote owned by them of record according to the
books of the corporation, unless otherwise provided by law or by the Certificate
of Incorporation. Stockholders may vote either in person or by written proxy,
but no proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. Proxies shall be filed with the
secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
A proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of the proxy the
corporation receives a specific written notice to the contrary from any one of
them.
Section 1.6. Action at Meeting. When a quorum is present at any meeting,
----------- -----------------
a plurality of the votes properly cast for election to any office shall elect to
such office, and a majority of the votes properly cast upon any question other
than election to an office shall decide such question, except where a larger
vote is required by law, the Certificate of Incorporation or these by- laws. No
ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
Section 1.7. Action Without Meeting. All action required or permitted to
----------- ----------------------
be taken by the stockholders must be taken at a meeting duly called and held in
accordance with law and in accordance with the Certificate of Incorporation and
these Bylaws.
Section 1.8. Voting of Shares of Certain Holders. Shares of stock of the
----------- -----------------------------------
corporation standing in the name of another corporation, domestic or foreign,
may be voted by such officer, agent, or proxy as the by-laws of such corporation
may prescribe, or, in the absence of such provision, as the board of directors
of such corporation may determine.
Shares of stock of the corporation standing in the name of a deceased
person, a minor ward or an incompetent person, may be voted by his
administrator, executor, court-appointed guardian or conservator without a
transfer of such shares into the name of such administrator, executor, court
appointed guardian or conservator. Shares of capital stock of the corporation
standing in the name of a trustee or fiduciary may be voted by such trustee or
fiduciary.
Shares of stock of the corporation standing in the name of a receiver may
be voted by such receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into his name if
authority so to do be contained in an appropriate order of the court by which
such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer by the pledgor on the books of the corporation he
expressly empowered the pledgee to vote thereon, in which case only the pledgee
or its proxy shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of
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<PAGE>
outstanding shares at any given time, but shares of its own
stock held by the corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares.
Section 1.9. Stockholder Lists. The secretary (or the corporation's
----------- -----------------
transfer agent or other person authorized by these Bylaws or by law) shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected for any purpose germane to the meeting by any
stockholder who is present.
ARTICLE II.
-----------
Board of Directors
------------------
Section 2.1. Powers. Except as reserved to the stockholders by law, by
----------- ------
the Certificate of Incorporation or by these Bylaws, the business of the
corporation shall be managed under the direction of the board of directors,
which shall have and may exercise all of the powers of the corporation. In
particular, and without limiting the foregoing, the board of directors shall
have the power to issue or reserve for issuance from time to time the whole or
any part of the capital stock of the corporation which may be authorized from
time to time to such person, for such consideration and upon such terms and
conditions as it shall determine, including the granting of options, warrants or
conversion or other rights to stock.
Section 2.2. Number of Directors; Qualifications. Except as provided in
----------- -----------------------------------
Section 2.6 hereof, the board of directors shall consist of such number of
directors as shall be fixed initially by the incorporator(s) and thereafter by
the board of directors before each annual or special meeting of the
stockholders. No director need be a stockholder.
Section 2.3. Nomination of Directors. Nominations for the election of
----------- ------------------------
directors at an annual meeting of the stockholders, or special meeting in lieu
of the annual meeting, may be made by the board of directors or a committee
appointed by the board of directors or by any stockholder entitled to vote in
the election of directors at the meeting. Stockholders entitled to vote in such
election may nominate one or more persons for election as directors only if
written notice of such stockholder's intent to make such nomination or
nominations has been given either by personal delivery, overnight (receipted)
courier or by United States mail, postage prepaid, to the secretary of the
corporation not later than one hundred twenty days days prior to the anniversary
date of the immediately preceding annual meeting or special meeting in lieu
thereof. Such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the persons or person to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
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<PAGE>
Exchange Commission; and (e) the consent of each nominee to serve as a director
of the corporation if so elected. The presiding officer of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
Section 2.4. Election of Directors. The initial board of directors shall
----------- ---------------------
be designated in the certificate of incorporation, or if not so designated,
elected by the incorporator(s) at the first meeting thereof. Thereafter,
directors shall be elected by the stockholders at their annual meeting or at any
special meeting the notice of which specifies the election of directors as an
item of business for such meeting.
Section 2.5. Vacancies. In the case of any vacancy in the board of
----------- ---------
directors from death, resignation, disqualification or other cause, including a
vacancy resulting from enlargement of the board, the election of a director to
fill such vacancy shall be by vote of a majority of the directors then in
office, whether or not constituting a quorum. The director thus elected shall
hold office until the election of his successor.
Section 2.6. Change in Size of the Board. The number of the board of
----------- ---------------------------
directors may be changed by vote of a majority of the directors then in office
or by the stockholders by vote of eighty percent (80%) of the shares of voting
stock outstanding.
Section 2.7. Tenure and Resignation. Except as otherwise provided by
----------- -----------------------
law, by the Certificate of Incorporation or by these Bylaws, directors shall
hold office until the next annual meeting of stockholders and thereafter until
their successors are chosen and qualified. Any director may resign by
delivering or mailing postage prepaid a written resignation to the corporation
at its principal office or to the chairman of the board, if any, president,
secretary or assistant secretary, if any. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event.
Section 2.8. Removal. A director may be removed from office with or without
----------- -------
cause only by affirmative vote of the holders of at least 80% of the combined
voting power of the outstanding shares of voting stock, voting together as a
single class.
Section 2.9. Meetings. Regular meetings of the board of directors may be
----------- --------
held without call or notice at such times and such places within or without the
State of Delaware as the Board may, from time to time, determine, provided that
notice of the first regular meeting following any such determination shall be
given to directors absent from such determination. A regular meeting of the
board of directors shall be held without notice immediately after, and at the
same place as, the annual meeting of the stockholders or the special meeting of
the stockholders held in place of such annual meeting, unless a quorum of the
directors is not then present. Special meetings of the board of directors may
be held at any time and at any place designated in the call of the meeting when
called by the chairman of the board, the president, or a majority of the
directors. Members of the board of directors or any committee elected thereby
may participate in a meeting of such board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
Section 2.10. Notice of Meeting. It shall be sufficient notice to a
------------ -----------------
director to send notice by mail at least seventy-two (72) hours before the
meeting addressed to such person at his usual or last known business or
residence address or to give notice to such person in person or by telephone at
least twenty-four (24) hours before the meeting. Notice shall be given by the
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<PAGE>
secretary, or in his absence or unavailability, may be given by an assistant
secretary, if any, or by the officer or directors calling the meeting. The
requirement of notice to any director may be waived by a written waiver of
notice, executed by such person before or after the meeting or meetings, and
filed with the records of the meeting, or by attendance at the meeting without
protesting prior thereto or at its commencement the lack of notice. A notice or
waiver of notice of a directors' meeting need not specify the purposes of the
meeting.
Section 2.11. Agenda. Any lawful business may be transacted at a meeting
------------ ------
of the board of directors, notwithstanding the fact that the nature of the
business may not have been specified in the notice or waiver of notice of the
meeting.
Section 2.12. Quorum. At any meeting of the board of directors, a
------------ ------
majority of the directors then in office shall constitute a quorum for the
transaction of business. Any meeting may be adjourned by a majority of the
votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
Section 2.13. Action at Meeting. Any motion adopted by vote of the
------------ -----------------
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board of directors, except where a different vote is
required by law, by the Certificate of Incorporation or by these Bylaws. The
assent in writing of any director to any vote or action of the directors taken
at any meeting, whether or not a quorum was present and whether or not the
director had or waived notice of the meeting, shall have the same effect as if
the director so assenting was present at such meeting and voted in favor of such
vote or action.
Section 2.14. Action Without Meeting. Any action by the directors may be
------------ ----------------------
taken without a meeting if all of the directors consent to the action in writing
and the consents are filed with the records of the directors' meetings. Such
consent shall be treated for all purposes as a vote of the directors at a
meeting.
Section 2.15. Committees. The board of directors may, by the affirmative
------------ ----------
vote of a majority of the directors then in office, appoint an executive
committee or other committees consisting of one or more directors and may by
vote delegate to any such committee some or all of their powers except those
which by law, the Certificate of Incorporation or these Bylaws they may not
delegate. In the absence or disqualification of a member of a committee, the
members of the committee present and not disqualified, whether or not they
constitute a quorum, may by unanimous vote appoint another member of the board
of directors to act at the meeting in place of the absence or disqualified
member. Unless the board of directors shall otherwise provide, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the board of directors or such rules, its meetings shall be called,
notice given or waived, its business conducted or its action taken as nearly as
may be in the same manner as is provided in these Bylaws with respect to
meetings or for the conduct of business or the taking of actions by the board of
directors. The board of directors shall have power at any time to fill
vacancies in, change the membership of, or discharge any such committee at any
time. The board of directors shall have power to rescind any action of any
committee, but no such rescission shall have retroactive effect.
ARTICLE III.
------------
Officers
--------
Section 3.1. Enumeration. The officers shall consist of a president, a
----------- -----------
treasurer, a secretary and such other officers and agents (including a chairman
of the board, one or more
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<PAGE>
vice-presidents, assistant treasurers and assistant secretaries), as the board
of directors may, in its discretion, determine.
Section 3.2. Election. The president, treasurer and secretary shall be
----------- --------
elected annually by the directors at their first meeting following the annual
meeting of the stockholders or any special meeting held in lieu of the annual
meeting. Other officers may be chosen by the directors at such meeting or at
any other meeting.
Section 3.3. Qualification. An officer may, but need not, be a director
----------- -------------
or stockholder. Any two or more offices may be held by the same person. Any
officer may be required by the directors to give bond for the faithful
performance of his duties to the corporation in such amount and with such
sureties as the directors may determine. The premiums for such bonds may be
paid by the corporation.
Section 3.4. Tenure. Except as otherwise provided by the Certificate of
----------- ------
Incorporation or these Bylaws, the term of office of each officer shall be for
one year or until his successor is elected and qualified or until his earlier
resignation or removal.
Section 3.5. Removal. Any officer may be removed from office, with or
----------- -------
without cause, by the affirmative vote of a majority of the directors then in
office; provided, however, that an officer may be removed for cause only after
reasonable notice and opportunity to be heard by the board of directors prior to
action thereon.
Section 3.6. Resignation. Any officer may resign by delivering or
----------- -----------
mailing postage prepaid a written resignation to the corporation at its
principal office or to the president, secretary, or assistant secretary, if any,
and such resignation shall be effective upon receipt unless it is specified to
be effective at some other time or upon the happening of some event.
Section 3.7. Vacancies. A vacancy in any office arising from any cause
----------- ---------
may be filled for the unexpired portion of the term by the board of directors.
Section 3.8. Chairman of the Board. The board of directors may appoint a
----------- ---------------------
chairman of the board and may designate the chairman of the board as chief
executive officer. If the board of directors appoints a chairman of the board,
he shall perform such duties and possess such powers as are assigned to him by
the board of directors.
Section 3.9. President. The president shall be the chief executive
----------- ---------
officer of the corporation, unless a chairman of the board is so designated.
Unless a chairman of the board is so designated or except as otherwise voted by
the board of directors, the president shall preside at all meetings of the
stockholders and of the board of directors at which present. The president
shall have such duties and powers as are commonly incident to the office and
such duties and powers as the board of directors shall from time to time
designate.
Section 3.10. Vice-President(s). The vice-president(s), if any, shall
------------ -----------------
have such powers and perform such duties as the board of directors may from time
to time determine.
Section 3.11. Chief Financial Officer, Treasurer and Assistant Treasurers.
------------ -----------------------------------------------------------
The treasurer or if the board of directors so determines, the vice-president,
finance or the chief finanical officer, subject to the direction and under the
supervision and control of the board of directors, shall have general charge of
the financial affairs of the corporation. The treasurer shall have custody of
all funds, securities and valuable papers of the corporation, except as the
board of directors may otherwise provide. The treasurer shall keep or cause to
be kept full and
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<PAGE>
accurate records of account which shall be the property of the corporation, and
which shall be always open to the inspection of each elected officer and
director of the corporation. The treasurer shall deposit or cause to be
deposited all funds of the corporation in such depository or depositories as may
be authorized by the board of directors. The treasurer shall have the power to
endorse for deposit or collection all notes, checks, drafts, and other
negotiable instruments payable to the corporation. The treasurer shall perform
such other duties as are incidental to the office, and such other duties as may
be assigned by the board of directors. All of the duties of the treasurer may be
performed by the vice-president, finance and/or the chief financial officer, in
the discretion of the board of directors.
Assistant treasurers, if any, shall have such powers and perform such
duties as the board of directors may from time to time determine.
Section 3.12. Secretary and Assistant Secretaries. The secretary or an
------------ -----------------------------------
assistant secretary shall record, or cause to be recorded, all proceedings of
the meetings of the stockholders and directors (including committees thereof) in
the book of records of this corporation. The record books shall be open at
reasonable times to the inspection of any stockholder, director, or officer.
The secretary or an assistant secretary shall notify the stockholders and
directors, when required by law or by these Bylaws, of their respective
meetings, and shall perform such other duties as the directors and stockholders
may from time to time prescribe. The secretary or an assistant secretary shall
have the custody and charge of the corporate seal, and shall affix the seal of
the corporation to all instruments requiring such seal, and shall certify under
the corporate seal the proceedings of the directors and of the stockholders,
when required. In the absence of the secretary or an assistant secretary at any
such meeting, a temporary secretary shall be chosen who shall record the
proceedings of the meeting in the aforesaid books.
Assistant secretaries, if any, shall have such powers and perform such
duties as the board of directors may from time to time designate.
Section 3.13. Other Powers and Duties. Subject to these Bylaws and to
------------ -----------------------
such limitations as the board of directors may from time to time prescribe, the
officers of the corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the board of directors.
ARTICLE IV.
-----------
Capital Stock
-------------
Section 4.1. Stock Certificates. Each stockholder shall be entitled to a
----------- ------------------
certificate representing the number of shares of the capital stock of the
corporation owned by such person in such form as shall, in conformity to law, be
prescribed from time to time by the board of directors. Each certificate shall
be signed by the president or vice-president and treasurer or assistant
treasurer or such other officers designated by the board of directors from time
to time as permitted by law, shall bear the seal of the corporation, and shall
express on its face its number, date of issue, class, the number of shares for
which, and the name of the person to whom, it is issued. The corporate seal and
any or all of the signatures of corporation officers may be facsimile if the
stock certificate is manually counter-signed by an authorized person on behalf
of a transfer agent or registrar other than the corporation or its employee.
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<PAGE>
If an officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed on, a certificate shall have ceased to be
such before the certificate is issued, it may be issued by the corporation with
the same effect as if he were such officer, transfer agent or registrar at the
time of its issue.
Section 4.2. Transfer of Shares. Title to a certificate of stock and to
----------- ------------------
the shares represented thereby shall be transferred only on the books of the
corporation by delivery to the corporation or its transfer agent of the
certificate properly endorsed, or by delivery of the certificate accompanied by
a written assignment of the same, or a properly executed written power of
attorney to sell, assign or transfer the same or the shares represented thereby.
Upon surrender of a certificate for the shares being transferred, a new
certificate or certificates shall be issued according to the interests of the
parties.
Section 4.3. Record Holders. Except as otherwise may be required by law,
----------- --------------
by the Certificate of Incorporation or by these Bylaws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to receive notice and to vote with respect thereto, regardless of any transfer,
pledge or other disposition of such stock, until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these Bylaws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
Section 4.4. Record Date. In order that the corporation may determine
----------- -----------
the stockholders entitled to receive notice of or to vote at any meeting of
stockholders or any adjournments thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty days prior to the
date of such meeting nor more than sixty days prior to any other action. In such
case only stockholders of record on such record date shall be so entitled
notwithstanding any transfer of stock on the books of the corporation after the
record date.
If no record date is fixed: (i) the record date for determining
stockholders entitled to receive notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; and (ii) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the board of directors adopts the resolution
relating thereto.
Section 4.5. Transfer Agent and Registrar for Shares of stock of the
----------- -------------------------------------------------------
Corporation. The board of directors may appoint a transfer agent and a
- -----------
registrar of the shares of stock of the corporation. Any transfer agent so
appointed shall maintain, among other records, a stockholders' ledger, setting
forth the names and addresses of the holders of all issued shares of stock of
the corporation, the number of shares held by each, the certificate numbers
representing such shares, and the date of issue of the certificates representing
such shares. Any registrar so appointed shall maintain, among other records, a
share register, setting forth the total number of shares of each class of shares
which the corporation is authorized to issue and the total number of shares
actually issued. The stockholders' ledger and the share register are hereby
identified as the stock transfer books of the corporation; but as between the
stockholders' ledger and the share register, the names and addresses of
stockholders, as they
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<PAGE>
appear on the stockholders' ledger maintained by the transfer agent shall be the
official list of stockholders of record of the corporation. The name and address
of each stockholder of record, as they appear upon the stockholders' ledger,
shall be conclusive evidence of who are the stockholders entitled to receive
notice of the meetings of stockholders, to vote at such meetings, to examine a
complete list of the stockholders entitled to vote at meetings, and to own,
enjoy and exercise any other property or rights deriving from such shares
against the corporation. Stockholders, but not the corporation or its directors,
officers, agents or attorneys, shall be responsible for notifying the transfer
agent, in writing, of any changes in their names or addresses from time to time,
and failure to do so will relieve the corporation, its other stockholders,
directors, officers, agents and attorneys, and its transfer agent and registrar,
of liability for failure to direct notices or other documents, or pay over or
transfer dividends or other property or rights, to a name or address other than
the name and address appearing in the stockholders' ledger maintained by the
transfer agent.
Section 4.6. Loss of Certificates. In case of the loss, destruction or
----------- --------------------
mutilation of a certificate of stock, a replacement certificate may be issued in
place thereof upon such terms as the board of directors may prescribe,
including, in the discretion of the board of directors, a requirement of bond
and indemnity to the corporation.
Section 4.7. Restrictions on Transfer. Every certificate for shares of
----------- ------------------------
stock which are subject to any restriction on transfer, whether pursuant to the
Certificate of Incorporation, the Bylaws or any agreement to which the
corporation is a party, shall have the fact of the restriction noted
conspicuously on the certificate and shall also set forth on the face or back
either the full text of the restriction or a statement that the corporation will
furnish a copy to the holder of such certificate upon written request and
without charge.
Section 4.8. Multiple Classes of Stock. The amount and classes of the
----------- -------------------------
capital stock and the par value, if any, of the shares, shall be as fixed in the
Certificate of Incorporation. At all times when there are two or more classes
of stock, the several classes of stock shall conform to the description and the
terms and have the respective preferences, voting powers, restrictions and
qualifications set forth in the Certificate of Incorporation and these Bylaws.
Every certificate issued when the corporation is authorized to issue more than
one class or series of stock shall set forth on its face or back either (i) the
full text of the preferences, voting powers, qualifications and special and
relative rights of the shares of each class and series authorized to be issued,
or (ii) a statement of the existence of such preferences, powers, qualifications
and rights, and a statement that the corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge.
ARTICLE V.
----------
Dividends
---------
Section 5.1. Declaration of Dividends. Except as otherwise required by
----------- ------------------------
law or by the Certificate of Incorporation, the board of directors may, in its
discretion, declare what, if any, dividends shall be paid from the surplus or
from the net profits of the corporation for the current or preceding fiscal
year, or as otherwise permitted by law. Dividends may be paid in cash, in
property, in shares of the corporation's stock, or in any combination thereof.
Dividends shall be payable upon such dates as the board of directors may
designate.
Section 5.2. Reserves. Before the payment of any dividend and before
----------- --------
making any distribution of profits, the board of directors, from time to time
and in its absolute discretion, shall have power to set aside out of the surplus
or net profits of the corporation such sum or
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<PAGE>
sums as the board of directors deems proper and sufficient as a reserve fund to
meet contingencies or for such other purpose as the board of directors shall
deem to be in the best interests of the corporation, and the board of directors
may modify or abolish any such reserve.
ARTICLE VI.
-----------
Powers of Officers to Contract
------------------------------
With the Corporation
--------------------
Any and all of the directors and officers of the corporation,
notwithstanding their official relations to it, may enter into and perform any
contract or agreement of any nature between the corporation and themselves, or
any and all of the individuals from time to time constituting the board of
directors of the corporation, or any firm or corporation in which any such
director may be interested, directly or indirectly, whether such individual,
firm or corporation thus contracting with the corporation shall thereby derive
personal or corporate profits or benefits or otherwise; provided, that (i) the
material facts of such interest are disclosed or are known to the board of
directors or committee thereof which authorizes such contract or agreement; (ii)
if the material facts as to such person's relationship or interest are disclosed
or are known to the stockholders entitled to vote thereon, and the contract is
specifically approved in good faith by a vote of the stockholders; or (iii) the
contract or agreement is fair as to the corporation as of the time it is
authorized, approved or ratified by the board of directors, a committee thereof,
or the stockholders. Any director of the corporation who is interested in any
transaction as aforesaid may nevertheless be counted in determining the
existence of a quorum at any meeting of the board of directors which shall
authorize or ratify any such transaction. This Article shall not be construed
to invalidate any contract or other transaction which would otherwise be valid
under the common or statutory law applicable thereto.
ARTICLE VII
-----------
Indemnification
---------------
Section 7.1. Definitions. For purposes of this Article VII the following
----------- -----------
terms shall have the meanings indicated:
"Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent, trustee or fiduciary of the Corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the express
written request of the corporation.
"Court" means the Court of Chancery of the State of Delaware, the court in
which the Proceeding in respect of which indemnification is sought by a Covered
Person shall have been brought or is pending, or another court having subject
matter jurisdiction and personal jurisdiction over the parties.
"Covered Person" means a person who is a present or former director or
Officer of the corporation and shall include such person's legal
representatives, heirs, executors and administrators.
"Disinterested" describes any individual, whether or not that individual is
a director, Officer, employee or agent of the corporation, who is not and was
not and is not threatened to
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<PAGE>
be made a party to the Proceeding in respect of which indemnification,
advancement of Expenses or other action is sought by a Covered Person.
"Expenses" shall include, without limitation, all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in a Proceeding.
"Good Faith" shall mean a Covered Person having acted in good faith and in
a manner such Covered Person reasonably believed to be in or not opposed to the
best interests of the corporation or, in the case of an employee benefit plan,
the best interests of the participants or beneficiaries of said plan, as the
case may be, and, with respect to any Proceeding which is criminal in nature,
having had no reasonable cause to believe such Covered Person's conduct was
unlawful.
"Improper Personal Benefit" shall include, but not be limited to, the
personal gain in fact by reason of a person's Corporate Status of a financial
profit, monies or other advantage not also accruing to the benefit of the
corporation or to the stockholders generally and which is unrelated to his usual
compensation including, but not limited to, such profit, monies or other
advantage gained (i) in exchange for the exercise of influence over the
corporation's affairs, (ii) as a result of the diversion of corporate
opportunity, or (iii) pursuant to the use or communication of confidential or
inside information for the purpose of generating a profit from trading in the
corporation's securities. Notwithstanding the foregoing, "Improper Personal
Benefit" shall not include any benefit, directly or indirectly, related to
actions taken in order to evaluate, discourage, resist, prevent or negotiate
any transaction with or proposal from any person or entity seeking control of,
or a controlling interest in, the corporation.
"Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and may include law firms or members
thereof that are regularly retained by the corporation but not by any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing and
applicable to such counsel, would have a conflict of interest in representing
either the corporation or Covered Person in an action to determine the Covered
Person's rights under this Article.
"Officer" means the chairman of the board, the president, vice presidents,
treasurer, assistant treasurer(s), secretary, assistant secretary and such other
executive officers as are appointed by the board of directors of the corporation
and explicitly entitled to indemnification hereunder.
"Proceeding" includes any actual, threatened or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation (including
any internal corporate investigation), administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, other than
one initiated by the Covered Person, but including one initiated by a Covered
Person for the purpose of enforcing such Covered Person's rights under this
Article to the extent provided in Section 7.14 of this Article. "Proceeding"
shall not include any counterclaim brought by any Covered Person other than one
arising out of the same transaction or occurrence that is the subject matter of
the underlying claim.
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<PAGE>
Section 7.2. Right to Indemnification in General.
----------- -----------------------------------
(a) Covered Persons. The corporation may indemnify, and may advance
---------------
Expenses, to each Covered Person who is a party to, was or is threatened to be
made a party to, or is otherwise involved in any Proceeding, as provided in this
Article and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may hereafter from time
to time permit.
The indemnification provisions in this Article shall be deemed to be a
contract between the corporation and each Covered Person who serves in any
Corporate Status at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect, and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any Proceeding
previously or thereafter brought or threatened based in whole or in part upon
any such state of facts. Such a contract right may not be modified
retroactively without the consent of such Covered Person.
(b) Employees and Agents. The corporation may, to the extent authorized
--------------------
from time to time by the board of directors, grant indemnification and the
advancement of Expenses to any employee or agent of the corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of Expenses of Covered Persons.
Section 7.3. Proceedings Other Than Proceedings by or in the Right of the
----------- ------------------------------------------------------------
Corporation. Each Covered Person may be entitled to the rights of
- -----------
indemnification provided in this Section 7.3 if, by reason of such Covered
Person's Corporate Status, such Covered Person is a party to, was or is
threatened to be made a party to, or is otherwise involved in any Proceeding,
other than a Proceeding by or in the right of the corporation. Each Covered
Person may be indemnified against Expenses, judgments, penalties, fines and
amounts paid in settlements, actually and reasonably incurred by such Covered
Person or on such Covered Person's behalf in connection with such Proceeding or
any claim, issue or matter therein, if such Covered Person acted in Good Faith
and such Covered Person has not been adjudged during the course of such
proceeding to have derived an Improper Personal Benefit from the transaction or
occurrence forming the basis of such Proceeding.
Section 7.4. Proceedings by or in the Right of the Corporation. Each
----------- -------------------------------------------------
Covered Person may be entitled to the rights of indemnification provided in this
Section 7.4 if, by reason of such Covered Person's Corporate Status, such
Covered Person is a party to, or is threatened to be made a party to, or is
otherwise involved in any Proceeding brought by or in the right of the
corporation to procure a judgment in its favor. Such Covered Person may be
indemnified against Expenses, judgments, penalties, and amounts paid in
settlement, actually and reasonably incurred by such Covered Person or on such
Covered Person's behalf in connection with such Proceeding if such Covered
Person acted in Good Faith and such Covered Person has not been adjudged during
the course of such proceeding to have derived an Improper Personal Benefit from
the transaction or occurrence forming the basis of such Proceeding.
Notwithstanding the foregoing, no such indemnification shall be made in respect
of any claim, issue or matter in such Proceeding as to which such Covered Person
shall have been adjudged to be liable to the corporation if applicable law
prohibits such indemnification; provided, however, that, if applicable law so
permits, indemnification shall nevertheless be made by the corporation in such
event if and only to the extent that the Court which is considering the matter
shall so determine.
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<PAGE>
Section 7.5. Indemnification of a Party Who is Wholly or Partly
----------- --------------------------------------------------
Successful. Notwithstanding any provision of this Article to the contrary, to
- ----------
the extent that a Covered Person is, by reason of such Covered Person's
Corporate Status, a party to or is otherwise involved in and is successful, on
the merits or otherwise, in any Proceeding, such Covered Person shall be
indemnified to the maximum extent permitted by law, against all Expenses,
judgments, penalties, fines, and amounts paid in settlement, actually and
reasonably incurred by such Covered Person or on such Covered Person's behalf in
connection therewith. If such Covered Person is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the corporation
shall indemnify such Covered Person to the maximum extent permitted by law,
against all Expenses, judgments, penalties, fines, and amounts paid in
settlement, actually and reasonably incurred by such Covered Person or on such
Covered Person's behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 7.5 and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 7.6. Indemnification for Expenses of a Witness. Notwithstanding
----------- -----------------------------------------
any provision of this Article to the contrary, to the extent that a Covered
Person is, by reason of such Covered Person's Corporate Status, a witness in any
Proceeding, such Covered Person shall be indemnified against all Expenses
actually and reasonably incurred by such Covered Person or on such Covered
Person's behalf in connection therewith.
Section 7.7. Advancement of Expenses. Notwithstanding any provision of
----------- -----------------------
this Article to the contrary, the corporation may advance all reasonable
Expenses which, by reason of a Covered Person's Corporate Status, were incurred
by or on behalf of such Covered Person in connection with any Proceeding, within
thirty (30) days after the receipt by the corporation of a statement or
statements from such Covered Person requesting such advance or advances, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by the Covered Person
and shall include or be preceded or accompanied by an undertaking by or on
behalf of the Covered Person to repay any Expenses if such Covered Person shall
be adjudged to be not entitled to be indemnified against such Expenses. Any
advance and undertaking to repay pursuant to this Section 7.7 may be unsecured
interest-free, as the corporation sees fit. Advancement of Expenses pursuant to
this Section 7.7 shall not require approval of the board of directors or the
stockholders of the corporation, or of any other person or body. The secretary
of the corporation shall promptly advise the Board in writing of the request for
advancement of Expenses, of the amount and other details of the request and of
the undertaking to make repayment provided pursuant to this Section 7.7.
Section 7.8. Notification and Defense of Claim. Promptly after receipt
----------- ---------------------------------
by a Covered Person of notice of the commencement of any Proceeding, such
Covered Person shall, if a claim is to be made against the corporation under
this Article, notify the corporation of the commencement of the Proceeding. The
failure to notify the corporation will not relieve the corporation from any
liability which it may have to such Covered Person otherwise than under this
Article. With respect to any such Proceedings to which such Covered Person
notifies the corporation:
(a) The corporation will be entitled to participate in the defense at its
own expense.
(b) Except as otherwise provided below in this subparagraph (b), the
corporation (jointly with any other indemnifying party similarly notified) will
be entitled to assume the
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<PAGE>
defense with counsel reasonably satisfactory to the Covered Person. After notice
from the corporation to the Covered Person of its election to assume the defense
of a suit, the corporation will not be liable to the Covered Person under this
Article for any legal or other expenses subsequently incurred by the Covered
Person in connection with the defense of the Proceeding other than reasonable
costs of investigation or as otherwise provided below in this subparagraph (b).
The Covered Person shall have the right to employ his own counsel in such
Proceeding but the fees and expenses of such counsel incurred after notice from
the corporation of its assumption of the defense shall be at the expense of the
Covered Person except as provided in this paragraph. The fees and expenses of
counsel shall be at the expense of the corporation if (i) the employment of
counsel by the Covered Person has been authorized by the corporation, (ii) the
Covered Person shall have concluded reasonably that there may be a conflict of
interest between the corporation and the Covered Person in the conduct of the
defense of such action and such conclusion is confirmed in writing by the
corporation's outside counsel regularly employed by it in connection with
corporate matters, or (iii) the corporation shall not in fact have employed
counsel to assume the defense of such Proceeding. The corporation shall be
entitled to participate in, but shall not be entitled to assume the defense of
any Proceeding brought by or in the right of the corporation or as to which the
Covered Person shall have made the conclusion provided for in (ii) above and
such conclusion shall have been so confirmed by the corporation's said outside
counsel.
(c) Notwithstanding any provision of this Article to the contrary, the
corporation shall not be obligated to indemnify the Covered Person under this
Article for any amounts paid in settlement of any Proceeding effected without
its written consent. The corporation shall not settle any Proceeding or claim
in any manner which would impose any penalty, limitation or disqualification of
the Covered Person for any purpose without such Covered Person's written
consent. Neither the corporation nor the Covered Person will unreasonably
withhold their consent to any proposed settlement.
(d) If it is determined that the Covered Person is entitled to
indemnification other than as afforded under subparagraph (b) above, payment to
the Covered Person of the additional amounts for which he is to be indemnified
shall be made within ten (10) days after such determination.
Section 7.9. Procedures.
----------- ----------
(a) Method of Determination. A determination (as provided for by this
-----------------------
Article or if required by applicable law in the specific case) with respect to a
Covered Person's entitlement to indemnification shall be made either (i) by the
board of directors by a majority vote of a quorum consisting of Disinterested
directors, or (ii) in the event that a quorum of the board of directors
consisting of Disinterested directors is not obtainable or, even if obtainable,
such quorum of Disinterested directors so directs, by Independent Counsel in a
written determination to the board of directors, a copy of which shall be
delivered to the Covered Person seeking indemnification, (iii) by a special
litigation committee of the board of directors appointed by the board, or (iv)
by the vote of the holders of a majority of the corporation's capital stock
outstanding at the time entitled to vote thereon.
(b) Initiating Request. A Covered Person who seeks indemnification under
------------------
this Article shall submit a Request for Indemnification, including such
documentation and information as is reasonably available to such Covered Person
and is reasonably necessary to determine whether and to what extent such Covered
Person is entitled to indemnification.
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<PAGE>
(c) Presumptions. In making a determination with respect to entitlement to
------------
indemnification hereunder, the person or persons or entity making such
determination shall not presume that the Covered Person is or is not entitled to
indemnification under this Article.
(d) Burden of Proof. Each Covered Person shall bear the burden of going
---------------
forward and demonstrating sufficient facts to support his claim for entitlement
to indemnification under this Article. That burden shall be deemed satisfied by
the submission of an initial Request for Indemnification pursuant to Section
7.9(b) above.
(e) Effect of Other Proceedings. The termination of any Proceeding or of
---------------------------
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of guilty or of nolo contendere or its equivalent,
---------------
shall not (except as otherwise expressly provided in this Article) of itself
adversely affect the right of a Covered Person to indemnification or create a
presumption that a Covered Person did not act in Good Faith.
(f) Actions of Others. The knowledge, actions, or failure to act, of any
-----------------
director, officer, employee, agent, trustee or fiduciary of the enterprise for
whose daily activities the Covered Person was actually responsible may be
imputed to a Covered Person for purposes of determining the right to
indemnification under this Article.
Section 7.10. Action by the Corporation. Any action, payment, advance
------------ -------------------------
determination other than a determination made pursuant to Section 7.9(a) above,
authorization, requirement, grant of indemnification or other action taken by
the Corporation pursuant to this Article shall be effected exclusively through
any Disinterested person so authorized by the board of directors of the
corporation, including the president or any vice president of the corporation.
Section 7.11. Non-Exclusivity. The rights of indemnification and to
------------ ---------------
receive advancement of Expenses as provided by this Article shall not be deemed
exclusive of any other rights to which a Covered Person may at any time be
entitled under applicable law, the Certificate of Incorporation, these Bylaws,
any agreement, a vote of stockholders or a resolution of the board of directors,
or otherwise. No amendment, alteration, rescission or replacement of this
Article or any provision hereof shall be effective as to any Covered Person with
respect to any action taken or omitted by such Covered Person in such Covered
Person's Corporate Status or with respect to any state of facts then or
previously existing or any Proceeding previously or thereafter brought or
threatened based in whole or to the extent based in part upon any such state of
facts existing prior to such amendment, alteration, rescission or replacement.
Section 7.12. Insurance. The corporation may maintain, at its expense, an
------------ ---------
insurance policy or policies to protect itself and any Covered Person, officer,
employee or agent of the corporation or another enterprise against liability
arising out of this Article or otherwise, whether or not the corporation would
have the power to indemnify any such person against such liability under the
Delaware General Corporation Law.
Section 7.13. No Duplicative Payment. The corporation shall not be liable
------------ ----------------------
under this Article to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that a Covered Person has otherwise actually
received such payment under any insurance policy, contract, agreement or
otherwise.
Section 7.14. Expenses of Adjudication. In the event that any Covered
------------ ------------------------
Person seeks a judicial adjudication, or an award in arbitration, to enforce
such Covered Person's rights under, or to recover damages for breach of, this
Article, the Covered Person shall be entitled to recover
-XX-
<PAGE>
from the corporation, and shall be indemnified by the corporation against, any
and all expenses (of the types described in the definition of Expenses in
Section 7.1 of this Article) actually and reasonably incurred by such Covered
Person in seeking such adjudication or arbitration, but only if such Covered
Person prevails therein. If it shall be determined in such adjudication or
arbitration that the Covered Person is entitled to receive part but not all of
the indemnification of expenses sought, the expenses incurred by such Covered
Person in connection with such adjudication or arbitration shall be
appropriately prorated.
Section 7.15. Severability. If any provision or provisions of this
------------ ------------
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Article (including without limitation, each portion of any Section of
this Article containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Article
(including, without limitation, each portion of any Section of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
ARTICLE VIII.
-------------
Miscellaneous Provisions
------------------------
Section 8.1. Certificate of Incorporation. All references in these
----------- ----------------------------
Bylaws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as amended and in effect from
time to time.
Section 8.2. Fiscal Year. Except as from time to time otherwise provided
----------- -----------
by the board of directors, the fiscal year of the corporation shall end on
September 30th of each year.
Section 8.3. Corporate Seal. The board of directors shall have the power
----------- --------------
to adopt and alter the seal of the corporation.
Section 8.4. Execution of Instruments. All deeds, leases, transfers,
----------- ------------------------
contracts, bonds, notes, and other obligations authorized to be executed by an
officer of the corporation on its behalf shall be signed by the president or the
treasurer except as the board of directors may generally or in particular cases
otherwise determine.
Section 8.5. Voting of Securities. Unless the board of directors
----------- --------------------
otherwise provides, the president or the treasurer may waive notice of and act
on behalf of this corporation, or appoint another person or persons to act as
proxy or attorney in fact for this corporation with or without discretionary
power and/or power of substitution, at any meeting of stockholders or
shareholders of any other corporation or organization, any of whose securities
are held by this corporation.
Section 8.6. Evidence of Authority. A certificate by the secretary or
----------- ---------------------
any assistant secretary as to any action taken by the stockholders, directors or
any officer or representative of the corporation shall, as to all persons who
rely thereon in good faith, be conclusive evidence of such action. The exercise
of any power which by law, by the Certificate of Incorporation, or by
-XXI-
<PAGE>
these Bylaws, or under any vote of the stockholders or the board of directors,
may be exercised by an officer of the corporation only in the event of absence
of another officer or any other contingency shall bind the corporation in favor
of anyone relying thereon in good faith, whether or not such absence or
contingency existed.
Section 8.7. Corporate Records. The original, or attested copies, of the
----------- -----------------
Certificate of Incorporation, Bylaws, records of all meetings of the
incorporators and stockholders, and the stock transfer books (which shall
contain the names of all stockholders and the record address and the amount of
stock held by each) shall be kept in Delaware at the principal office of the
corporation, or at an office of the corporation, or at an office of its transfer
agent or of the secretary or of the assistant secretary, if any. Said copies
and records need not all be kept in the same office. They shall be available at
all reasonable times to inspection of any stockholder for any purpose but not to
secure a list of stockholders for the purpose of selling said list or copies
thereof or for using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
Section 8.8. Charitable Contributions. The board of directors from time
----------- ------------------------
to time may authorize contributions to be made by the corporation in such
amounts as it may determine to be reasonable to corporations, trusts, funds or
foundations organized and operated exclusively for charitable, scientific or
educational purposes, no part of the net earning of which inures to the private
benefit of any stockholder or individual.
ARTICLE IX.
-----------
Amendments
----------
Section 9.1. Amendment by Stockholders. Prior to the issuance of stock,
----------- -------------------------
these Bylaws may be amended, altered or repealed by the incorporator(s) by
majority vote. After stock has been issued, these Bylaws may be amended altered
or repealed by the stockholders at any annual or special meeting by vote of a
majority of all shares outstanding and entitled to vote, except that where the
effect of the amendment would be to reduce any voting requirement otherwise
required by law, the Certificate of Incorporation or another provision of these
Bylaws, such amendment shall require the vote that would have been required by
law, the Certificate of Incorporation or these Bylaws or such other provision of
these Bylaws. Notice and a copy of any proposal to amend these Bylaws must be
included in the notice of meeting of stockholders at which action is taken upon
such amendment.
Section 9.2. Amendment by Board of Directors. These Bylaws may be
----------- -------------------------------
amended or altered by the board of directors at a meeting duly called for the
purpose by majority vote of the directors then in office, except that directors
shall not amend the Bylaws in a manner which:
(a) changes the stockholder voting requirements for any action;
(b) alters or abolishes any preferential right or right of redemption
applicable to a class or series of stock with shares already outstanding;
(c) alters the provisions of Article IX hereof; or
(d) permits the board of directors to take any action which under law, the
Certificate of Incorporation, or these Bylaws is required to be taken by the
stockholders.
-XXII-
<PAGE>
Any amendment of these Bylaws by the board of directors may be altered or
repealed by the stockholders at any annual or special meeting of stockholders.
-XXIII-
<PAGE>
EXHIBIT 3.03
RESTATED CERTIFICATE OF INCORPORATION
--------------------------------------
OF
--
VIVID TECHNOLOGIES, INC.
------------------------
It is hereby certified that:
1. The present name of the Corporation (hereinafter called the
"Corporation") is Vivid Technologies, Inc. The name under which the Corporation
was originally incorporated is Vivid Technologies, Inc. and the date of filing
the original Certificate of Incorporation of the Corporation with the Secretary
of State of Delaware is September 26, 1996.
2. The Certificate of Incorporation of the Corporation is hereby amended
by (i) increasing the number of shares of Common stock by 20,000,000 shares,
(ii) decreasing the number of shares of authorized Preferred Stock to 1,000,000
shares, (iii) amending Articles Fourth and Eight, and (iii) adding Articles
Tenth through Fourteenth.
3. The provisions of the Restated Certificate of Incorporation of the
Corporation as herein amended are hereby restated and integrated into the single
instrument which is hereinafter set forth, and which is entitled Restated
Certificate of Incorporation of Vivid Technologies, Inc. without any further
amendments other than the amendments herein certified and without any
discrepancy between the provisions of the Certificate of Incorporation as
amended and supplemented hereby; and the provisions of the said single
instrument hereinafter set forth.
4. The amendments to and the restatement of the Certificate of
Incorporation herein certified have been duly adopted by the directors and
stockholders in accordance with the provisions of Sections 141, 228, 242 and 245
of the General Corporation Law of the State of Delaware.
5. The effective date of the Restated Certificate of Incorporation and of
the amendments herein certified shall be its filing date.
6. The Certificate of Incorporation of the Corporation, as amended and
restated herein, shall upon the effective date of this Restated Certificate of
Incorporation, read as follows:
FIRST: The name of the corporation (hereinafter called the
-----
"Corporation") is Vivid Technologies, Inc.
SECOND: The address, including street, number, city, and county, of
------
the registered office of the Corporation in the State of Delaware is [to be
inserted].
THIRD: The nature of the business and the purposes to be conducted and
-----
promoted by the Corporation, shall be to (a) engage in the general business of
designing, developing, manufacturing, marketing and selling products relating to
inspection and security of
1
<PAGE>
baggage and other goods, and any other type of electrical, electronics or
mechanical devices, and all products and services related thereto, and (b)
conduct any lawful business, to promote any lawful purpose, and to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
------
Corporation shall have authority to issue is:
(1) 30,000,000 shares of Common Stock, $.01 par value per share
("Common Stock");
(2) 1,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock.")
A statement of the designations and powers, preferences and rights, and
the qualifications, limitations or restrictions of the classes of capital stock
of the Corporation shall be as follows:
Common Stock
------------
The holders of Common Stock shall have one vote per share upon all
matters.
Preferred Stock
---------------
The Preferred Stock may be issued and designated by the Board of
Directors, in one or more classes or series and with such rights, powers,
preferences and terms and at such times and for such consideration as the Board
of Directors shall determine, without further stockholder action. With respect
to each class or series of Preferred Stock, prior to issuance, the Board of
Directors by resolution shall designate that class or series to distinguish it
from other classes and series of stock of the Corporation, shall specify the
number of shares to be included in the class or series, and shall fix the
rights, powers, preferences and terms of the shares of the class or series,
including, but without limitation: (i) the dividend rate, which may be fixed or
variable, its preference as to any other class or series of capital stock, and
whether dividends will be cumulative or noncumulative; (ii) whether the shares
are to be redeemable and, if so, at what times and prices (which price or prices
may, but need not, vary according to the time or circumstances of such
redemption) and on what other terms and conditions; (iii) the terms and amount
of any sinking fund provided for the purchase or redemption of the shares; (iv)
whether the shares shall be convertible or exchangeable and, if so, the times,
prices, rates, adjustments and other terms of such conversion or exchange; (v)
the voting rights, if any, applicable to the shares in addition to those
prescribed by law; (vi) the restrictions and conditions, if any, on the issue or
reissue of any additional shares of such class or series or of any other class
or series of Preferred Stock ranking on a parity with or prior to the shares of
such class or series; (vii) whether, and the extent to which, any of the rights,
powers, preferences and terms of any such class or series may be made dependent
upon facts ascertainable outside of the Certificate of Incorporation or outside
the resolution or resolutions providing for the issuance of such class or series
by the Board of Directors, provided that the manner in which such facts shall
operate is clearly set forth in the resolution or resolutions providing for the
issuance of such class or series adopted by the Board of Directors; and (viii)
the rights of the holders of such shares upon voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
FIFTH: The Corporation shall have perpetual existence.
-----
2
<PAGE>
SIXTH: Whenever a compromise or arrangement is proposed between this
-----
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 29l of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agrees to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
SEVENTH: For the management of the business and for the conduct of the
-------
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
(a) The business of the Corporation shall be conducted by the
officers of the Corporation under the supervision of the Board of Directors.
(b) The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the Bylaws. No
election of Directors need be by written ballot.
(c) The Board of Directors of the Corporation may adopt, amend or
repeal the Bylaws of the Corporation at any time after the original adoption of
the Bylaws according to Section 109 of the General Corporation Law of the State
of Delaware; provided, however, that any amendment to provide for the
classification of directors of the Corporation for staggered terms pursuant to
the provisions of subsection (d) of Section 141 of the General Corporation Law
of the State of Delaware shall be set forth in an amendment to this Restated
Certificate of Incorporation, in an initial Bylaw, or in a Bylaw adopted by the
stockholders of the Corporation entitled to vote.
(d) Notwithstanding any other provision of law, all action required
to be taken by the stockholders of the Corporation shall be taken at a meeting
duly called and held in accordance with the law, the Restated Certificate of
Incorporation and the Bylaws, and not by written consent.
EIGHTH:
------
(a) The Corporation may, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed
3
<PAGE>
exclusive of any other rights to which a person indemnified may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(b) No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from which
the director derived an improper personal benefit. No amendment to or repeal of
this paragraph (b) of this Article Eighth shall apply to or have any effect on
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such Director occurring prior to such
amendment.
NINTH: From time to time, subject to the provisions of this Restated
-----
Certificate of Incorporation (including without limitation the provisions of
paragraph (d) of Article Tenth, Article Eleventh and paragraph (f) of Article
Fourteenth), any of the provisions of this Certificate of Incorporation may be
amended, altered or repealed, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted in the manner
and at the time prescribed by said laws, and all rights at any time conferred
upon the stockholders of the Corporation by this Restated Certificate of
Incorporation are granted subject to the provisions of this Article Ninth.
TENTH:
-----
(a) Any direct or indirect purchase or other acquisition in one or
more transactions by the Corporation or any Subsidiary of any of the outstanding
Voting Stock of any class from any one or more individuals or entities known by
the Corporation to be a Related Person, who has beneficially owned such security
or right for less than two years prior to the date of such purchase, at a price
in excess of the Fair Market Value shall, except as hereinafter provided,
require the affirmative vote of the holders of at least two-thirds of the shares
of Voting Stock, voting as a single class, excluding any votes cast with respect
to shares of Voting Stock beneficially owned by such Related Person. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified by law or any agreement
with any national securities exchange, or otherwise, but no such affirmative
vote shall be required with respect to any purchase or other acquisition of
securities made as part of (i) a tender or exchange offer by the Corporation to
purchase securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the Exchange
Act and the rules and regulations thereunder, or any successor rule or
regulation or (ii) pursuant to an open-market purchase program conducted in
accordance with the requirements of Rule 10b-18 promulgated by the Securities
and Exchange Commission pursuant to the Exchange Act or any successor rule or
regulation.
(b) A majority of the Continuing Directors shall have the power and
duty to determine, on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with this Article Tenth
including, without limitation, (i) whether a person is a Related Person, (ii)
the number of shares of Voting Stock beneficially owned by any person and (iii)
whether a price is in excess of Fair Market Value.
4
<PAGE>
(c) Nothing contained in this Article Tenth shall be construed to
relieve any Related Person from any fiduciary obligation imposed by law.
(d) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Voting Stock, voting together as a
single class, shall be required to alter, change, amend, repeal or adopt any
provision inconsistent with this Article Tenth.
ELEVENTH: Except as otherwise provided in this Restated Certificate of
--------
Incorporation, the Bylaws and any designation of terms pursuant to Section 151
of the General Corporation Law of the State of Delaware, any vote required by
stockholders pursuant to said General Corporation Law, other than the election
of directors (which shall not be affected by this provision), shall be effective
if recommended by a majority of the Continuing Directors and the vote of a
majority of each class of stock outstanding and entitled to vote thereon; and if
not recommended by a majority of the Continuing Directors, then by the vote of
two-thirds of each class of stock outstanding and entitled to vote thereon.
TWELFTH: The Board of Directors of the Corporation, when evaluating
-------
any offer from another person to (a) purchase or exchange any securities or
property for any outstanding equity securities of the Corporation, (b) merge or
consolidate the Corporation with another corporation, or (c) purchase or acquire
all or substantially all of the properties and assets of the Corporation, shall
in connection with the exercise of its judgment in determining what is in the
best interests of the Corporation and its stockholders, give due consideration
not only to the price or other consideration being offered, but also to all
other relevant factors, including but without limitation, the interests of the
Corporation's employees, suppliers, creditors and customers, the economy of the
state, region and nation, community and societal considerations and the long-
term and short-term interests of the Corporation and its stockholders, including
the possibility that these interests may be best served by the continued
independence of the Corporation.
THIRTEENTH: Nominations for the election of directors at an annual
----------
meeting of the stockholders, or special meeting in lieu of the annual meeting,
may be made by the Board of Directors or a committee appointed by the board of
directors or by any stockholder entitled to vote in the election of directors at
the meeting. Stockholders entitled to vote in such election may nominate one or
more persons for election as directors only if written notice of such
stockholder's intent to make such nomination or nominations has been given
either by personal delivery, overnight (receipted) courier or by United States
mail, postage prepaid, to the secretary of the Corporation not later than one
hundred twenty days prior to the anniversary date of the immediately preceding
annual meeting or special meeting in lieu thereof. Such notice shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the persons or person to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission; and (e) the consent of each nominee
to serve as a director of the Corporation if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
5
<PAGE>
FOURTEENTH:
----------
(a) Subject to the rights of the holders of any class or series of
stock having a preference over the Corporation's voting stock as to dividends or
upon liquidation to elect additional directors under specific circumstances, the
number of directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption). Following the filing of this Restated
Certificate of Incorporation, the directors shall be divided into three classes,
as nearly equal in number as possible, with the term of office of the first
class to expire at the 1997 annual meeting of stockholders, the term of office
of the second class to expire at the 1998 annual meeting of stockholders and the
term of office of the third class to expire at the 1999 annual meeting of
stockholders, with the initial members of each class to be determined by the
Board of Directors. At each annual meeting of stockholders following such
initial classification and election, the successors of those directors whose
terms expire at that meeting shall be elected by a plurality vote of all votes
cast at such meeting for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, unless by reason of any
intervening changes in the authorized number of directors, the Board of
Directors shall designate one or more of the then expired directorships as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
(b) the number of the Board of Directors may be changed by a vote of
a majority of the directors then in office or by the stockholders by vote of 80%
of the shares of Voting Stock outstanding, voting as a single class.
(c) Notwithstanding the rule that the three classes shall be as
nearly equal in number of directors as possible, in the event of any change in
the authorized number of directors, each director then continuing to serve as
such, shall nevertheless continue as a director of the class of which he is a
member until the expiration of his current term, or his prior death, resignation
or removal. If any newly created directorship may, consistent with the rule that
the three classes shall be as nearly equal in number of directors as possible,
be allocated to one of two or more classes, the Board of Directors shall
allocate it to that of the available classes whose term of office is due to
expire at the earliest date following such allocation.
(d) Except as otherwise provided for or fixed by or pursuant to the
provisions of this Restated Certificate of Incorporation relating to the rights
of the holders of any class or series of stock having a preference over the
Voting Stock as to dividends or upon liquidation to elect directors under
specified circumstances, newly created directorships resulting from any increase
in the number of directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled only by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors shall shorten the term of an incumbent director.
(e) Subject to the rights of the holders of any class of series of
stock having a preference over the Voting Stock as to dividends or upon
liquidation to elect additional directors under specified circumstances, any
director may be removed from office with or without cause only by the
affirmative vote of the holders of at least 80% of the combined voting power of
the outstanding shares of Voting Stock, voting together as a single class.
6
<PAGE>
(f) Notwithstanding anything contained in this Restated Certificate
of Incorporation to the contrary, the affirmative vote of the holders of at
least 80% of the outstanding shares of Voting Stock, voting together as a single
class, shall be required to alter, change, amend, repeal, or adopt any provision
inconsistent with, this Article Fourteenth.
FIFTEENTH:
Definitions
-----------
The following definitions shall apply for the purposes of this Article
and of Articles Tenth, Eleventh and Fourteenth only:
(a) "Affiliate" shall have the meaning given such term in Rule 12b-2
under the Exchange Act.
(b) "Associate" shall have the meaning given such term in Rule 12b-2
under the Exchange Act.
(c) "Continuing Director" shall mean any member of the Board of
Directors who is not an Affiliate of any Related Person or who was a member of
the Board of Directors prior to the time that any such Related Person became a
Related Person, and any successor of a Continuing Director who is unaffiliated
with any Related Person and is recommended to succeed a Continuing Director by a
majority of the Continuing Directors then on the Board of Directors.
Notwithstanding the above, a majority of the then existing Continuing Directors
can deem a new director to be a Continuing Director, even though such person is
Affiliated with a Related Person.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, from time to time.
(e) "Fair Market Value" shall mean: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the principal United States
securities exchange registered under the Exchange Act on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use or, if no
such quotations are available, the fair market value on the date in question of
a share of such stock as determined by the Board of Directors in good faith; and
(ii) in the case of property other than cash or stock, the fair market value of
such property on the date in question as determined by the Board of Directors in
good faith.
(f) "Massachusetts Predecessor" shall mean Vivid Technologies, Inc.,
a Massachusetts Corporation.
(g) "Merger" shall mean the merger of the Massachusetts Predecessor
with and into the Corporation.
(h) "Merger Date" shall mean the date upon which the Merger is
consummated.
(i) "Person" shall mean any individual, firm, Corporation or other
entity.
7
<PAGE>
(j) "Related Person" shall mean any Person (other than the
Corporation, any Subsidiary or any individual who holds is the record holder of
more than 10,000 shares of Common Stock of the Corporation immediately following
the Merger) which, together with its Affiliates and Associates and with any
other Person (other than the Corporation, any Subsidiary or any individual who
is a stockholder of the Corporation on the Merger Date) with which it or they
have entered into, after the Merger Date, any agreement, arrangement or
understanding with respect to acquiring, holding or disposing of Voting Stock,
acquires beneficial ownership (as defined in Rule 13d-3 of the Exchange Act,
except that such term shall include any Voting Stock which such person has the
right to acquire, whether or not such right may be exercised within 60 days),
directly or indirectly of more than 5% of the voting power of the outstanding
Voting Stock after the Merger Date.
(k) "Subsidiary" shall mean any Corporation in which a majority of
the capital stock entitled to vote generally in the election of directors is
owned, directly or indirectly, by the Corporation.
(l) "Voting Stock" shall mean all of the then outstanding shares of
the capital stock of the Corporation entitled to vote generally in the election
of directors.
Signed and attested to this ----of ------, 1996.
_____________________________________
S. David Ellenbogen, President
Attest
__________________________
Lawrence M. Levy, Secretary
8
<PAGE>
EXHIBIT 10.01
CONTRACT NO. GP/0583/95/TG
COMMERCIAL IN CONFIDENCE
BAA plc
CONTRACT for
THE MANUFACTURE, SUPPLY, INSTALLATION AND
COMMISSIONING OF HOLD BAGGAGE SCREENING EQUIPMENT
HEATHROW AIRPORT LIMITED
PROCUREMENT DEPARTMENT
HEATHROW POINT EAST
234 BATH ROAD
MIDDLESEX
UB3 5AP
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Final Draft (No. 5) Draft No. -PM Behan - 03 April 1996
CONTRACT FOR THE MANUFACTURE, SUPPLY INSTALLATION AND COMMISSIONING OF HOLD
BAGGAGE SCREENING EQUIPMENT
CONTENTS :-
ARTICLES OF AGREEMENT
APPENDIX 1.0 - LIST OF SUBSIDIARY COMPANIES
APPENDIX 2.0 - SPECIFICATION
APPENDIX 3.0 - PRICE SCHEDULE
APPENDIX 4.0 - INSTALLATION SCHEDULE
APPENDIX 5.0 - CHANGE CONTROL PROCEDURE
APPENDIX 6.0 - MAINTENANCE SUPPORT SERVICE
APPENDIX 7.0 - SYSTEM VERIFICATION PROCEDURE
APPENDIX 8.0 - TRAINING
APPENDIX 9.0 - AVIATION LIABILITY INSURANCE POLICY SUMMARY
APPENDIX 10.0 - US DEPARTMENT OF TRANSPORT DIRECTIVES
APPENDIX 11.0 - BAA BYLAWS
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CONTRACT NO. GP/0583/95/TG
CONTRACT FOR THE MANUFACTURE, SUPPLY INSTALLATION AND COMMISSIONING OF HOLD
BAGGAGE SCREENING EQUIPMENT
TERMS AND CONDITIONS OF CONTRACT
INDEX
CLAUSE NO. TITLE
1 DEFINITION AND INTERPRETATION
2 CONTRACTOR'S OBLIGATIONS
3 CONTRACTOR TO INFORM HIMSELF FULLY
4 THE FINAL POSITION
5 PROVISION OF INFORMATION
6 INSTALLATION SCHEDULE
7 DELIVERY, INSTALLATION AND COMMISSIONING OF EQUIPMENT
8 SITE ACCEPTANCE TESTS
9 ACCEPTANCE
10 EXTENSION OF TIME FOR COMPLETION
11 PRICE AND PAYMENT
12 FORCE MAJEURE
13 PATENTS, DESIGN AND COPYRIGHT
14 WARRANTIES
15 EXTENDED WARRANTY
16 STANDARD OF PERFORMANCE
17 INDEMNITY AND INSURANCE
18 OWNERSHIP
19 MAINTENANCE
20 SPARES, TOOLS AND EQUIPMENT
21 SOFTWARE
22 TERMINATION
23 ESCROW
24 NON TRANSFER OF DUTIES
25 CONFIDENTIALITY
26 TRAINING
27 STATUTORY AND OTHER REGULATIONS
28 BYLAWS
29 WAIVER
30 PUBLICITY
31 DOCUMENTATION
32 ARBITRATION
33 LAW
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CONTRACT NO. GP/0583/95/TG
CONTRACT
FOR
THE MANUFACTURE, SUPPLY INSTALLATION AND
COMMISSIONING OF HOLD BAGGAGE SCREENING EQUIPMENT
THIS AGREEMENT is made the first day of April 1996 between BAA plc, for itself
and for and on behalf of those of its subsidiary companies as set out in
Appendix 1 part 1 each of whose registered office is at 130 Wilton Road, London
SW1V 1LQ (together herein referred to as "the Company" which term shall include
any successors and assignees") and Vivid Technologies Incorporated of 10 E
Commerce Way, Woburn, Massachusetts, 01801 USA (herein referred to as "the
Contractor" which term shall include its subsidiaries, successors and permitted
assignees).
WHEREBY IT IS AGREED THAT:-
The Company hereby appoints the Contractor and the Contractor hereby agrees to
manufacture, supply, install and commission hold baggage screening equipment to
the Company as more particularly described in the Specification attached as
Appendix 2 including, but without limitation, any documents referred to therein
("the Specification") and at the prices particularly set out in the schedule of
prices attached as Appendix 3 (the "Price Schedule") to be installed at the
times and the locations as set out in Appendix 4 (the "Installation Schedule")
and to abide by the principles and procedures
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CONTRACT NO. GP/0583/95/TG
described in Appendix 5 (the
"Change Control Procedure") and Appendix 6 (the "Maintenance Support Service").
Appendices 1, 2, 3, 4, 5, 6, 7, 8,9,10 and 11 are hereby incorporated in and
form part of this Agreement which together are hereinafter referred to as "the
Contract."
1. Definition and Interpretation
1.1 In this Contract, the following words and expressions shall, unless the
context otherwise requires, have the meanings assigned to them herein:
"Certificate of Acceptance" shall mean the certificate issued under clause 9.1.
"Complete System" shall mean a complete x-ray system and may consist of one or
more pieces of equipment.
"Completion date" shall be the date or dates stated in (the Installation
Schedule) or any extension thereof made in accordance with the Contract being
the date or dates on which the Equipment or any part of it shall be installed
and have passed the Site Acceptance Tests.
"Contract Price" means the price for the Works or any part thereof calculated in
accordance with the Price Schedule.
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"Equipment" shall mean all the items including without limitation the Software
or any item which comprise or are incorporated in the security system(s) as
defined in the Specification, excluding fibre optic cable and external power
supply.
"Delivery" shall mean the delivery of the Equipment or any part thereof to the
Premises or the Site whichever is the earlier.
"Effective Date" shall mean April 1, 1996
"Force Majeure" shall mean any event or circumstance beyond the control of
either party which is not reasonably foreseeable at the date of the Contract
which prevents or impedes the due performance of such party provided always that
the mere shortage of labour, materials, equipment, plant or supplies shall not
constitute Force Majeure unless such shortage is caused by events or
circumstances which are themselves Force Majeure.
"Final Position" shall mean the place or places where the Equipment or any part
thereof is to be located and installed for use.
"Installation Schedule" shall mean the schedule showing the sequence of events
and dates for the delivery, and installation of the Equipment at the Premises
are attached as Appendix 4
"Installation" shall mean opening up of crating, supervision of offloading and
supervision of location into Final Position and inspection of the Equipment or
any part thereof, connection of items
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CONTRACT NO. GP/0583/95/TG
comprising the Equipment, setting to work (including removal of internal
restraints and packaging used for the purpose of transit) and testing and
commissioning of the Equipment or any part thereof.
"Other Equipment" shall mean the security systems and equipment comprised in the
security systems as set out in Appendix 6 at the locations specified in the said
Appendix and supplied pursuant to the Contracts therein specified.
"Premises" shall mean the place or places other than the Contractor's premises
to which the Equipment is to be delivered for storage.
"Project" shall mean a defined scope of work as part of BAA's investment
programme which shall include, but shall not be limited to installation of hold
baggage screening equipment.
"Proprietary Information" shall mean all patentable and non-patentable designs,
inventions, know how, copyright, business, commercial or industrial information
or property of or relating to a party or its interests or business in whatever
form recorded which is notified as Proprietary to the other party. .
"Site" shall mean the airport location or locations and any place or places
therein where the Equipment is to be delivered or placed for installation but
excluding the Final Position.
"Site Acceptance Test" shall mean the tests detailed in the Specification and/or
the Performance Test schedule agreed between the Company and the Contractor
attached as Appendix 7 following
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CONTRACT NO. GP/0583/95/TG
installation of the Equipment or any part thereof to demonstrate the performance
of the Equipment or such part as the case may be.
"Software" shall mean any and all computer or other software programmes and
documentation relating thereto in printed form or in any of several possible
machine readable forms including, but not limited to, magnetic tape or disc,
paper tape or read only memory (ROM) device.
"Sub-Contractor" shall mean any person, firm or Company including its legal
representatives, successors and permitted assigns to whom the Contractor sub-
contracts the execution of any part of the Works.
"Supervising Officer" shall mean the person or persons for the time being or
from time to time duly appointed by the Company and notified in writing to the
Contractor to act as the Company's representative for the purpose of the
Contract or in default of such notification, the Company.
" Works" shall mean the manufacture, supply, and installation, testing and
commissioning of the Equipment by the Contractor in accordance with the Contract
and includes but is not limited to the provision of installation record
drawings, maintenance manuals, operating instructions, test reports and data and
drawings as required by the Contract, but does not include Contractor Service as
defined in Appendix 6.
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"Warranty Period" means the period of one year after the date stated on the
Certificate of Acceptance as the date on which Equipment passed Site Acceptance
Tests, or any extension thereof pursuant to the Contract or the payment of the
ten percent balance of the Contract Price.
1.2 The documents comprising the Contract shall be regarded as mutually
explanatory of each other. In the event of any discrepancies or divergence's in
or between the Contract documents they shall be resolved in the following order
of precedence.
1. Articles of Agreement
2. Contract Appendices
1.3 The Contract represents the entire agreement between the parties with
respect to the WorkS and supersedes all prior negotiations, representations or
agreements whether written or oral unless and to the extent that they are
expressly incorporated.
1.4 If any term, provision or condition of the Contract is held to be
unenforceable, invalid or illegal to any extent, such term, provision or
condition shall to that extent be deleted, but such deletion shall not affect
any other term, provision or condition of the Contract which shall otherwise
remain in full force and effect.
1.5 Words used in the singular shall include the plural and vice versa. Words
in the masculine neuter shall include the feminine and vice versa. The headings
to the conditions are for convenience only and shall not be used in the
interpretation of the Contract.
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CONTRACT NO. GP/0583/95/TG
2. CONTRACTOR'S OBLIGATIONS
2.1 The Contractor shall carry out and complete the Works strictly in
accordance with the Contract.
2.2 The Contractor shall forthwith comply with any direction or instruction
given to him by the Supervising Officer. All instructions and directions shall
be in writing.
2.3 The Contractor shall at all times assign to the Works during the execution
thereof a competent person in charge and any direction or instructions issued to
him by the Supervising Officer shall be deemed to have been issued to the
Contractor. The Contractor shall notify the Supervising Officer in writing of
the identity of the person in charge and shall forthwith notify the Supervising
Officer in writing if the person in charge is changed.
3. CONTRACTOR TO INFORM HIMSELF FULLY
3.1 The Contractor shall be deemed to have taken reasonable steps as of the
Effective Date to have satisfied himself as regards to existing roads, railways
and other means of communication or access to the Premises, the Site and the
Final Position, the risk of injury or damage to property adjacent to on or in
the Premises, the Site and the Final Position or to the occupiers of any
property adjacent to or in the Premises, the Site and the Final Position the
conditions under which the Works will be executed, the supply of and conditions
affecting labour, the facilities for obtaining anything, whether or not for
incorporation into the Works and generally to have obtained his own information
on all matters
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CONTRACT NO. GP/0583/95/TG
affecting the Works or any part thereof, provided always that if and to the
extent the Company undertakes to provide , or provides information, the
Contractor to that extent may rely on receipt of such information on a timely
basis, and on the accuracy of any such information so provided. The Company
agrees to provide the Contractor with all relevant information provided
generally to contractors at the relevant Site, and shall invite the Contractor
to all relevant project management meetings with other contractors..
3.2 No claim by the Contractor for additional payment will be allowed on the
grounds of misunderstanding or misinterpretation of the matters referred to in
clause 3.1 as the Contractor's responsibility, nor shall either party be
released from any obligation or liability imposed or undertaken by him under the
Contract on any such ground or save as provided in clause 12, on the grounds
that he did not or could not foresee any matter which might affect or have
affected the execution of the Works.
3.3 Save as otherwise provided in this Agreement , the Contractor shall provide
everything necessary for the successful carrying out and completion of the Works
in accordance with the Contract.
4. THE FINAL POSITION
4.1 The Contractor shall provide to the Supervising Officer full, proper and
adequate information in sufficient time to enable the Company to prepare the
Final Position and to provide therein such services, equipment, facilities and
environmental conditions as are specified by the Contractor to enable the
Contractor to carry out and complete the Works.
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CONTRACT NO. GP/0583/95/TG
4.2 Provided always that the Contractor has provided the information referred
to and in accordance with clause 4.1 The Company shall at its own expense ensure
that such preparation and provision of the Final Position as described in
clause 4.1 is completed in accordance with the Installation Schedule.
4.3 (deleted)
4.4 Subject to clause 4.7 the Supervising Officer shall ensure that the
authorised personnel of the Contractor have such access to the Premises the Site
and the Final Position as may be reasonably necessary for the carrying out of
the Works provided always that the Supervising Officer shall have the right to
refuse to admit to, or order the removal from, the Premises and/or the Site any
person employed by or acting on behalf of the Contractor or any Sub-Contractor
who, in the sole opinion of the Supervising Officer, whose decision shall be
final and binding, is not a fit and proper person to be on the Premises or the
Site. Any such action taken by the Supervising Officer under clause 4 shall be
forthwith confirmed in writing to the Contractor by the Supervising Officer and
shall not relieve the Contractor of any of his obligations under the Contract.
This clause shall not be applied frivolously, vexatiously or unreasonably.
4.5 The Contractor shall take reasonable steps to ensure that in the execution
of the Works neither he nor his servants agents or Sub-Contractors cause any
wrongful interference whatsoever to the operations of the Company or those of
any other Contractor engaged by the Company or of any other person at or using
any property of the Company and shall ensure that neither he nor any servant
agent or Sub-Contractor wrongfully interferes with any plant, ways, works,
appliances or other property belonging to the Company or any other person.
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4.6 The Contractor may work on the Premises and the Site and the Final Position
only with the permission of the Supervising Officer, but such permission will
not be unreasonably withheld.
4.7 (a) The Contractor shall comply with all security requirements and
regulations of the Company. Without prejudice to the generality of the
foregoing, it is the responsibility of the Contractor to obtain in good time
from the Company all security passes and other documents required for his
personnel and vehicles. A charge will be made for replacement of any pass. All
security passes and documentation shall be returned to the Company immediately
upon termination of this agreement or completion of the Works whichever is the
earlier failing which the Contractor shall pay or allow to the Company a sum not
exceeding (Pounds)250.00 for each and every security pass not returned and may
be liable to prosecution under the provisions of the Aviation and Maritime Act
1990.
(b) The theft or loss of any security pass or other documentation referred
to in sub-clause 4.7 (a) shall in the first instance be reported by the
Contractor to the Police and the Company.
5. PROVISION OF INFORMATION
5.1 The Supervising Officer shall provide to the Contractor such drawings or
details or further information from time to time, as are reasonably necessary to
enable the Contractor to carry out and complete the Works in accordance with the
Contract.
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5.2 Each party shall be responsible for any discrepancies, errors or omissions
in any drawings, documentation or other written information supplied by him,
whether they have been approved by the other party or not, provided always that
such discrepancies, errors or omissions are not due to inaccurate drawings or
information and decisions supplied in writing to a party by the other party .
Each party shall at his own expense rectify any such discrepancy error or
omission without delay.
6. INSTALLATION SCHEDULE
6.1 The Contractor shall carry out the Works in accordance with the
Installation Schedule and shall, subject to any extension of time given pursuant
to the Contract complete the Works by the Completion Date.
6.2 Notwithstanding anything expressed or implied to the contrary in this
Agreement neither Party shall have any liability whatsoever to the other for any
delay or disruption arising out of or in connection with any failure of either
party to comply with the Installation Schedule.
7. DELIVERY, INSTALLATION AND COMMISSIONING OF EQUIPMENT
7.1 The Equipment and each and every part thereof shall be adequately packed,
protected and secured by the Contractor in such a manner as to reach the
Premises or Site, or such other address as the parties may agree, in good and
working condition.
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7.2 The cost of such packing including, without limitation the cost of any
packing cases, crates or any other packing material shall be included in the
Contract Price. The Company shall not be required to return all or any of the
packing cases, crates or any other packing material to the Contractor.
7.3 The Contractor shall ensure that the contents and relevant Contract number
are all marked clearly on the outside of each container or package.
7.4 Title to Equipment shall pass on initial Delivery to the Premises or the
site, whichever is earlier, on a DDU basis (Incoterms 1990). Upon Company
request following such initial Delivery, the Contractor shall arrange for
storage at the Premises, and for international shipment, insurance, customs
clearance and inland freight of the Equipment to Site, all at the Company's
expense but with the Contractor to bear all risk of loss or damage to the
Equipment provided that in the case of any such loss occurring after such
initial Delivery, the Contractor shall not be responsible for delays in meeting
the Installation Schedule by reason of such loss, unless such loss or damage is
caused by the sole negligence of the Contractor and not its Agents. The
Contractor shall use reasonable efforts to replace or repair systems subject to
such loss. The Contractor shall advance expenses associated with such storage
and shipment, subject to Company reimbursement upon invoice.
7.5 The Company shall be responsible for offloading and moving Equipment at the
Site to the Final Position, for supplying and connecting Equipment to external
power and fibre optic cables (to be supplied by the Company or its agents), in
all accord with the Contractors directions and the Installation Schedule, and at
the Company's sole risk and expense.
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7.6 The Contractor shall be responsible for Installation of the Equipment .
8. SITE ACCEPTANCE TESTS
8.1 Site Acceptance Tests will be carried out on completion of the Equipment or
any item comprising the Equipment.
8.2 When the Contractor is ready to commence the Site Acceptance Tests, he
shall notify the Supervising Officer and such tests shall commence on the date
agreed by the Supervising Officer and the Contractor but in any event shall not
be later than fourteen working days after the date of the notice referred to
herein or thirty days after Delivery of the Equipment to the Site whichever is
the sooner. If the Company fails to designate a date for the commencement of
Site Acceptance Tests within fourteen days following Contractor notice that he
is ready to commence such Site Acceptance Tests. The Company shall pay for the
Equipment. In the event that the Equipment subsequently fails Site Acceptance
Tests, the Contractor shall reimburse the payment until such time as the
Equipment meets the requirements of the Site Acceptance Tests.
8.3 The Contractor shall provide the Company with three copies of all documents
and records produced as a result of or in connection with the Site Acceptance
Tests and listed in Appendix 7 hereto
8.4 If the Equipment or any part thereof fails to pass the Site Acceptance
Tests or the Contractor accepts that the Equipment is not in accordance with the
Contract, then, without prejudice to the
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Company's rights under clause 15, the Contractor shall make good any defects at
his own expense and with all reasonable speed diligence and shall submit details
to the Supervising Officer and the Site Acceptance Tests shall be repeated.
8.5 If the Equipment or any part thereof fails to pass the Site Acceptance
Tests by the date specified in the Installation Schedule or if no date is
specified within a reasonable time, then, the Company may in its absolute
discretion:
8.5.1 accept the Equipment subject to such reasonable reduction in the Contract
Price as may be agreed between the Company and the Contractor, or in the
abscence of any agreement being reached as may be determined by an arbitrator
under clause 32; or
8.5.2 reject the Equipment or any part thereof and the Contractor shall
entirely at its own cost and without any entitlement to any additional time,
replace the Equipment or any part thereof so rejected, or
8.5.3 terminate the employment of the Contractor under the Contract in
accordance with clause 22.
Provided always that the Company shall first have given the Contractor an
opportunity to rectify any defect or fault in the Equipment and the Contractor
has failed to rectify the same within a reasonable time.
9. ACCEPTANCE
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9.1 As soon as the Equipment has passed the Site Acceptance Tests, the
Supervising Officer shall issue to the Contractor a Certificate of Acceptance
which shall state the date on which the Equipment has passed the Site Acceptance
Tests.
10. EXTENSION OF TIME FOR COMPLETION
10.1 If the Contractor is or is likely to be delayed in completing the Works
beyond the Completion Date by reason of any act or omission on the part of the
Company or the Supervising Officer including any change instigated by the
Company in accordance with Appendix 5 or any delay by the Company in preparing
the Premises pursuant to clause 4.2 or affording access for the Contractor to
the Premises or the Site or the Final Position, pursuant to clause 4.4, provided
that the Contractor shall as soon as reasonably practical, give the Supervising
Officer notice in writing of his claim for an extension of time with full
supporting details the Supervising Officer shall on receipt of such notice grant
to the Contractor such extension of Time to the Completion Date as may in all
the circumstances be reasonable.
10.2 In all cases the Contractor and the Company shall take all reasonable steps
to overcome or minimise the actual or anticipated delay.
11. PRICE AND PAYMENT
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11.1 The Contract Price shall include all taxes and duties of every kind
payable by the Contractor pursuant to any rule, regulation, statute order or
other legal requirement under the law of any state in the United States, but
shall be deemed to exclude all taxes and duties payable in respect of the
Equipment or the Works under any statute, rule, regulation or order of any
authority in the United Kingdom (hereafter the "UK taxes"). The Company shall
in addition to the Contract Price reimburse to the Contractor any such UK taxes.
11.2 Payment to the Contractor shall subject to clauses 11.3 and 11.4 be made by
the Company in accordance with the following terms:
11.2.1 The Company shall pay ninety percent (90%) of the proportion of the
Contract Price due in respect of any Complete System or other Equipment or item,
except spare parts, ordered pursuant to this Agreement, upon Delivery.
11.2.2 The Company shall pay the balance of ten percent (10%) of the
Contract Price or such proportion thereof due in respect of any Complete System
, Equipment, or other item on issue of a Certificate of Acceptance under clause
9.1 or pursuant to clause 8.2 of the Contract.
11.2.3 The Company shall pay one hundred percent (100%) of the Contract
price due for the supply of spare parts upon Delivery.
11.3 The Contractor shall submit invoices, together with such supporting
documentation as the Company may reasonably require, clearly stating the amount
due, details of any taxes, duty and other
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costs as described in Appendix 3 hereto. Invoices may be submitted by facsimile
provided that the original is submitted immediately thereafter in the post.
Invoices may be submitted on Delivery.
The Company shall make payment through an agreed method of payment of the
amounts due within thirty days of receipt of correct invoices.
11.4 Invoice(s) shall be addressed to: the address set out in Appendix 1.1 with
duplicate copies sent as therein provided or such other person or persons and at
such other address or addresses as the Company may from time to time notify the
Contractor in writing.
11.5 If by reason of any instruction or direction given by the Supervising
Officer, other than an instruction or direction given in relation to any default
or negligence of the Contractor, the Contractor, suffers loss and/or expense for
which he would not be reimbursed under any other provision of this Contract, the
Contractor shall as soon as reasonably practical give notice in writing of such
direct loss and/or expense to the Supervising Officer. If the Supervising
Officer agrees that the Contractor has suffered any such direct loss and/or
expense as is referred to herein then the Company shall reimburse as soon as is
reasonably practical the same or the amount agreed by the Supervising Officer in
accordance with the terms of clauses 11.3 and 11.4.
12. FORCE MAJEURE
12.1 Neither party shall be liable to the other for failure to perform its
obligations under the Contract if such failure results from Force Majeure.
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12.2 If either party is prevented or impeded from performing any of its
obligations by Force Majeure it shall promptly give notice to the other party
stating the circumstances which are Force Majeure and the extent and likely
duration thereof. Thereupon such obligations as are so prevented or impeded by
Force Majeure may be suspended for as long as the circumstances of Force Majeure
subsist. The party affected by Force Majeure shall make every reasonable effort
to minimise the effects thereof and shall promptly resume performance of its
obligations as soon as possible after removal of the circumstances of Force
Majeure.
13. PATENTS, DESIGNS AND COPYRIGHT
13.1 All royalties licence fees or similar expenses payable in respect of the
supply or use of or in connection with the Equipment at the Site and in respect
of any invention, process, drawing, model, plan or information produced or used
for or in connection with the Equipment and/or the Works at the Site shall be
included in the Contract Price and the Contractor shall indemnify and hold
harmless the Company from and against all claims proceedings loss cost expense
or damage which may be made suffered or incurred in connection with any such
royalties, licence, fees or similar expenses.
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13.2 If as a result of an infringement or alleged infringement of letters,
patents, trademarks or trade secrets or any other intellectual property rights
the Company is prohibited from using the Equipment or any part thereof at the
Site, then the Contractor shall at his own expense modify or replace the
Equipment or such part or if such modification is impractical the Contractor
will accept return of the Equipment and grant to the Company a credit for the
said Equipment as depreciated on a five year straight line basis. Save as
provided herein no such modification or replacement shall relieve the
Contractor from any of its obligations under the Contract.
13.3 The Contractor shall defend, indemnify and hold harmless the Company from
and against any loss, costs, expenses, claims, damages or proceedings suffered
or incurred by the Company as a result of any claim that the Company's use of
the Equipment at the Site infringes or allegedly infringes any patents,
trademarks, trade secrets, copyrights or other intellectual property rights of
any third party pursuant to the laws of England. In the event that any claim
is made, the Company shall promptly notify the Contractor of the assertion
thereof and will permit the Contractor to assume control of and defend any
proceedings. Each party shall co-operate with the other and shall furnish all
such aid, information and assistance as is reasonably necessary to defend such
claims. This obligation shall not apply in respect of any claims or proceedings
made or brought in relation to any changes made to the Equipment whatsoever by
any party other than the Contractor, without the Contractor's prior written
consent.
14. WARRANTIES
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14.1 The Contractor warrants and guarantees that as of the date of Site
Acceptance, and for the Warranty Period, the Equipment will meet or exceed the
detection performance levels currently allowed for use by the UK Department of
Transportation ("DoT") when operated to a protocol and at settings previously
agreed upon with DoT. The level of performance is documented in test reports
based on testing performed by the DoT at Glasgow Airport in December 1993.
14.2 Subject to clause 14.3 hereof, the Contractor warrants and guarantees that
as of the date of Site Acceptance, and for the Warranty Period, the Equipment
will perform to the Standard of Performance as defined by:
14.2.1 all directions issued by the United Kingdom Regulatory Authority
responsible for Aviation Security Matters and provided to the Contractor as of
the Effective Date: and
14.2.2 the specifications set out in Appendix 2 and the System
Verification Procedure set out in Appendix 7 to this Agreement.
14.3 The Contractor shall use his best endeavours to obtain all necessary
approvals or acceptance of the Equipment from the Regulatory Authority described
in clause 14.2.1 above.
14.4 The Company undertakes and warrants that it will operate and maintain the
Equipment in accordance with its responsibilities pursuant to Appendix 6 hereof
and the Contractor's technical directions and specifications as supplied by the
Contractor in accordance with clause 31 hereof. This
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clause 14 and the Contractors warranties contained herein shall not apply
insofar as the Company fails to comply with said technical directions or to
maintain the Equipment in accord with the Contractor's technical specification ,
or with respect to any condition resulting from the Company's negligence, abuse
or operation of Equipment outside of published performance specifications,
natural disaster, external causes (including fluctuation in electric power,
inadequate coding or other unusual physical or electrical stress) or
modification of Equipment in any manner not approved in writing by the
Contractor.
14.5 Equipment Warranty claims under clause 14.1 or 14.2 may be initiated by the
Company at any time by contacting the Contractor by telephone, facsimile or
mail, obtaining a valid return material authorisation number and returning the
defective part to the Contractor in accord with the Contractor's return material
authorisation operation procedure, document No.8301-10400-00, as it may be
amended from time to time. Defective parts shall be removed from the Equipment
by the Company, returned to the Contractor and replacement or repaired items
installed at no cost to the Contractor. Upon Company notice of an Equipment
Warranty claim, the Contractor shall immediately ship on and deliver carriage
paid, on a replacement basis, refurbished or replacement Equipment or parts to
the Company at no cost to the Company. Any defective part so returned to the
Contractor shall become the property of the Contractor.
14.6 The above warranties are exclusive warranties, and no other warranty,
whether express or implied, written or oral, shall apply to the subject of this
Agreement. The Contractor specifically disclaims any implied warranty of
merchantability or fitness for a particular purpose.
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CONTRACT NO. GP/0583/95/TG
15. DELETED
16. DELETED
17. INDEMNITY, INSURANCE, & LIMITATION OF LIABILITY
17.1 Subject to partial reimbursement of premiums by the Company pursuant to
appendix 3 hereof, the Contractor shall, unless otherwise agreed in writing by
the Company, effect and maintain to the extent it is available, for the duration
of the Warranty Period and any extension thereof, Aviation Products Liability
Coverage in respect to the Equipment subject to this Agreement as described in
Appendix 9 hereto, and in the amount of one hundred and fifty million US
dollars ($150,000,000) for any one occurrence, and in the aggregate, including
within such limit grounding liability for up to US$100,000,000 for any one
grounding, and in the aggregate (all as terms are used in Appendix 9)
17.2 Solely for the duration of the Period during which the Contractor is
providing warranty and service pursuant to Appendix 6 hereof, the Contractor
shall indemnify and hold harmless the Company from and against any and all
expenses, liabilities, losses, demands, costs, claims, damages and proceedings
against the Company to the extent that such liability is a result of: any
Contractor breach
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CONTRACT NO. GP/0583/95/TG
of Contractor's warranties set forth in clause 14 of this Agreement;
Contractor's wilful, wanton, or grossly negligent tortuous act; or Contractor's
negligence; provided always that any and all Contractor liability hereunder
shall be limited to, and shall not exceed the coverage's then in effect pursuant
to the Aviation Products Liability Coverage described in clause 17.1 hereof..
17.3 Save as expressly provided in clause 17.2 hereof the Contractor shall not
in any event be liable for any special, incidental, or consequential damages,
including but not limited to economic loss, loss of profits, loss of business,
or loss of revenue directly or indirectly arising from the sale, handling, use
or service of the Equipment or the Works, or from any cause whatsoever relating
to the subject of this Agreement, as expressly provided for in clause 17.2
hereof, the Contractor's entire liability under this Agreement and for any claim
relating to the Works, the Equipment, Service, or to any other cause whatsoever
relating to the subject of this Agreement, whether said claim is based in
Contract, tort, negligence, warranty, strict liability or otherwise, is
expressly limited to the replacement (but not the installation unless said claim
relates to service required to be provided by the Contractor under MAAP Service)
of components or subcomponents of the Equipment subject to the claim, or upon
agreement of the parties, to the replacement of, or crediting the Company with,
an amount equal to the purchase price of the Equipment subject to the claim. The
provisions of this Agreement reflect an agreed upon allocation of risks of loss
or damage. the Company acknowledges that but for such allocation, the
consideration would be substantially higher, or the Contractor would not have
entered into this Agreement.
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18. OWNERSHIP
18.1 Unless otherwise provided in the Contract title to the Equipment or any
part thereof shall become vested in the Company on Delivery of the same to the
Premises or Site whichever is the earlier.
19. MAINTENANCE
19.1 Unless otherwise agreed in writing, the Company shall maintain the
Equipment in accordance with the provisions set out in Appendix 6A.
19.2 Subject to Company payment of the fees therefor as set out in Appendix 3
hereof, the Contractor will provide the Services described in Appendix 6 hereof,
in accord with the terms thereof. Said Services will be supplied in one-year
terms, coextensive with the initial Equipment Warranty term, and any extension
thereof.
20. SPARES, TOOLS AND TEST EQUIPMENT
20.1 The Contractor shall from time to time at the request of the Company
provide within a reasonable time and at the prices set out in Appendix 6 those
spares, replacement parts, tools and test equipment as listed in Appendix 6, as
the Company may from time to time order.
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CONTRACT NO. GP/0583/95/TG
20.2 The Contractor shall maintain a supply of such spares, replacement parts,
tools or test equipment as are referred to in clause 20.1 for a period of five
years from the date of issue of the Certificate of Acceptance, such items to be
fully compatible with but not necessarily identical to similar items previously
supplied.
20.3 If during the period stated in sub clause 20.2, the Contractor or his Sub-
Contractors or suppliers intend to discontinue the manufacture of spares,
replacement parts, tools or test equipment for the Equipment the Contractor
shall forthwith give written notice to the Company of such intention and afford
the Company the opportunity to order such quantities of such spares, replacement
parts, tools or test equipment in such quantities as the Company shall
reasonably require in relation to the anticipated life of the Equipment at
prices set out in Appendix 6. Such order to be placed by the Company with the
Contractor within three months of the date of request by the Company of the
written notice referred to herein.
20.4 The Company may in lieu of its rights under clause 20.3 within the period
of three months referred to therein, purchase from the Contractor and the
Contractor shall sell at a price to be agreed between the Company and the
Contractor and if no price is agreed a reasonable price such drawings, patterns,
specifications and other information as the Contractor may have in his
possession and as the Company shall require to enable it to make or have made
such spares replacement parts tools or testing equipment.
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CONTRACT NO. GP/0583/95/TG
20.5 The Company shall pay to the Contractor all sums due or which may fall due
under clauses 20.1 to 20.4 within thirty days of receipt at the address shown in
the relevant Purchase Orders on submission by the Contractor of correct
invoices.
21. SOFTWARE
21.1 The Contractor shall grant to the Company a perpetual and irrevocable and
royalty free right and licence to use the Software as installed on the Equipment
for the purpose of operating the Equipment, and for no other reason. Without
prejudice to the generality of clause 21.1.1 hereof the Company may grant
access to any person who may need to use the Software for any purpose permitted
by this Agreement relating to or in connection with the Equipment.
21.2 All intellectual property rights including copyright in all Software shall
vest in and remain the absolute property of the Contractor at all times
including any and all amendmentS and modifications thereto issued by the
Contractor pursuant to this Contract. Save as provided herein no right of
ownership or licence to exploit or any other right is transferred to the
Company. Software is valuable to the Contractor and shall be treated as
confidential information subject to the confidentiality provisions of this
Agreement. If the Company sells any Equipment purchased hereunder to a third
party, the Company will be permitted to sub-license the third party to use the
software for the operation of the Equipment sold hereunder provided that such
third party agrees to be bound by the terms and
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CONTRACT NO. GP/0583/95/TG
conditions of this Agreement relating to Software. Except as expressly provided
in this clause 21. The Company will have no right to sell, assign, transfer,
copy or sub-license the Software.
2.1.3 The Company shall only make so many copies of the Software or any portion
thereof as are reasonably necessary for operational security and use of the
Equipment.
21.4 The Contractor shall not modify, change or in any other way alter the
Software supplied under this Contract without the prior consent of the Company,
which shall not be unreasonably withheld.
21.5 During the Warranty Period, or any extension thereof, the Contractor shall
make available to the Company at no cost to the Company all Software updates
issued by the Contractor which are applicable to the Equipment and all Other
Equipment which do not require the use of additional hardware and which are
generally released by the Contractor without additional charge as a field
service update.
21.6 The Contractor's obligation under sub-clause 21.5 shall be limited to
providing the Company with one copy on disc of the Software as referred to
therein. All costs associated with the installation of the Software shall be
borne by the Company which shall have the right and licence to make such copies
as it requires for the proper use of the Equipment and the Other Equipment.
21.7 No changes to or in the Software shall reduce the performance of the
Equipment or Other Equipment or any part thereof without the prior written
approval of the Company and such changes shall in any event provide a standard
of performance equal to or better than the performance exhibited
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CONTRACT NO. GP/0583/95/TG
in tests conducted by the United Kingdom Department of Transport at Glasgow
Airport in December 1993.
22. TERMINATION
22.1 The Company may at any time by giving not less than thirty days notice in
writing, terminate the Contractors employment under the Contract, if for any
reason the Project does not proceed.
22.2 Either Party shall be entitled to terminate the Contract, in whole or in
part, by notice in writing if the other party through its employees, agents or
sub-contractors either directly or indirectly through the agency of any other
person commits any material breach of the terms of the Contract provided always
that in the case of a remediable breach the non-breaching party shall first have
given written notice to the breaching party of the breach and the breaching
party has failed to commence to remedy the same within fourteen days of the date
of the notice or such other longer period as is in all the circumstances
reasonable;
22.3 This Agreement may be terminated by either party in the event that (a) a
case seeking relief under any bankruptcy law or any law relating to bankruptcy,
insolvency, reorganisation, winding up, or composition or adjustment of debts is
(i) initiated by the other party (the "Insolvent Party") or (ii) commenced by a
third-party and remains unstayed or undismissed for thirty days from the date of
filing; or (b) the Insolvent Party shall apply for to fail to contest, the
appointment of a receiver,
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liquidator, custodian, trustee or the like for all or a major part of its
property, or (c) the Insolvent Party shall make a general assignment for the
benefit of its creditors.
22.4 In the event of determination pursuant to clause 22.1 hereof , then the
sole liability of the Company to the Contractor in respect of any work completed
prior to the date that notice of termination is received by the Contractor shall
be to pay any sums which are or would become due but for the termination
pursuant to clause 11 hereof. In addition, as to Works which are incomplete, the
Company shall pay such a sum as reflects the amount of work done in connection
with the Works to the date of termination and agreed upon an amount reflecting
the Contractors reasonable and demonstrable costs as a consequence thereof,
including costs of components on order and in inventory, direct costs and
associated overhead, and the Contractor's profit as well as costs incurred in
cancelling any order with any sub-Contractor or supplier as the case may be for
which the Contractor is legally liable.
When the Contractor is paid in respect of any Equipment or goods ordered the
same shall immediately become the property of the Company.
22.5 In the event of termination of this Agreement, pursuant to the provisions
of clause 22.2 hereof the Company's liability to the Contractor in respect of
the Works and the determination shall be to immediately pay to the Contractor
any sums due to it pursuant to clause 11 hereof , in addition as to works which
are incomplete, the Company shall pay such a sum as reflects the amount of work
done in connection with the Works and Contractor's service to the date of
termination. When the Contractor is paid in respect of any Equipment or goods
ordered the same shall immediately become the property of the Company.
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22.6 Save as expressly set out in this Agreement, the Contractor expressly
waives any additional right of recovery on termination.
22.7 Termination of the Contractor's employment under the Contract by the
Company for any reason whatsoever under the terms hereof shall be without
prejudice to any rights of action or remedy of either party in respect of any
antecedent breach of the terms hereof by the other.
23. ESCROW
23.1 The Contractor shall at the request and expense of the Company together
with the Company enter into Escrow Agreement with a third party nominated by the
Contractor but subject to the prior approval of the Company, such approval not
to be unreasonably withheld for the deposit of a copy of the source-coding of
the Software together with any updates thereof and/or such other technical
detailS as may be required by the Company.
23.2 Any Escrow Agreement entered into pursuant to the terms of the Contract
shall contain provisions for the release of the deposited materials to the
Company in the event of:
23.2.1 the bankruptcy or insolvent liquidation of the Contractor or,
23.2.2 the termination of the Contract by the Company under the provisions
of sub-clause 22.
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CONTRACT NO. GP/0583/95/TG
Provided that the deposited materials shall not be released to the Company
without the consent of the Contractor under the provisions of sub-clause 25.1
unless the matter has been referred to arbitration under clause 32 when the
decision of the arbitrator shall be final and binding on all parties concerned.
24. NON TRANSFER OF DUTIES
24.1 This Agreement is personal to the Contractor who shall not assign or
transfer or sub-Contract or charge or purport to transfer sub-Contract or change
the duties herein contained or any part thereof to any person except with the
prior written consent of the Company.
24.2 No sub-letting of the Works or any part of them to any other person shall
relieve the Contractor of any of his obligations under the Contract and the
Contractor shall be fully responsible for any act omission or default of any
Sub-Contractor.
25. CONFIDENTIALITY
25.1 The Contractor and the Company each undertake to the other that they shall
not (save in the proper performance their respective obligation under the
Contract) without the prior consent of the other disclose to any person any
Proprietary Information of or relating to the other party or their respective
business or interests or those any parent, subsidiary or associate Company of
the Company or the Contractor as the case may be or of any third party at or on
the premises of the Company or of any parent subsidiary or associate Company as
aforesaid and which the disclosing party has notified the receiving party is
confidential (hereafter referred to as "Confidential Information") provided
always
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CONTRACT NO. GP/0583/95/TG
that the undertakings and obligations of the Receiving Party shall not apply to
any Confidential Information which: (i) is or becomes in the public domain
through no action on the part of the Receiving Party, (ii) is generally
disclosed to third parties by the Disclosing Party without restriction, (iii) is
independently developed by the Receiving Party without reference to Disclosing
Party's Confidential Information, (iv) is approved for release by written
authorisation of the Disclosing Party, (v) is disclosed pursuant to an order of
a court or governmental agency, provided that the Receiving Party notifies the
Disclosing Party and affords it an opportunity to oppose such an order. Upon
request by the Disclosing Party, the Receiving Party will promptly deliver to
the Disclosing Party or destroy all documents, regardless of how recorded, in
its possession or under its control, which contain Confidential Information.
25.2 The Contractor and the Company shall each only divulge Confidential
Information to those of their employees and then only to the extent necessary
who are directly involved in the Contract or require the same for the use of the
Equipment, and will ensure that such employees are aware of, and comply with,
these obligations as to confidentiality and both parties shall place the same
obligation on their Sub-Contractors, agents or such other persons as may be
associated with the Contract.
25.3 The Contractor shall not, without the prior written consent of the
Company, take any photographs or make any other graphical reproduction at or of
any premises, property or equipment owned by the Company or by any parent,
subsidiary or associate Company of the Company or of any property or equipment
of any third party at or on any premises of the Company or of any parent,
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CONTRACT NO. GP/0583/95/TG
subsidiary or associate Company of the Company as aforesaid. Any consent shall
be given subject to any such terms and/or conditions as the Company may in its
absolute discretion think fit.
26. TRAINING
26.1 The Contractor shall provide adequate instruction for the number stated in
Appendix 8 of the Company's personnel to permit the safe satisfactory and
efficient maintenance of the Equipment. This training will include, but not be
restricted to, the training specified in Appendix 8, or elsewhere in the
Contract.
27. STATUTORY AND OTHER REGULATIONS
27.1 The Contractor shall at all times and in all respects comply with and
give all notices required by any statute, statutory instrument, order, law,
rule, regulation or bylaws applicable to the Works, and all notices,
instructions and special requirements received from the Company from time to
time.
27.2 The Contractor shall at all times immediately comply with any
direction or instruction issued or given by or on behalf of the Managing
Director responsible for the Premises or the Site or any part thereof as a
consequence of any direction given under the Aviation Security Act 1982 and the
Aviation and Maritime Security Act 1990. The Contractor shall be deemed to have
notice of all such
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directions and instructions issued prior to the date hereof upon supply of
copies to the Contractor by the Company.
27.2.1 The Contractor shall ensure that all his staff employed for the
purposes of this Contract wear in a clearly visible position at all times when
on duty at the Premises an official Company identity card which shall be
obtained from the Company's Airport Security Branch.
27.2.2 In the event that the Contractor at any time during the period of
the Contract within a reasonable time, fails to comply with any Directions
and/or Instructions issued by or on behalf of the Managing Director responsible
for the Site or Premises or the relevant part thereof under the Aviation
Security Act 1982 which results in the withdrawal of all or any security passes
such withdrawal shall not relieve the Contractor of his obligations under the
Contract.
28. BYLAWS
29.1 The Contractor shall and shall ensure that each of its employees agents and
Sub-Contractors shall at all times whilst on the Company's Premises observe and
comply with any Bylaws in existence and which may from time to time be supplied
to the Contractor by the Company relating to the Premises and/or the Site and
also any directions relating to the administration or operation of the Premises
and/or the Site. A copy of the Company's bylaws will be supplied by the
Procurement Department of the particular Premises and/or Site in which
performance of the Works is being undertaken.
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CONTRACT NO. GP/0583/95/TG
29. WAIVER
29.1 The failure of either party in one or more instances to insist upon
the performance of any of the terms of this Contract or to exercise any rights
hereunder shall not be construed as a waiver or relinquishment to future
exercise of any such right and the obligations of the other shall continue in
full force and effect.
30. PUBLICITY
30.1 The Contractor shall not, without the prior written consent of the
Company, advertise or publicly announce that he is undertaking work for the
Company and the Contractor shall place the same obligation on his Sub-
Contractors.
31. DOCUMENTATION
31.1 The Contractor shall supply to the Company all operating manuals and other
documentation necessary for the safe and satisfactory operation of the Equipment
as specified in the Contract. If, at any time after the date of issue of the
Certificate of Acceptance, the operating Manuals and documentation are or
require to be updated or replaced the Contractor shall supply such updates or
replacements to the Company at fair and reasonable prices.
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32. ARBITRATION
32.1 If any difference or dispute shall arise between the parties as to the
construction of this Contract or any matter or thing of whatsoever nature
arising hereunder or in connection with the Contract and such dispute or
difference cannot be amicably resolved between the parties the same shall be and
is hereby referred to the determination of an arbitrator agreed upon between the
parties within fourteen days of either party giving to the other written notice
of the dispute or upon failure to so agree within fourteen days after the date
of the aforesaid written notice, of a person to be appointed on the request of
either party pursuant to the rules of the International Chamber of Commerce .
Any such arbitration shall be conducted pursuant to the rules of the
International Chamber of Commerce, applying the procedural and substantive law
of England. The award of the Arbitrator shall be final and binding. Arbitration
shall take place in London and shall not be commenced until after completion or
abandonment of the Works provided always that any dispute as to any matter
concerning payments allegedly due to the Contractor may be immediately referred
to arbitration as herein provided notwithstanding that the works have not been
completed or abandoned.
33. LAW
33.1 Whatever the nationality, residence or domicile of the Company or the
Contractor and wherever the Works or any part thereof are situated the law of
England shall be the proper law of the Contract. The Contract shall be subject
to and construed and interpreted in accordance with the Law of England and shall
be subject to the exclusive jurisdiction of the English Courts.
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EXHIBIT 10.02
DISTRIBUTION & DEVELOPMENT AGREEMENT
Vivid distribution of Gilardoni Products (Systems & Mainframe) & development of
Joint System
(2/28/96)
Agreement effective March 8, 1996 (Effective Date) between Vivid Technologies,
Inc., a Massachusetts corporation having a principal place of business at 590
Lincoln Street, Waltham, MA, USA 02154 and its subsidiaries (hereinafter
referred to as "Vivid"), and Gilardoni S.p.A. having a principal place of
business at Mandello del Lario (Como), Italy (hereinafter referred to as
"Gilardoni").
PART A - INTRODUCTORY MATTERS
1. Facts.
Gilardoni has developed and is a manufacturer and distributor of a line of
FEP brand conventional x-ray-based systems, which are used to inspect
luggage, mail, parcels, and break bulk cargo, which it distributes in Italy
and other countries. Under this Agreement, Vivid will distribute
Gilardoni's systems in certain countries of the world, develop enhancements
to Gilardoni's system, and market and sell this enhanced system based on
Gilardoni's proprietary system and proprietary Vivid technology (the Joint
System) in these countries. Under a separate agreement that will contain on
a reciprocal basis similar clauses, Gilardoni will distribute the Joint
System in certain other countries (hereinafter the "Associated Agreement").
2. Definitions.
2.1 "FEP System" means the current Gilardoni FEP line of x-ray-based
inspection systems used to inspect luggage, mail, parcels, and break
bulk cargo, together with all improvements thereto and any new
products (Gilardoni New Products) used to inspect luggage, mail,
parcels, and break bulk cargo which are developed and/or marketed by
Gilardoni during the Joint Development Term of this Agreement, and
spare parts therefor.
2.2 "FEP Mainframe" means those modules of the FEP System used for data
acquisition and/or system control, together with all improvements
thereto and modules of Gilardoni New Products used for data
acquisition and/or system control, and spare parts therefor.
2.3 "FEP Products" means the FEP System, and the FEP Mainframe (but only
as incorporated into the Joint System), including spare parts
therefor.
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2.4 "CDC Console" means the Vivid display console and associated software
and hardware technology modified for use with the FEP Mainframe by
Vivid pursuant to Section 16 of this Agreement, together with all
improvements thereto and any new products created for the same
purpose, developed by Vivid during the Joint Development Term of this
Agreement, and spare parts therefor.
2.5 "Joint System" means an x-ray-based inspection system used to inspect
luggage, mail, parcels, and break bulk cargo, consisting of the
Gilardoni FEP Mainframe and the CDC Console, as integrated to function
as a system by Vivid pursuant to Section 16 of this Agreement,
together with improvements thereto developed during the Joint
Development Term of this Agreement, and spare parts therefor.
2.6 "Proprietary Information" means all confidential or secret information
so designated by a disclosing party in writing. If Proprietary
Information is disclosed in one or more documents, the disclosing
party shall identify said document in writing as containing
proprietary or confidential information, either by providing a
proprietary or confidential or similar legend on such document, or by
providing, with the document, a separate writing which identifies the
documents as containing proprietary or confidential information. If
Proprietary Information is only disclosed orally or made available by
inspection, the disclosing party shall, within thirty (30) days after
such disclosure, deliver to the receiving party a written description
of such Proprietary Information identifying where appropriate the
place and time of such oral disclosure, and the names of
representatives of the receiving party to whom such disclosures were
made. Proprietary Information shall not include information which (a)
is or becomes in the public domain through no action of the receiving
party; (b) is generally disclosed to third parties by disclosing party
without restriction on such third parties; (c) is independently
developed by the receiving party without reference to disclosing
party's Proprietary Information; (d) is received by the receiving
party from a third party which has the right to such information and
without violation of this Agreement; (e) is approved for release by
written authorization of disclosing party; or (f) is disclosed
pursuant to an order of a court or governmental agency, providing that
the receiving party notifies disclosing party and affords it an
opportunity to oppose such order.
2.7 "Vivid Territory" shall mean the countries of the United States,
Mexico, Norway, Finland, Sweden, Denmark, Netherlands, Switzerland,
the United Kingdom, Belgium, and Austria.
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PART B - DISTRIBUTION AGREEMENT FOR FEP PRODUCT
3. Appointment and Territory.
3.1 For the Term of this Agreement (including the Sales Phase Out Period)
Gilardoni hereby appoints Vivid as its exclusive distributor of FEP
Products for installation in the Vivid Territory and agrees to sell
FEP Products to Vivid in accord with the terms of this Part B. Vivid
agrees to purchase FEP Products in accord with the terms of this Part
B for the Term of this Agreement, and not to solicit any order for
installation of an FEP Product outside of the Vivid Territory without
Gilardoni's advance written consent. Vivid and Gilardoni are not
prohibited from accepting orders for FEP Products from customers in
the European Union, for installation in the European Union but outside
their respective territories, provided that they first demonstrate by
documentary evidence that (1) the customer initiated the transaction,,
and (2) they took no action to solicit the order.
3.2 During the Term of this Agreement (including the Sales Phase Out
Period) without the advance written consent of the other party:
(a) Vivid will not market or sell for installation in the Vivid
Territory, any x-ray-based system from any manufacturer other than
Vivid or Gilardoni to inspect luggage, mail, parcels, or break bulk
cargo, and
(b) Gilardoni will not itself market or sell FEP Products or any other
x-ray based system to inspect luggage, mail, parcels, or break bulk
cargo for installation in the Vivid Territory, and will not appoint
any other reseller or distributor with any right to market or sell FEP
Products in the Vivid Territory.
3.3 Notwithstanding any other provision of this Section 3, Gilardoni is
not prohibited from selling to any third-party those components of its
FEP Products which it sells separately in the normal course of its
business (including but not limited to x-ray grids, tubes, and
electronic assemblies such as inverters, H.V. monoblocs, and x-ray
detector assemblies) either separately or assembled, provided always
that this Subsection 3.3 does not apply and does not permit Gilardoni
to sell components in combinations that comprise an x-ray generation
and detector set for use in inspecting luggage, mail, parcels, or
break bulk cargo in the Vivid Territory.
4. Marketing and Promotion.
4.1 Vivid will be solely responsible for all marketing and sales of FEP
Products purchased pursuant to this Agreement. Vivid and Gilardoni
will work together
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to develop appropriate marketing plans as reasonable and necessary to
promote the FEP Product and the Joint System.
4.2 Gilardoni hereby grants Vivid a non-exclusive, non-transferable
license to represents itself as an "Authorized Distributor" of FEP
Products, and to use the Gilardoni trademarks identified in Exhibit A
hereto in connection therewith.
4.3 Vivid may also distribute FEP Products and the Joint System under its
sole trademark, or under both the Vivid trademark and Gilardoni
trademarks identified in Exhibit A hereto.
4.4 Vivid shall not register any Gilardoni trademarks in any
jurisdiction, but may request that Gilardoni register or obtain
appropriate legal protection for its trademarks identified in Exhibit
A hereto in the Vivid Territory. Any such registration shall be owned
by Gilardoni. Payment of any registration or other fees required in
connection therewith shall be agreed on a case-by-case basis
5. Purchase prices, payment and taxes.
5.1 Gilardoni's prices for current FEP Products are quoted in U.S. Dollars
as set forth in Exhibit B hereto, and are fixed for the first one-year
period of the Term, provided that lower prices to meet individual
customer situations may be negotiated on a case-by-case basis.
Gilardoni may increase prices for any subsequent year period of the
Term with 120 days advance written notice, to an increase for said
subsequent year period proportional to the increase in Italian
producer prices as of the date of notice as compared to said price
index on January 1, 1996, as this index is reported in the Financial
Times of London newspaper, provided that the maximum increase for any
such subsequent year period of the Term shall not exceed 150% of the
increase in the United States Producer Price Index over the same time
period as this index is reported by the United States Bureau of Labor
Statistics or its successor organization.
5.2 Notwithstanding the previous paragraph, Gilardoni prices shall be
adjusted (up or down) if the U.S. dollar/Italian lire exchange rate
fluctuates more than five percent (5%) from the exchange rate (Italian
lire / U.S.Dollars $1.00) as of the Effective Date of this Agreement
(Base Exchange Rate), in accord with the following formula:
New Price = Old Price x (New Exchange Rate + Base Exchange Rate)/2
--------------------------------------------
Base Exchange Rate
Exchange rates will be determined on the basis of exchange rates
published in the Wall Street Journal as of the date of Vivid's
purchase order to Gilardoni, provided that said purchase order
specifies a delivery date of not more than 150
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days after the date of said purchase order. In the case of orders with
delivery dates scheduled for more than 150 days after the date of said
quotation (unless otherwise agreed), exchange rates provisions will be
determined as of the date 150 days before the scheduled delivery date.
5.3 Gilardoni prices for separately priced improvements and New Products
will be set by negotiation with the general understanding that the
discount therefor will be the same as the discount granted under this
Agreement for FEP Systems and Mainframes.
5.4 [RESERVED]
5.5 Vivid will pay or reimburse Gilardoni for any taxes, however
designated, arising from or based upon Gilardoni's sale of FEP
Products to Vivid, or Vivid's use or sale of the FEP Product, but not
including any Gilardoni income or corporate excise tax. Vivid shall
furnish Gilardoni with whatever certificates or other instruments may
be necessary or appropriate to evidence that Vivid purchases of FEP
Product are for resale, or otherwise are not subject to tax.
5.6 Payment for all FEP Products ordered under this Agreement (unless
otherwise agreed in writing in advance with respect to a specific
order) shall be due in accord with the following terms: 30% upon
receipt of order; 60% upon Delivery; and the remainder thirty (30)
days after commissioning (but not more than 120 days after Delivery).
Payment terms are subject to change upon mutual agreement between
Gilardoni and Vivid.
5.7 All payments pursuant to this Agreement shall be made by bank transfer
in U.S. dollars available at Gilardoni's bank.
6. Purchase Orders, Product Integration, and Shipping
6.1 Vivid shall order product by submitting a written purchase order
identifying the product ordered, prices and requested delivery dates.
6.2 Vivid shall forecast anticipated orders with respect to specific
opportunities as soon as possible, and consult with Gilardoni during
the quotation and tendering process. Gilardoni shall use its best
commercial efforts to comply with Vivid's requested delivery dates
which comply with the above guidelines, recognizing that normal
delivery dates for production quantities of equipment usually
approximate 90 days after receipt of order, and provided that Vivid
had provided a six-month forecast schedule which included the
requested delivery date in question. At the time Vivid submits an
order, the parties will negotiate mutually agreeable delivery dates.
Upon Gilardoni agreement to meet a requested delivery date, said
delivery date shall become a firm commitment.
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6.3 Upon request and in connection with Vivid sales of the Joint System,
Gilardoni will provide the service of integrating Vivid-supplied CDC
Consoles with FEP Mainframes, and testing the resulting Joint Systems,
on a schedule and at prices to be negotiated.
6.4 Unless otherwise agreed with respect to a specific order, prices are
quoted, and product delivery (Delivery) will be ex-works (Incoterms
1990). Upon Vivid request, Gilardoni will arrange for drop shipment
of FEP Product (and Joint Systems) to Vivid customers, in accord with
Vivid's instructions, provided that Vivid shall be responsible for all
associated risk and shipping, customs, taxes, and insurance charges.
Provided that Vivid first establishes credit terms reasonably
acceptable to Gilardoni, Gilardoni shall advance and invoice said
amounts to Vivid, said invoices to be due and payable as agreed. If
Vivid is not prepared to take Delivery within fifteen (15) days
following a mutually-agreed-upon delivery date, Gilardoni may arrange
for and charge Vivid for its reasonable costs of storage.
6.5 From time to time Vivid may be required to order spare parts on an
expedited basis. Gilardoni shall use its best commercial efforts to
ship such expedited purchase orders within 24 hours following receipt.
Spare parts invoices are due and payable thirty (30) days after
receipt.
6.6 Upon Delivery of the first unit of FEP Product to be installed in any
country, Vivid will purchase at least one First In Country Kit (FICK)
of spare parts therefor, at prices to be negotiated, the total price
of said FICK shall not exceed thirty percent (30%) of the price paid
for said unit.
7. Installation and Acceptance.
7.1 Vivid shall be solely responsible for installation, on-site testing,
and commissioning of all FEP Product purchased hereunder, as well as
for customer training, support, warranty, and service. Vivid shall
supply such service to customers at the times and for the fees that
are normal and customary in the trade and appropriate for the product.
Except as specifically provided for in this Agreement, Gilardoni shall
have no obligation or liability for these matters. If Vivid fails to
offer such service to a customer or abandons a customer contract,
Gilardoni may offer said services directly to said customer, at its
sole risk, responsibility, and expense, provided that Gilardoni
informs Vivid in advance in writing of its intent to contact said
customer, provides Vivid with five business days to respond or object,
and does not initiate any contact with said customer before expiration
of said period and resolution of any Vivid response or objection.
Notwithstanding any other Section of this Agreement, each party (the
"Indemnifying Party") shall indemnify the other (the "Indemnified
Party")
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for any loss, damages, costs or other expenses incurred by the
Indemnified Party arising out of any action undertaken by the
Indemnifying Party pursuant to this Section 7.1.
7.2 Gilardoni shall provide to Vivid one technical training course for up
to three qualified Vivid, end user, and third-party service personnel
for the FEP Product. Such training will be conducted at Gilardoni's
factory, at times to be mutually agreed upon, in the English language,
shall extend for approximately one week, and shall incorporate a
syllabus describing the installation, commissioning, and after sales
servicing of the product. Gilardoni shall not be responsible for
student living expenses, including air fare, ground costs, meals and
lodging. Vivid may purchase, and Gilardoni will provide additional
training courses and training for additional personnel at rates to be
negotiated.
7.3 Upon request, Gilardoni will provide installation, on-site testing,
commissioning, customer training, support, warranty, and service for
product at rates to be negotiated.
8. Product Warranty.
8.1 Gilardoni warrants that FEP Products delivered hereunder shall be free
from defects in workmanship and material, and shall perform in
accordance with their then-current published functional specifications
under normal use and proper operating conditions. This warranty will
extend for a period of 12 months from the date of customer acceptance,
or 16 months from the date of Delivery, whichever is earlier.
Gilardoni agrees to provided extensions to this warranty under
reasonable terms to be negotiated with Vivid for specific customer
situations.
8.2 In the event that warranted products are deemed defective or otherwise
in breach of the warranty set out in Section 8.1. above, Vivid shall
identify, remove, and return to Gilardoni the defective product,
component, or sub-assembly, and Gilardoni shall repair or replace, at
its discretion, any such defective product, component or sub-assembly.
Warranty claims shall be initiated by contacting Gilardoni by
telephone or facsimile, obtaining a return material authorization
number, and shipping items returned under warranty to Gilardoni's
designated facility, freight prepaid by Vivid. Gilardoni shall return
items replaced or repaired under warranty as designated by Vivid, on a
D.D.P. basis (Incoterms 1990). Items returned shall become Gilardoni
property.
8.3 Gilardoni provides the Additional Warranty that FEP Products shall be
free of major safety hazards, and for a period of five years from date
of customer acceptance will be free of epidemic or systemic failure.
A major safety hazard is defined as a defect which prevents the safe
operation of the product at its place of installation, such as an
electric shock, personal radiation exposure, or
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fire risk (and not including risks to aircraft, passengers, or
operators associated with failure to detect contraband material). A
systemic or epidemic failure shall exist when defects of the same root
cause occur in any non-expendable parts in ten percent (10%) or
greater of FEP Products manufactured or delivered pursuant to this
Agreement within any 24 month period, or the actual MTBF of any part
of said FEP Products as delivered is lower than 95% of Gilardoni's
published MTBF figure for said part(s). In such event, Gilardoni and
Vivid shall immediately devise a corrective action plan, under which
Gilardoni shall provide parts, technical assistance, and a fee equal
to Vivid's cost of labor to replace all affected parts in FEP Products
sold pursuant to this Agreement.
8.4 The parties may agree that FEP Products supplied in connection with
any individual situation shall meet such other specifications as may
be agreed between Gilardoni and Vivid.
9. Intellectual Property Warranty.
9.1 Gilardoni warrants that as of the Effective Date of this Agreement, to
its best knowledge: (a) the FEP Products do not infringe any trade
secret, trademark, patent, copyright or other intellectual property or
proprietary right belonging to any third party, and (b) no pending
patent application of a third party has claims which cover the FEP
Products; provided that Gilardoni does not warrant that FEP Products
do not infringe United States Patent No. 4,366,382, dated December
28,1982, titled "X-Ray Line Scan System For Use In Baggage
Inspection", Andreas F. Kotowski, Inventor, initially assigned to
Scanray Corporation, Harbor City, California, and purportedly
assigned subsequently to EG&G Astrophysics Research Corporation
(hereinafter the "EGG Patent").
9.2 Vivid represents that as of the Effective Date of this Agreement, it
has no actual knowledge that current FEP Products infringe any patent
belonging to any third party, provided that Vivid does not make any
representation with respect to the EGG Patent. The parties understand
and acknowledge that Vivid has not conducted any sort of patent
search, product review, or clearance review with respect to the FEP
Products or any other Gilardoni product in connection with this
representation or its consideration whether to enter into this
Agreement, and that this representation is provided solely on the
basis of Vivid's general knowledge acquired in connection with its
usual ongoing business.
10. Exclusive Warranty.
10.1 THE WARRANTIES SET OUT IN SECTIONS 8 AND 9 HEREOF ARE EXCLUSIVE, AND
NO OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, SHALL
APPLY TO THE SUBJECT OF THIS AGREEMENT. GILARDONI SPECIFICALLY
DISCLAIMS ANY
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IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
11. Vivid Customer Warranty.
11.1 Vivid, or its sub-distributor, acting on its own behalf only, shall
extend a written warranty at least as favorable to its customers as
the warranty extended to Vivid by Gilardoni. Vivid or its sub-
distributor shall perform and fulfill all terms and conditions of each
such warranty. Gilardoni shall not have any warranty obligation or
liability to sub-distributors or customers of Vivid.
12. Infringement.
12.1 Except with respect to the EGG Patent, in the event that any claim,
suit, or other legal proceeding is threatened or commenced against
Vivid that is founded, in whole or in part, on an allegation that the
FEP Product infringes any trade secret, trademark, patent, copyright
or other intellectual property rights belonging to a third party,
Vivid will give Gilardoni prompt written notice thereof and Gilardoni
may elect to assume primary control of the defense to or settlement of
such dispute. Vivid shall cooperate fully with Gilardoni in any such
defense, settlement or compromise made by Gilardoni. Neither Vivid nor
Gilardoni shall enter into any settlement agreement or other voluntary
resolution of any such claim, suit, or other legal proceeding without
obtaining the other's prior written consent thereto. If Vivid has
complied fully with the procedures set forth in this Section,
Gilardoni will indemnify and hold Vivid harmless from and against any
loss, cost, damage, or other expenses incurred by Vivid as a result of
such claim, suit, or legal proceeding. In addition, if a final
injunction is obtained against Vivid's use of the FEP Product, or if
in the opinion of Gilardoni the FEP Product is likely to become
subject of a successful claim of infringement, Gilardoni may, at its
option and expense (a) procure for Vivid the right to continue
distributing and using the FEP Product, (b) replace or modify the FEP
Product so that it becomes non-infringing, or (c) if neither (a) or
(b) are reasonably available, accept return of FEP Product sold
hereunder, grant a credit therefore as depreciated on a five-year
straight-line basis and terminate this Agreement. This indemnification
procedure shall be null and void and Gilardoni shall have no liability
to the extent that any claim is based on any use of the FEP Product in
combination with any item not supplied or approved in writing by
Gilardoni, or if the FEP Product has been tampered with, or modified
in any way except as provided in this Agreement without the express
written consent of Gilardoni, or if Vivid or its sub-distributor,
affiliate, or customer has any property interest in said claim, suit,
or legal proceeding, or any license to any right so asserted.
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12.2 With respect to the EGG Patent, Vivid and Gilardoni agree that, as
between Vivid and Gilardoni, Vivid shall be solely responsible for all
and any claims, consequences and charges relating to activities
pursuant to theis Agreement regarding the EGG Patent in the United
States of America.
13. Software License.
13.1 Under this Agreement, computer software ("Software") may be delivered
in printed or machine readable form. Title to software, including all
patents, copyrights, and property rights applicable thereof, shall at
all times remain with Gilardoni. Software is valuable to Gilardoni
and shall be treated as Proprietary Information subject to Section 20
of this Agreement. Vivid shall maintain all copyright, proprietary,
and other notices on the Software. Vivid is granted a non-exclusive
license for the Term of this Agreement to provide perpetual sub-
licenses to Software provided with FEP Product purchased hereunder to
its customers solely for operation of FEP Product (and Joint Systems)
purchased pursuant to this Agreement and on which Software is first
installed, provided that each such customer first agrees in writing
to be bound by terms and conditions equivalent to those contained in
this Agreement.
14. Design Changes and Product Enhancements.
14.1 Nothing in this Agreement shall be interpreted to limit or otherwise
affect Gilardoni's right to change any design, technical
specification, or capability of its FEP Product provided that (a)
Gilardoni first provides Vivid with ninety (90) days advance written
notice of any such change; (b) upon Vivid's notice that said design
change affects the functioning of the CDC Console or the Joint
System, continue to provide the unchanged product for a reasonable
period of time to be agreed upon, so that Vivid may modify the CDC
Console or the Joint System in accord with its normal design cycle;
and (c) continue to provide spare parts and an upgrade path for
customers provided with the old version of the FEP Product.
14.2 From time to time Gilardoni may develop enhancements or improvements
to the FEP Product (including Gilardoni New Products). Gilardoni
shall notify Vivid of the details of all such enhancements and
improvements and offer to sell said products pursuant to this
Agreement.
15. [RESERVED]
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PART C - DEVELOPMENT OF THE JOINT SYSTEM
16. Vivid's Responsibilities.
16.1 Commencing as of the effective date, and as described in the Project
Plan attached hereto as Exhibit C Vivid will integrate the CDC Console
with the FEP Mainframe to develop a Joint System incorporating
improved image quality, Vivid's proprietary operator interface, and
possibly semi-automated processing capabilities.
16.2 In accord with the schedule set out in said Project Plan, Vivid shall
loan to Gilardoni without charge for the remainder of the Joint
Development Term, one complete CDC Console for Gilardoni integration
with an FEP Mainframe at Gilardoni's plant. Gilardoni may use the
resulting Joint System for Gilardoni development and marketing
purposes including demonstration purposes at sites other than
Gilardoni's headquarters, but may not resell it.
16.3 From time to time Vivid may develop enhancements or improvements to
the CDC Console. Vivid shall notify Gilardoni of the details of all
such enhancements and improvements and offer to sell said products
pursuant to this Agreement.
16.4 Vivid shall provide improvements which it makes to said CDC Console
to Gilardoni for incorporation into the CDC Console loaned to
Gilardoni, on the same loan basis, not later than the time Vivid makes
these improvements available for sale.
16.5 In the course of said project, Vivid will also evaluate the FEP
System to determine whether changes to data acquisition or other
elements thereof are required or recommended to further increase image
quality, and shall suggest any appropriate changes to Gilardoni.
Gilardoni will implement any mutually-agreed-upon changes into its FEP
System and will immediately provide said improvements to Vivid for
incorporation into the FEP System loaned to Vivid.
17. Gilardoni's Responsibilities.
17.1 To enable Vivid to undertake these responsibilities, Gilardoni shall
loan to Vivid, without charge, for the Joint Development Term of this
Agreement, a complete, standard FEP System as described in Exhibit D
hereto. Vivid shall use said system for development and marketing
purposes including demonstration purposes at sites other than Vivid's
headquarters, but may not resell it.
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17.2 Gilardoni shall loan to Vivid any improvements which it makes to said
FEP System, not later than the time Gilardoni makes said improvements
available for sale.
18. Joint Responsibilities.
18.1 Vivid and Gilardoni will each provide to the other, subject to the
confidentiality provisions of this Agreement, such proprietary
technical documentation, product specifications, and technical
assistance as each may deem appropriate to promote the purpose of this
Agreement.
PART D - GENERAL TERMS
19. Ownership of Technology.
19.1 As between Gilardoni and Vivid, Gilardoni shall maintain all of its
ownership rights in all patents, copyrights, trade secrets,
trademarks, designs, and other intellectual property embodied in (a)
its currently-existing FEP Products (Gilardoni Base Technology); and
(b) in all improvements thereto and Gilardoni products developed
solely by Gilardoni (Gilardoni Non-Program Technology).
19.2 As between Gilardoni and Vivid, Vivid shall maintain all of its
ownership rights in all patents, copyrights, trade secrets,
trademarks, designs, and other intellectual property embodied in (a)
the Vivid CDC Console as it currently exists and as modified for
integration with the FEP Mainframe, and all other Vivid products
(Vivid Base Technology); and (b) in all improvements thereto and Vivid
products developed solely by Vivid (Vivid Non-Program Technology).
19.3 Vivid and Gilardoni shall have joint ownership of all suggestions and
recommendations which one party makes to the other for improvements of
the other party's products (hereinafter "Suggestions"). Each party
shall have the right, in its sole discretion to file, prosecute and
maintain at its own expense any application for patent, copyright, or
other legal protection in any country on any Suggestions. Each party
shall give the other all reasonable assistance in obtaining such
patent, copyright, or other legal protection. Title to any such
patent, copyright, or other legal protection shall be joint. Each
party may exploit and utilize said Suggestions for any purpose
whatsoever, without any obligation to account, share revenues, or pay
royalties to the other with respect to said Suggestion. Either party
shall have the sole discretion as to whether or not to make any such
Suggestions. The term "Suggestions" shall not include information
previously known to the receiving party. The parties
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may mutually agree to enter into a separate agreement to undertake
joint development work, and as to the allocation of any intellectual
property rights resulting therefrom.
19.4 For the purpose of clarity, the parties specifically agree that (a)
Vivid shall obtain no license or ownership rights, and no right to use
FEP Products or other Gilardoni products, Gilardoni New Products, or
Gilardoni improvements to any of the above, except as specifically
provided in this Agreement; and (b) Gilardoni shall obtain no license
or ownership rights, and no right to use the CDC Console or other
Vivid products, Vivid New Products, or Vivid improvements to any of
the above, except as specifically provided in this Agreement.
20. License and Confidentiality Agreement.
20.1 Subject to each party's compliance with its obligations under this
Agreement, each party grants to the other a license to use all patents
and copyrights embodied in its equipment and systems subject to this
Agreement, for purposes of designing the Joint System during the Joint
Development Term and integrating, manufacturing, and selling the Joint
System during the Joint Development Term and the Sales Phase Out
Period, all in accord with this Agreement.
20.2 Proprietary information disclosed pursuant to this Agreement will be
used by the receiving party in accord with the following criteria:
(a) Proprietary information will be held in confidence using the
same degree of care as receiving party uses for its own
information of like importance. Receiving party will disclose
said information only to its employees and agents who need to
know said information for the performance of this Agreement, and
who are bound to protect its confidentiality.
(b) Proprietary information will be used only for purposes of this
Agreement, and will not be used for other projects without the
prior written consent of the disclosing party.
(c) At the end of the Joint Development Term and the Sales Phase Out
Period, or upon request of the disclosing party (whichever is
earlier), the receiving party will cease using Proprietary
Information of the disclosing party and will return or destroy
all documents containing such Proprietary Information except for
information necessary to activities which continue to be
permitted under this Agreement. At each such stage, each
receiving party will promptly inventory and provide the
disclosing party with an inventory of all such Proprietary
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Information so retained, after which disclosing party may
reasonably designate any such retained information as non-
essential, and require its return or destruction. In each case,
receiving party's counsel may maintain one set of said documents
under seal for its records.
20.3 Notwithstanding the provisions of Section 20.2 hereof, each party
shall be free to use "Residual Information" after termination of the
Joint Development Term for any purpose, including the development,
manufacture, marketing, and maintenance of products and service.
"Residual Information" means Proprietary Information in non-tangible
form (that is, not in written or documentary form, including magnetic
or electronic form), which may be retained in the minds of those
employees and other personnel who have rightfully had access to the
Proprietary Information under this Agreement.
20.4 Information which a party believes to be highly proprietary and to
require additional protection, may, upon mutual agreement, be subject
to additional confidentiality protections. In such case, the
disclosing party shall describe the highly proprietary information to
be disclosed, and propose a time period beyond termination of the
Joint Development Term or the Agreement during which said information
shall not be used, and any other protections to be applied to said
information. Receiving party may agree to accept said highly
proprietary information under the terms proposed, decline to accept
it, or propose alternative terms for disclosing party to accept before
receipt of the information.
21. Term and Termination.
21.1 This Agreement shall become effective on the effective date hereof,
and shall continue for a Joint Development Term extending until July
30, 1999, unless extended or earlier terminated pursuant to this
Section. Thereafter, the distribution sections of this Agreement
(Parts B and D) will continue in effect for a further Sales Phase Out
Period of 18 months after termination of the Joint Development Term,
unless this Sales Phase Out Period is extended or terminated earlier
pursuant to this Agreement. Together, the Joint Development Term and
the Sales Phase Out Period comprise the Term of this Agreement.
21.2 Vivid and Gilardoni may at any time mutually agree in writing to
terminate this Agreement, the Joint Development Term, or the Sales
Phase Out Period.
21.3 After December 31, 1997, either party may terminate this Agreement on
90 days advance written notice for lack of commercial success if
during the prior 18 months (a) Vivid has not obtained a customer order
for five (5) FEP
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Systems and (b) neither party has obtained a customer order for five
(5) Joint Systems.
21.4 Either party may terminate this Agreement, the Joint Development Term
hereof, or the Sales Phase Out Term, for material default of the other
party, effective 30 days following notice to the defaulting party,
unless within said 30 days the party receiving said notice takes all
reasonable steps to remedy the default, and shall fully remedy said
default within 90 days of said notice. If the receiving party does
not so fully remedy said default within 90 days of said notice,
termination shall become effective without further notice or other
action by the terminating party. Upon termination pursuant to this
Agreement, the terminating party may continue to sell the Joint
System, and/or FEP System pursuant to the terms of this Agreement for
the remainder of any Sales Phase Out Term then existing.
21.5 Either party may terminate this Agreement, effective immediately upon
notice, in the event that (a) proceedings are instituted by the other
party in bankruptcy, reorganization, receivership, or dissolution, or
(b) proceedings are instituted against the other party in bankruptcy,
reorganization, or receivership, or dissolution and such proceedings
have not been dismissed or otherwise terminated within 60 days
following the date they were initiated; or (c) if the other party
makes an assignment for the benefit of creditors.
21.6 Upon termination or expiration of this Agreement for any reason,
neither party shall have any obligation or liability to the other or
to any employee, agent or representative of the other for any damages,
indemnification, expenditures, loss of profits or prospective profits
of any kind, sustained or alleged to have been sustained or arising
out of such expiration or termination (not including any claim for
monies due under this Agreement for goods purchased, or for damages
resulting from breach of any term of this Agreement), both parties
hereby irrevocably waiving any such rights granted by the laws of
their respective countries or of any other jurisdiction. Both parties
hereby covenant and agree that they will bring no action or proceeding
of any nature whatsoever in any court, before any tribunal, or under
any arbitration proceeding provided for herein, seeking or claiming
any such damages, indemnification, expenditures, loss of profits or
prospective profits. Each party recognizes and acknowledges that the
other party is entering into this Agreement in reliance upon and in
consideration of the agreements and covenants contained herein. Each
party hereby indemnifies and holds harmless the other party from and
against any claim, cost, damages and liability whatsoever asserted by
either party or any subdistributor, employee, agent, or representative
thereof under any applicable termination, labor, franchise, social
security, or similar laws or regulations of any jurisdiction.
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21.7 If the Associated Agreement is not executed by both parties on or
before May 2, 1996, Vivid may terminate this Agreement upon thirty
(30) days written notice.
22. LIMITATION OF LIABILITY.
22.1 NEITHER PARTY'S LIABILITY TO THE OTHER FOR ANY CAUSE WHATSOEVER,
REGARDLESS OF THE FORM OF ANY CLAIM OR ACTION, SHALL EXCEED THE
AGGREGATE PRICE PAID BY VIVID FOR FEP PRODUCTS UNDER THIS AGREEMENT
DURING THE CALENDAR YEAR ENDING ON THE DATE THE CAUSE OF ACTION
ACCRUES, OR ONE MILLION UNITED STATES DOLLARS ($1,000,000), WHICHEVER
AMOUNT IS GREATER.
22.2 NEITHER PARTY SHALL IN ANY EVENT BE LIABLE TO THE OTHER FOR ANY
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE USE OR PERFORMANCE OF ANY PRODUCT OR THIS
AGREEMENT, INCLUDING BUT NOT LIMITED TO (a) ANY LOSS OF DATA, PROFITS
OR USE OF ANY PRODUCTS, OR (b) ANY LIABILITY RELATING, IN ANY WAY, TO
ANY ALLEGED OR ACTUAL FAILURE OF ANY PRODUCT OR SYSTEM TO DETECT ANY
ITEM OR ITEMS, SUCH AS ONE OR MORE WEAPON(S), EXPLOSIVE(S), OR
INCENDIARY DEVICE(S), INCLUDING ANY LIABILITY RELATING, IN ANY WAY, TO
DAMAGE OR INJURY TO ANY AIRCRAFT, TERMINAL FACILITY, OR OTHER
PROPERTY, OR TO ANY PERSON OR PERSONS.
22.3 NEITHER PARTY SHALL BE LIABLE TO THE OTHER'S CUSTOMERS, SUB-
DISTRIBUTORS OR THIRD PARTIES FOR ANY DAMAGES, INCLUDING BUT NOT
LIMITED TO: (a) DAMAGES CAUSED BY FAILURE TO PERFORM COVENANTS AND
RESPONSIBILITIES, BY REASON OF NEGLIGENCE OR OTHERWISE; (b) DAMAGES
CAUSED BY REPAIRS OR ALTERATIONS DONE WITHOUT THE PARTIES' JOINT
WRITTEN APPROVAL; (c) DAMAGES DUE TO PRODUCT DETERIORATION DURING
PERIODS OF STORAGE; OR (d) ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF
ANY PRODUCT, OR THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO (a) ANY
LOSS OF DATA, PROFITS OR USE OF ANY PRODUCTS, OR (b) ANY LIABILITY
RELATING, IN ANY WAY, TO ANY ALLEGED OR ACTUAL FAILURE OF ANY PRODUCT
OR SYSTEM TO DETECT ANY ITEM OR ITEMS, SUCH AS ONE OR MORE WEAPON(S),
EXPLOSIVE(S), OR INCENDIARY DEVICE(S), INCLUDING ANY LIABILITY
RELATING, IN ANY WAY, TO DAMAGE OR INJURY TO ANY AIRCRAFT, TERMINAL
FACILITY, OR OTHER PROPERTY, OR TO ANY PERSON OR
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PERSONS; EACH PARTY SHALL INDEMNIFY THE OTHER AGAINST ALL SUCH CLAIMS
ASSERTED BY CUSTOMERS OR SUB-DISTRIBUTORS OR OTHER THIRD PARTIES.
23. GENERAL
23.1 Survival. Sections 2, 8 - 13, 19, 20, 21.6, 22, and 23 shall survive
termination of this Agreement. Notwithstanding any termination of this
Agreement, Vivid shall have the right to purchase, and Gilardoni
agrees to sell, spare parts for FEP Products sold pursuant to this
Agreement at Gilardoni's then-standard, commercially reasonable prices
for a period extending for ten (10) years from the date of Gilardoni's
last sale to Vivid of an FEP Mainframe or System pursuant to this
Agreement.
23.2 Force Majeure. Neither party shall be deemed to be in default pursuant
to this Agreement so long as its failure to perform any of its
obligations hereunder is occasioned solely by fire, labor disturbance,
acts of civil or military authorities, acts of God, or any similar
cause beyond such party's control.
23.3 Export Controls. Notwithstanding anything contained in this Agreement
to the contrary, each party agrees that it will not in any form
export, re-export, resell, ship or divert, or cause to be exported,
re-exported, resold, shipped or diverted, directly or indirectly, any
product or technical data furnished hereunder or the direct product of
any such technical data to any country for which the United States
Government or any agency thereof at the time of export or re-export
requires an export license or other governmental approval, without
first obtaining such license or approval.
23.4 Compliance with Laws. Each party shall comply with all laws, rules,
regulations, governmental requirements and industry standards existing
with respect to all products subject to this Agreement and its
activities in the countries in which it operates, as well as all
applicable laws of Italy and the United States, including the United
States Foreign Corrupt Practices Act and regulations promulgated
thereunder. Each party shall indemnify and hold harmless the other
from any and all fines, damages, losses, costs and expenses (including
reasonable attorneys' fees) incurred as a result of the indemnifying
party's breach of Sections 23.3 and 23.4 of this Agreement.
23.5 Assignment. With the exception of sub-licensing rights expressly
provided in Section 13 of this Agreement, neither party may assign any
of its rights (except rights to the payment of money) or delegate any
of its obligations under this Agreement to any third party without the
express written consent of the other.
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23.6 Notices. Notices required or permitted to be given under this
Agreement shall be in writing and mailed, postage prepaid, by first
class registered or certified mail, return receipt requested, to the
address indicated below:
If to Vivid:
Vivid Technologies, Inc.
590 Lincoln Street
Waltham, MA 02154 (USA)
Attention: Mr. James Aldo
Copy To: Law Department
If to Gilardoni:
Gilardoni S.p.A
Direzione e Stabilimento
Via E. Fermi, 2
22054 Mandello del Lario
(Como) ITALIA
Attention: Mr. Andrea Orisini
Mr. Marco Gilardoni
Either party may change its address to be used on notices by giving
notice of such change to the other party as provided in this
paragraph.
23.7 Independent Contractor Status. The parties are independent
contractors, and this Agreement shall not be deemed to constitute
either party the partner, joint venturer, servant, employee, or agent
of the other. Neither party has the right, power or authority to
obligate the other party under this Agreement to any contract or other
obligation.
23.8 Waiver. The waiver of either party of a default or breach of any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent default or breach.
23.9 Governing Law; Arbitration of Disputes. This Agreement shall be
subject to the laws of the State of New York, USA (not including its
conflict of laws provisions); and the parties consent to be bound by
the provisions of such laws regardless of the forum in which such laws
are applied. Notwithstanding the above, any dispute arising out of, or
relating to this contract, which the parties have not been able to
settle amicably shall be finally settled by arbitration, in accordance
with the Rules of Conciliation and Arbitration of the International
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<PAGE>
Chamber of Commerce. The place of arbitration shall be Paris, France.
The governing law of the contract and the procedural law shall be the
laws of the State of New York. Proceedings shall be conducted in
English. Any arbitrator shall not be entitled to award punitive
damages. Judgment upon any arbitration award so rendered may be
entered in any court having jurisdiction, or application may be made
to any such court for confirmation of such award or a judicial
acceptance of such award, and for an order of enforcement or other
legal remedy, as the case may be.
23.10 Insurance. Each party shall maintain, for Term of this Agreement and
for five years thereafter, Product Liability insurance covering
aviation risks related to products purchased or sold pursuant to this
Agreement in an amount not less than one million United States
dollars (US$1,000,000)] for any occurrences during the period of the
policy.
23.11 Amendment. This Agreement may not be changed or amended unless in a
writing specifically referencing and purporting to amend this
Agreement, and signed by both parties.
23.12 Entire Agreement. This Agreement contains the entire Agreement of
the parties, and except for the Associated Agreement, supersedes all
prior agreements, understandings, representations, conditions,
warranties, and covenants, whether oral or written, between the
parties.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of
the date first above-written.
GILARDONI, S.p.A. VIVID TECHNOLOGIES, INC.
By: By:
------------------------------- --------------------------------
Printed Name: Printed Name:
--------------------- ----------------------
Title: Title:
---------------------------- -----------------------------
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Exhibit 10.03
FIRST AMENDED AND RESTATED LINE OF CREDIT
------------------------------------------
LOAN AND SECURITY AGREEMENT
---------------------------
THIS FIRST AMENDED AND RESTATED LINE OF CREDIT LOAN AND SECURITY AGREEMENT,
dated April 4, 1996, by and between VIVID TECHNOLOGIES, INC., a Massachusetts
corporation with a principal place of business in Woburn, Massachusetts (the
"Borrower") and BAYBANK, N.A., a federally chartered bank with its head office
in Boston, Massachusetts (the "Lender").
W I T N E S S E T H:
BACKGROUND. The Borrower, pursuant to a Line of Credit Loan and Security
Agreement dated May 23, 1995 (the "1995 Agreement"), has entered into a
revolving loan facility with the Lender. The Borrower has requested the Lender
to increase its borrowing availability, lend it up to $3,000,000.00 on a
revolving loan basis (the "Loan") and to make certain other amendments to the
1995 Agreement. The Lender is willing to accommodate the Borrower's requests
upon the terms and conditions hereinafter set forth.
This Agreement amends and restates the 1995 Agreement.
NOW, THEREFORE, in consideration of the premises herein contained, and each
intending to be legally bound hereby, the parties agree as follows:
ARTICLE 1. DEFINITIONS
As used herein:
1.01 "Accounts," "Chattel Paper," "Contracts," "Documents," "Equipment,"
"Fixtures," "General Intangibles," "Goods," "Instruments," and "Inventory" shall
have the same respective meanings as are given to those terms in the Uniform
Commercial Code as presently adopted and in effect in the Commonwealth of
Massachusetts.
1.02 "Affiliate" means, as to any Person, each other Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
under common control with, such Person or is a related entity (including, but
not limited to,
<PAGE>
partnerships, joint ventures, joint stock companies, corporations) to the
Borrower.
1.03 "Agreement" means this First Amended and Restated Line of Credit Loan
and Security Agreement, as the same may from time to time be amended or
supplemented.
1.04 "Availability Date" means February 28, 1997. The Availability Date
may be extended by the Lender at its sole discretion.
1.05 "Borrowing Availability" means the amount which is equal at any given
time to the total of (1) the Borrowing Base, less (2) the aggregate amount of
all Disbursements then outstanding together with interest at the Rate, as
defined in Section 2.05 hereof.
1.06 "Borrowing Base" means a maximum credit availability of $3,000,000.00,
pursuant to the Loan. At no time shall the Borrowing Base exceed $3,000,000.00.
1.07 "Business Day" means a day on which the Federal Reserve Bank of New
York is open for business.
1.08 "Closing" has the meaning given to such term in Section 3.01.
1.09 "Collateral" has the meaning given to such term in Section 4.01.
1.10 "Collateral Documents" means the UCC Financing Statements specified in
Section 3.01(C) and the documents, whether deliverable at or after the Closing,
required under Article 4.0.
1.11 "Current Assets" means, at any time, all assets that should in accordance
with GAAP, be classified as current assets on a consolidated balance sheet of
the Borrower and its Subsidiaries.
1.12 "Current Liabilities" means, at any time, all Indebtedness that should, in
accordance with GAAP, be classified as liabilities on a consolidated balance of
the Borrower and its Subsidiaries.
1.13 "Current Ratio" means, at any time, Current Assets divided by Current
Liabilities.
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<PAGE>
1.14 "Disbursement" means the Lender's Loan advances to the Borrower under
the Agreement to reimburse the Borrower for amounts paid or to be paid by the
Borrower for Goods.
1.15 "Earnings" means, at any date as of which the amount thereof shall be
determined, the earnings of the Borrower and its Subsidiaries, as appropriate,
from continuing operations before income taxes with respect to such period,
excluding any non-recurring or extraordinary items.
1.16 "Event of Default" has the meaning provided in Section 7.01.
1.17 "Financial Statements" means (1) the consolidated balance sheet of the
Borrower and its Subsidiaries as of September 30, 1995, and consolidated
statements of income, stockholders' equity, and changes in financial position,
and notes thereto, of the Borrower for the year ended on such date, certified as
to the year ended September 30, 1995 by a CPA acceptable to Lender; and (2) as
to the first quarter of the 1996 fiscal year ended December 31, 1995, the
consolidated balance sheet of the Borrower and its Subsidiaries and consolidated
statements of income, stockholders' equity, and changes in financial position,
and notes thereto, of the Borrower prepared and certified by the treasurer to
present fairly the consolidated financial position and results of operations of
the Borrower at such dates and for such periods in accordance with GAAP.
1.18 "GAAP" means generally accepted accounting principles applied
consistently with such changes or modifications thereto as may be approved in
writing by the Lender.
1.19 "Indebtedness" means, as to the Borrower or any Subsidiary, all items
of indebtedness, obligation or liability whether matured or unmatured,
liquidated or unliquidated, direct or contingent, joint or several, including,
but without limitation:
(A) All indebtedness guaranteed, directly or indirectly, in any manner, or
endorsed (other than for collection or deposit in the ordinary course of
business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or indirectly, through
agreements, contingent or otherwise: (1) to purchase such indebtedness; or (2)
to purchase, sell, or lease (as lessee or lessor) property, products, materials,
or supplies or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such indebtedness or to
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<PAGE>
insure the owner of the indebtedness against loss; or (3) to supply funds to, or
in any other manner invest in, the debtor;
(C) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest, or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of Goods or services under
leases that, in accordance with GAAP, should not be reflected on the lessee's
balance sheet.
1.20 "Intellectual Property" means trademarks, service marks, trade names,
trade styles, logos, goodwill, trade secrets, patents, copyrights and licenses
acquired under any statutory, common law or registration process in any state or
nation at any time, or under any agreement executed with any person or entity at
any time. The term "license" refers not only to rights granted by agreement
from the owner of patents, trademarks, service marks and the like, but also to
rights granted by a franchiser under a franchise or similar agreement. The
foregoing enumeration is not intended as a limitation of the meaning of the word
"license". A complete list of all of the Borrower's Intellectual Property
registrations, claims, filings, or pending applications for any of the
foregoing, wherever registered, claimed or filed showing the place of filing,
the registration, claim, filing or application number and date is attached
hereto as Exhibit 1.20.
------------
1.21 "Landlord's Consent and Waiver" means that certain Landlord's Consent
and Waiver, a copy of which is attached hereto as Exhibit 1.21, executed by the
------------
Borrower and to be duly recorded or filed for the benefit of the Lender, as from
time to time supplemented or amended.
1.22 "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any government or political subdivision or
agency thereof, or of any court or similar entity established by any thereof.
1.23 "Letter of Credit" means any irrevocable letter of credit payable in the
United States or at the issuing bank, subject to Uniform Customs and Practice
for Documentary Credits (1993 Revisions) (UCP 500) issued for the benefit of
Borrower.
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<PAGE>
1.24 "Net Sales" means for the applicable period, all proceeds from the sale of
goods and services by the Borrower in the ordinary course of the Borrower's
business, net of fees, commissions, freight charges and other allowances,
adjustments, credits, or similar charges.
1.25 "Note" means the promissory note referred to in Section 2.03.
1.26 "Obligations" is intended to be used in its most comprehensive sense
and means all the obligations of the Borrower to the Lender of every kind and
description, whether direct or indirect, absolute or contingent, primary or
secondary, joint or several, due or to become due, now existing or hereafter
arising or acquired and whether by way of loan, discount, letter of credit,
lease or otherwise, including without limitation, the following obligations:
(A) To pay the principal of, and interest on, the Note in accordance
with the terms thereof and to satisfy all other liabilities to the Lender,
whether hereunder or otherwise, whether now existing or hereafter incurred,
matured or unmatured, direct or contingent, joint or several, including any
extensions, modifications, renewals thereof and substitutions therefor;
(B) To repay to the Lender all amounts advanced by the Lender hereunder or
otherwise on behalf of the Borrower, including, but without limitation, advances
for principal or interest payments to prior secured parties, mortgagees, or
lienors, or for taxes, levies, insurance, rent, or repairs to, or maintenance or
storage of, any of the Collateral;
(C) To perform and observe all covenants, agreements and undertakings
of the Borrower pursuant to the terms and conditions of this Agreement, the
Collateral Documents or any other agreement or instrument now or hereafter
delivered to the Lender by the Borrower; and
(D) To reimburse the Lender, on demand, for all of the Lender's expenses
and costs, including without limitation the reasonable fees and expenses of its
counsel, in connection with the preparation, administration, amendment,
modification, or enforcement of this Agreement and the documents required
hereunder, including, without limitation, any proceeding brought, or threatened,
to enforce payment or performance of any of the obligations referred to in the
foregoing paragraphs (A), (B) and (C).
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<PAGE>
1.27 "Operating Account" means the account opened by Borrower at the
offices of the Lender, Account #_____________, used for the purposes of
disbursement and repayment of the Loan as set out in Sections 2.01 and 2.06.
1.28 "Permitted Liens" means:
(A) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business, that are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of business to
secure payment of worker's compensation, or to participate in any fund in
connection with worker's compensation, unemployment insurance, old-age pensions,
or other social security programs;
(C) Liens of mechanics, materialmen, warehousemen, carriers, or other
like liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable;
(D) Good faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of ten percent (10%) of
the aggregate amount due thereunder, or to secure statutory obligations, or
surety, appeal, indemnity, performance, or other similar bonds required in the
ordinary course of business;
(E) Encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, none of which materially impairs the
use of such property by the Borrower in the operation of its business, and none
of which is violated in any material respect by existing or proposed structures
or land use;
(F) Liens in favor of the Lender, including, but not limited to the
Lender's first priority security interest on a certain telephone system as more
particularly described on Exhibit 1.28, attached hereto and made a part hereof;
------------
(G) Existing liens set forth or described on Exhibit 1.28, attached
------------
hereto and made a part hereof;
(H) Purchase money security interests granted to secure not more than
seventy-five per cent (75%) of the purchase price of
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<PAGE>
assets, the purchase of which does not violate this Agreement or any instrument
required hereunder; and
(I) The following, if the validity or amount thereof is being contested in
good faith by appropriate and lawful proceedings, so long as levy and execution
thereon have been stayed and continue to be stayed and they do not, in the
aggregate, materially detract from the value of the property of the Borrower or
any Subsidiary, or materially impair the use thereof in the operation of its
business:
(1) Claims or liens for taxes, assessments, or charges due and payable
and subject to interest or penalty;
(2) Claims, liens and encumbrances upon, and defects of title to, real
or personal property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute on the merits;
(3) Claims or liens of mechanics, materialmen, warehousemen, carriers,
or other like liens; and
(4) Adverse judgments on appeal.
1.29 "Person" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court,
or government or political subdivision or agency thereof.
1.30 "Records" means correspondence, memoranda, tapes, disks, diskettes,
papers, books and other documents, or transcribed information of any type,
whether expressed in ordinary or machine-readable language.
1.31 "Stockholders' Equity" means, at any time the aggregate of Subordinated
Indebtedness, plus the sum of the following accounts set forth on a consolidated
balance sheet of the Borrower and its Subsidiaries prepared in accordance with
GAAP: (A) the par or stated value of all outstanding capital stock; (B) capital
surplus; and (C) retained earnings.
1.32 "Subordinated Indebtedness" means all Indebtedness incurred at any time by
the Borrower or any Subsidiary, the repayment of which is subordinated to the
Loan in form and manner satisfactory to the Lender and includes, without
limitation, any notes, bonds, debentures, or other debts of Borrower to its
officers, directors
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<PAGE>
or stockholders. All existing Subordinated Indebtedness is so specified in
Exhibit 1.32.
- ------------
1.33 "Subsidiary" means any Affiliate that is directly, or indirectly through
one or more intermediaries, controlled by the Borrower or not less than 50% of
the voting capital stock of which is owned, directly or through one or more
intermediaries, by the Borrower.
1.34 "Tangible Net Worth" means, at any time, Stockholders' Equity, less the sum
of:
(A) Any surplus resulting from any write-up of assets subsequent to
December 31, 1995;
(B) The value of goodwill, including any amounts, however designated
on a consolidated balance sheet of the Borrower and its Subsidiaries,
representing the excess of the purchase price paid for assets or stock acquired
over the value assigned thereto on the books of the Borrower;
(C) The value of Patents, trademarks, trade names, copyrights and
licenses;
(D) Any amount at which shares of capital stock of the Borrower appear as
an asset on the Borrower's balance sheet;
(E) Loans and advances to stockholders, directors, officers, or employees;
(F) Deferred expenses; and
(G) Any other amount in respect of an intangible that should be classified
as an asset on a consolidated balance sheet of the Borrower and its Subsidiaries
in accordance with GAAP.
1.35 "UCC Financing Statements" means those certain UCC-1 Financing Statements
and UCC-3 Amendments, copies of which are attached hereto as Exhibit 1.35,
------------
executed by the Borrower and duly recorded or filed for the benefit of the
Lender at the filing offices set forth on Exhibit 1.35, as from time to time
------------
supplemented or amended.
1.36 Accounting. Accounting terms used and not otherwise defined in this
Agreement have the meanings determined by, and all calculations with respect to
accounting or financial matters
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<PAGE>
unless otherwise provided herein shall be computed in accordance with, GAAP.
ARTICLE 2. THE LOAN
2.01 Disbursement of the Loan.
Disbursements shall only be made upon the written request of the Borrower.
The Borrower may make requests for Disbursements by facsimile transmissions to
the Lender. The Lender will credit the proceeds of the Loan to the Operating
Account.
2.02 General Terms.
Subject to the terms hereof, the Lender will lend the Borrower, from
time to time until the Availability Date or until such time as the Lender makes
demand on the Note, whichever occurs first, such sums in integral multiples of
$10,000.00 as the Borrower may request by reasonable same day notice to the
Lender, received by the Lender not later than 10:00 a.m. of such day, but which
shall not exceed, in the aggregate principal amount at any one time outstanding,
the Borrowing Base. The Borrower may borrow, repay without penalty or premium
and reborrow hereunder, from the date of this Agreement until the Availability
Date or such time as the Lender makes demand on the Note, whichever occurs
first, either the full amount of the Borrowing Availability or any lesser sum
which is $10,000.00 or an integral multiple thereof, provided that the
outstanding principal amount of the Loan shall at no time exceed the amount of
the then existing Borrowing Base, and if, at any time, an excess shall for any
reason exist, the full amount of such excess, together with accrued and unpaid
interest thereon as herein provided, shall be immediately due and payable in
full and shall be paid in accordance with the provisions of Section 2.06. In
the alternative, at Lender's sole option and without imposing on Lender any
requirement to so choose, the Borrower shall furnish additional security to the
Lender with respect to any outstanding principal in excess of the Borrowing
Base, in form and amount satisfactory to the Lender.
2.03 The Note.
The Loan shall be evidenced by a note in the form attached hereto as
Exhibit 2.03, payable on demand, but in any event due and payable on the first
- ------------
business day after the Availability Date.
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<PAGE>
2.04 The Facility Fee.
In consideration of the Loan, from and after the date of this Agreement up
to and including the Availability Date, the Borrower shall pay the Lender a
facility fee of one-half of one percent (0.5%) on the average daily Borrowing
Availability during each fiscal quarter or portion thereof. This facility fee
shall be payable, without demand, on the last day of each March, June, September
and December, commencing June 30, 1996. The Borrower shall make payment of the
facility fee by wire transfer, certified check or by authorizing the Lender to
withdraw readily available funds from the Operating Account.
2.05 Interest Rate and Payments of Interest.
(A) Interest shall be paid as follows:
(1) Except as otherwise provided in Section 2.05(B), interest on the
principal balance of the Loan from time to time outstanding shall be payable at
a rate (the "Rate") equal to the Prime Rate in effect from time to time until
the Availability Date or demand, whichever first occurs, and four percent (4%)
above the Prime Rate in effect from time to time after the first to occur of an
Event of Default, the Availability Date, or demand. For the purposes hereof,
"Prime Rate" shall mean the rate announced by the Lender from time to time as
its prime rate.
(2) Each time the Prime Rate shall change, the Rate shall change
contemporaneously with such change in the Prime Rate. Interest shall be
calculated on the basis of a 360-day year, counting the actual number of days
elapsed, and shall be payable monthly in arrears on the first day of each month
and at maturity, whether by acceleration or otherwise.
(B) It is the intention of the parties hereto to conform strictly to
applicable usury laws as in effect, from time to time, during the term of the
Loan. Accordingly, if any transaction or transactions contemplated hereby would
be usurious under applicable law (including the laws of the United States of
America, or of any other jurisdiction whose laws may be applicable), then, in
that event, notwithstanding anything to the contrary in this Agreement or any
other agreement entered into in connection with this Agreement, it is agreed as
follows: (1) the provisions of this Section 2.05(B) shall govern and control;
(2) the aggregate of all interest under applicable law that is contracted for,
charged, or received under this Agreement or
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<PAGE>
under any of the other aforesaid agreements or otherwise in connection with this
Agreement shall under no circumstances exceed the maximum amount of interest
allowed by applicable law, and any excess shall be promptly credited to the
Borrower by the Lender (or, if such consideration shall have been paid in full,
such excess shall be promptly refunded to the Borrower by the Lender); (3)
neither the Borrower nor any person or entity now or hereafter liable in
connection with this Agreement shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum interest permitted by
the applicable usury laws; and (4) the effective rate of interest shall be ipso
facto reduced to the Highest Lawful Rate hereinafter defined. All sums paid, or
agreed to be paid, to the Lender for the use, forbearance, and detention of the
indebtedness of the Borrower to the Lender shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full term of the Note until payment is made in full so that the actual rate of
interest does not exceed the Highest Lawful Rate in effect at any particular
time during the full term thereof. The maximum lawful interest rate, if any,
referred to in this Section 2.05(B) that may accrue pursuant to this Agreement
is referred to herein as the "Highest Lawful Rate". If at any time the Rate
exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this
Agreement shall be limited, notwithstanding anything to the contrary in this
Agreement, to the Highest Lawful Rate, but any subsequent reductions in the
Prime Rate shall not reduce the interest to accrue pursuant to this Agreement
below the Highest Lawful Rate until the total amount of interest accrued
pursuant to this Agreement equals the amount of interest that would have accrued
if a varying rate per annum equal to the Rate had at all times been in effect.
If the total amount of interest paid or accrued pursuant to this Agreement under
the foregoing provisions is less than the total amount of interest that would
have accrued if a varying rate per annum equal to the Rate had at all times been
in effect, then the Borrower agrees to pay to the Lender an amount equal to the
difference between (a) the lesser of (i) the amount of interest that would have
accrued if the Highest Lawful Rate had at all times been in effect, or (ii) the
amount of interest that would have accrued if a varying rate per annum equal to
the Rate had at all times been in effect, and (b) the amount of interest accrued
in accordance with the other provisions of this Agreement.
2.06 Payment to the Lender.
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The Borrower shall pay monthly to the Lender interest at the Rate as
provided in the Note.
The Lender shall send the Borrower statements of all amounts paid or due
hereunder, which statements shall be considered correct and conclusively binding
on the Borrower unless the Borrower notifies the Lender to the contrary within
thirty (30) days of its receipt of any statement that it deems to be incorrect.
Alternatively, at its sole discretion, the Lender may charge any other deposit
account of the Borrower or demand payment against the statements.
Nothing in this Section 2.06 shall operate to alter the demand nature
of the Loan or otherwise to reduce, diminish or impair the Lender's cumulative
rights and remedies.
ARTICLE 3. CONDITIONS PRECEDENT
The obligation of the Lender to make the Loan is subject to the
following conditions precedent:
3.01 Documents Required for the Closing.
The Borrower shall have delivered to the Lender, prior to the initial
Disbursement (the "Closing"), the following:
(A) The Note duly executed by the Borrower, in the form attached hereto as
Exhibit 2.03;
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(B) The Financial Statements;
(C) The UCC Financing Statements and other instruments required by
Article 4.0;
(D) The fully executed Landlord's Consent and Waiver, in the form attached
hereto as Exhibit 1.21;
------------
(E) A copy, certified as of the date of the Closing, of resolutions of the
board of directors of the Borrower, authorizing the execution, delivery, and
performance of this Agreement, the Note, the Collateral Documents, and each
other document to be delivered pursuant hereto or in connection herewith;
(F) A copy, certified as of the date of the Closing, of the Borrower's
bylaws;
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(G) A certificate of the corporate clerk or assistant clerk of the
Borrower, dated the date of the Closing, as to the incumbency and signatures of
the officers of the Borrower signing this Agreement, the Note, the Collateral
Documents, and each other document to be delivered pursuant hereto;
(H) A copy, certified as of the most recent date practicable by the
Secretary of the Commonwealth of Massachusetts, of the Articles of Organization
of the Borrower, and all amendments thereto, together with a certificate (dated
the date of the Closing) of the corporate clerk or assistant clerk of the
Borrower to the effect that such Articles of Organization have not been further
amended since the date of the aforesaid certification of the Secretary of the
Commonwealth of Massachusetts;
(I) Certificates of legal existence (long form) and good standing dated as
of the most recent date practicable, issued by the Secretary of the Commonwealth
of Massachusetts as to the legal existence, good standing, Articles of
Organization and all amendments thereto of the Borrower, together with a
certificate (dated the date of the Closing) of the corporate clerk or assistant
clerk of the Borrower to the effect that nothing has occurred since issuance of
the Certificates of Legal Existence and Good Standing that would prevent the
Secretary of the Commonwealth of Massachusetts from issuing updated
Certificates;
(J) Certificates, as of the most recent dates practicable, of the
Secretary of the Commonwealth of Massachusetts and of the secretary of state of
each state in which the Borrower is qualified as a foreign corporation and, if
applicable, of the department of revenue or taxation of each of the foregoing
states, as to the good standing of the Borrower, together with a certificate
(dated the date of the Closing) of the corporate clerk or assistant clerk of the
Borrower to the effect that nothing has occurred since issuance of the
Certificate of Good Standing that would prevent the Department of Revenue from
issuing an updated Certificate;
(K) A written opinion of the law firm of Brown, Rudnick, Freed & Gesmer,
P.C., legal counsel for the Borrower, dated the date of the Closing and
addressed to the Lender, in the form attached hereto as Exhibit 3.01(J).
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(L) A certificate, dated the date of the Closing, signed by the
president or a vice president of the Borrower and to the effect that:
(1) The representations and warranties set forth in Section 5.01 are
true as of the date of the Closing; and
(2) No Event of Default hereunder, and no event which, with the giving
of notice or passage of time or both, would become such an Event of Default, has
occurred as of such date;
(M) Copies of all documents evidencing the terms and conditions of any
debt specified as Subordinated Indebtedness on Exhibit 1.32 and fully executed
------------
Subordination Agreements with respect to such Subordinated Indebtedness in form
and substance satisfactory to Lender; and
(N) A certificate of insurance as required by Section 6.01(D).
3.02 Documents Required for Disbursements.
At the time of, and as a condition to, any Disbursement subsequent to the
Closing, the Lender may require the Borrower to deliver to the Lender a
certificate, dated the date on which any such Disbursement is to be made, signed
by the president or a vice president of the Borrower, and to the effect that
(1) As of the date thereof, no Event of Default has occurred and is
continuing, and no event has occurred and is continuing that, but for the giving
of notice or passage of time or both, would be an Event of Default;
(2) No material adverse change has occurred in the business prospects,
financial condition, or results of operations of the Borrower or any Subsidiary
since the date of the Financial Statements; and
(3) Each of the representations and warranties contained in Section 5.01
is true and correct in all respects as if made on and as of the date of such
disbursement.
3.03 Certain Events.
At the time of, and as a condition to, the Closing and each Disbursement to
be made by the Lender at or subsequent to the Closing:
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(A) No Event of Default shall have occurred and be continuing, and no
event shall have occurred and be continuing that, with the giving of notice or
passage of time or both, would be an Event of Default;
(B) No material adverse change shall have occurred in the business
prospects, financial condition, or results of operations of the Borrower or any
Subsidiary since the dates of the Financial Statements; and
(C) All of the Collateral Documents shall have remained in full force
and effect.
3.04 Legal Matters.
At the time of the Closing and each subsequent Disbursement, all legal
matters incidental thereto shall be satisfactory to Bowditch & Dewey, legal
counsel to the Lender.
ARTICLE 4. COLLATERAL SECURITY
4.01 Composition of the Collateral.
The property in which a security interest is granted pursuant to the
provisions of Sections 4.02 and 4.03 is herein collectively called the
"Collateral". The Collateral, together with all other property of the Borrower
of any kind held by the Lender, shall stand as one general, continuing
collateral security for all Obligations and may be retained by the Lender until
all Obligations have been satisfied in full.
4.02 Rights in Property Held by the Lender.
As security for the prompt satisfaction of all Obligations, the Borrower
hereby assigns, transfers, and sets over to the Lender all of its right, title,
and interest in and to, and grants the Lender a lien on and a security interest
in, all amounts that may be owing, from time to time, by the Lender to the
Borrower in any capacity, including, but without limitation, any balance or
share belonging to the Borrower, or any deposit or other account with the
Lender, which lien and security interest shall be independent of, and in
addition to, any right of set-off that the Lender has under Section 8.07 or
otherwise.
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<PAGE>
4.03 Rights in Property Held Either by the Borrower or by the Lender.
As further security for the prompt satisfaction of all of the
Obligations, the Borrower hereby assigns to the Lender all of its right, title
and interest in and to, and grants the Lender a lien upon and a continuing
security interest in, all of the following, wherever located, whether now owned
or hereafter acquired, together with all replacements therefor, accessions
thereto, and proceeds (including, but without limitation, insurance proceeds)
and products thereof:
(A) All Inventory with the sole exception of the two fully working
prototype systems located at the Borrower's facility at 10E Commerce Way,
Woburn, Massachusetts, and further described as follows:
Horizontal System Prototype Vertical System Prototype
- --------------------------- -------------------------
Part # 10004-10001 Part # 10004-10001 VR
Model: H1 Model: VDS-1
Serial #: P002 Serial #: V001
(B) All Accounts, including but not limited to, Contracts, accounts
receivable, contract rights, and Chattel Paper, regardless of whether or not
they constitute proceeds or products of other Collateral;
(C) All General Intangibles, regardless of whether or not they
constitute proceeds or products of other Collateral, including, without
limitation, all the Borrower's rights (which the Lender may exercise or not as
it in its sole discretion may determine) to acquire or obtain Goods and/or
services with respect to the manufacture, processing, storage, sale, shipment,
delivery or installation of any of the Borrower's Inventory or other Collateral;
(D) All products of and accessions to any of the Collateral;
(E) All liens, guaranties, securities, rights, remedies and privileges
pertaining to any of the Collateral, including the right of stoppage in transit;
(F) All obligations owing to the Borrower of every kind and nature,
and all choses in action;
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<PAGE>
(G) All tax refunds of every kind and nature to which the Borrower is
now or hereafter may become entitled no matter however arising, including,
without limitation, loss carryback refunds;
(H) All Intellectual Property, goodwill, trade secrets, computer programs,
customer lists, trade names, trademarks, copyrights and patents;
(I) All Chattel Paper, Documents and Instruments (whether negotiable or
non-negotiable, and regardless of their being attached to Chattel Paper);
(J) All Equipment, including without limitation machinery, furniture,
motor vehicles, Fixtures and all other Goods used in the conduct of the business
of the Borrower;
(K) All proceeds of Collateral of every kind and nature and in whatever
form, including, without limitation, both cash and non-cash proceeds resulting
or arising from the rendering of services by the Borrower or the sale or other
disposition by the Borrower of the Inventory or other Collateral;
(L) All books, Records, computer disks, diskettes, electronic data and
other information relating to the conduct of the Borrower's business including,
without in any way limiting the generality of the foregoing, those relating to
its Accounts; and
(M) All deposit accounts maintained by the Borrower with any bank, trust
company, investment firm or fund, or any similar institution or organization.
4.04 Priority of Liens.
The foregoing liens shall be first and prior liens except for Permitted
Liens.
4.05 UCC Financing Statements.
(A) The Borrower will:
(1) Execute such UCC financing statements (including amendments
thereto and continuation statements thereof) in form satisfactory to the Lender
as the Lender, from time to time, may specify;
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(2) Pay, or reimburse the Lender for paying, all costs and taxes of
filing or recording the same in such public offices as the Lender may designate;
and
(3) Take such other steps as the Lender, from time to time, may
direct, including the noting of the Lender's lien on the Collateral and on any
certificates of title therefor, all to perfect to the satisfaction of the Lender
the Lender's interest in the Collateral.
(B) In addition to the foregoing, and not in limitation thereof:
(1) A carbon, photographic, or other reproduction of this Agreement
shall be sufficient as a UCC financing statement and may be filed in any
appropriate office in lieu thereof; and
(2) To the extent lawful, the Borrower hereby appoints the Lender as
its attorney-in-fact (without requiring the Lender to act as such) to execute
any UCC financing statement in the name of the Borrower, and to perform all
other acts that the Lender deems appropriate to perfect and continue its
security interest in, and to protect and preserve, the Collateral.
4.06 Mortgagees', Landlords', and Warehousemen's Waivers.
The Borrower will, within twenty (20) days after any request of the
Lender, cause any mortgagee of real estate owned by the Borrower, any landlord
of premises leased by the Borrower, and any warehouseman or other bailee on
whose premises any of the Collateral may be located to execute and deliver to
the Lender instruments, in form and substance satisfactory to the Lender, by
which such mortgagee, landlord or warehouseman or other bailee waives its
rights, if any, in and to all Goods composing a part of the Collateral.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
5.01 Original.
To induce the Lender to enter into this Agreement, the Borrower
represents and warrants to the Lender as follows:
(A) The Borrower is a corporation duly organized, validly existing, and in
good standing under the Laws of the Commonwealth of Massachusetts; the Borrower
has no Subsidiaries other than the
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Subsidiaries named in Exhibit 5.01(A); each Subsidiary is a corporation duly
---------------
organized, validly existing, and in good standing under the Laws of its
jurisdiction of incorporation, all as set forth in Exhibit 5.01(A); the Borrower
---------------
and Subsidiaries have the lawful power to own their properties and to engage in
the businesses they conduct, and each is duly qualified and in good standing as
a foreign corporation in the jurisdictions wherein the nature of the business
transacted by it or property owned by it makes such qualification necessary; the
states in which the Borrower and each Subsidiary are qualified to do business
are set forth in Exhibit 5.01(A) or otherwise disclosed to the Lender in
---------------
writing; the percentage of the Borrower's ownership of the outstanding stock of
each Subsidiary is as listed in Exhibit 5.01(A); the addresses of all places of
---------------
business of the Borrower and its Subsidiaries are as set forth in Exhibit
-------
5.01(A) or otherwise disclosed to the Lender in writing; neither the Borrower
- -------
nor any Subsidiary has changed its name, been the surviving corporation in a
merger, acquired any business, or changed its principal executive office within
five (5) years and one (1) month prior to the date hereof except as set forth in
Exhibit 5.01(A); and all of the authorized, issued, and outstanding shares of
- ---------------
capital stock of each Subsidiary are owned by the Borrower;
(B) Neither the Borrower nor any Subsidiary is directly or indirectly
controlled by, or acting on behalf of, any Person which is an "Investment
Company", within the meaning of the Investment Company Act of 1940, as amended;
(C) Neither the Borrower nor any Subsidiary is in default with respect
to any of its existing Indebtedness, and the making and performance of this
Agreement, the Note, and the Collateral Documents will not (immediately or with
the passage of time, the giving of notice, or both):
(1) violate the Articles of Organization or by-laws of the Borrower or
any Subsidiary, or violate any Laws or result in a default under any contract,
agreement, or instrument to which the Borrower or any Subsidiary is a party or
by which the Borrower or any Subsidiary or its property is bound; or
(2) result in the creation or imposition of any security interest in,
or lien or encumbrance upon, any of the assets of the Borrower or any Subsidiary
except in favor of the Lender;
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<PAGE>
(D) The Borrower has the power and authority to enter into and perform
this Agreement, the Note, and the Collateral Documents, and to incur the
obligations herein and therein provided for, and has taken all actions necessary
to authorize the execution, delivery, and performance of this Agreement, the
Note, and the Collateral Documents;
(E) This Agreement, the Note, and the Collateral Documents are, or when
delivered will be, valid, binding, and enforceable in accordance with their
respective terms;
(F) Except as disclosed in Exhibit 5.01(F) hereto, there is no pending
---------------
order, notice, claim, litigation, proceeding, or investigation against or
affecting the Borrower or any Subsidiary, whether or not covered by insurance,
that would in the aggregate involve the payment of $10,000.00 or more or would
otherwise materially or adversely affect the financial condition or business
prospects of the Borrower or any Subsidiary if adversely determined;
(G) The Borrower and its Subsidiaries have good and marketable title
to all of their assets, none of which is subject to any security interest,
encumbrance or lien, or claim of any third Person except for Permitted Liens;
(H) The Financial Statements, including any schedules and notes
pertaining thereto, have been prepared in accordance with GAAP, and fully and
fairly present the financial condition of the Borrower and its Subsidiaries at
the dates thereof and the results of operations for the periods covered thereby,
and there have been no material adverse changes in the consolidated financial
condition or business of the Borrower and its Subsidiaries from September 30,
1995, to the date hereof;
(I) As of the date hereof, the Borrower and its Subsidiaries have no
material Indebtedness of any nature, including, but without limitation,
liabilities for taxes and any interest or penalties relating thereto except to
the extent reflected (in a footnote or otherwise) and reserved against in the
consolidated balance sheet dated September 30, 1995 included in the Financial
Statements or as disclosed in, or permitted by, this Agreement; and the Borrower
does not know or have reasonable ground to know of any basis for the assertion
against it or any Subsidiary of any claim or litigation related to such
Indebtedness as of the date of the Closing except as disclosed on Exhibit
-------
5.01(F) or otherwise disclosed to the Lender in writing;
- -------
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<PAGE>
(J) Except as otherwise permitted herein, the Borrower has filed all
federal, state, and local tax returns and other reports required by any
applicable Laws to have been filed prior to the date hereof, has paid or caused
to be paid all taxes, assessments, and other governmental charges that are due
and payable prior to the date hereof, and has made adequate provision for the
payment of such taxes, assessments, or other charges accruing but not yet
payable; the Borrower has no knowledge of any deficiency or additional
assessment in a materially important amount in connection with any taxes,
assessments, or charges not provided for on its books;
(K) Except to the extent that the failure to comply would not
materially interfere with the conduct of the business of the Borrower or any
Subsidiary, the Borrower and its Subsidiaries have each complied with all
applicable Laws with respect to (1) any restrictions, specifications, or other
requirements pertaining to products that it manufactures or sells or to the
services it performs; (2) the conduct of its business; and (3) the use,
maintenance, and operation of the real and personal properties owned or leased
by it in the conduct of its business;
(L) No representation or warranty by or with respect to the Borrower
or any Subsidiary contained herein or in any certificate or other document
furnished by the Borrower or any Subsidiary pursuant hereto contains any untrue
statement of a material fact or omits to state a material fact necessary to make
such representation or warranty not misleading in light of the circumstances
under which it was made;
(M) Each consent, approval or authorization of, or filing, registration or
qualification with, any Person required to be obtained or effected by the
Borrower, any Subsidiary, or any guarantor in connection with the execution and
delivery of this Agreement, the Note, and the Collateral Documents or the
undertaking or performance of any obligation hereunder or thereunder has been
duly obtained or effected;
(N) There is no Indebtedness of the Borrower or any Subsidiary: (1)
for money borrowed, or (2) under any security agreement, mortgage or agreement
covering the lease by the Borrower or any Subsidiary as lessee of real or
personal property except as reflected in the Financial Statements or as
described in Exhibit 5.01(N);
---------------
(O) Except as described in Exhibit 5.01(O), attached hereto, or
---------------
otherwise disclosed to the Lender in writing, (a)
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<PAGE>
neither the Borrower nor any Subsidiary has any material leases, contracts, or
commitments of any kind (including, without limitation, employment agreements;
collective bargaining agreements; powers of attorney; distribution arrangements;
licenses, patents, copyrights, trademarks, service marks or license agreements;
contracts for future purchase or delivery of Goods or rendering of services;
bonuses, pension, and retirement plans; or accrued vacation pay, insurance, and
welfare agreements); (b) to the best of Borrower's knowledge, all parties to all
such material leases, contracts, and other commitments to which the Borrower or
any Subsidiary is a party have complied with the provisions of such leases,
contracts, and other commitments; and (c) to the best of Borrower's knowledge,
no party is in default under any term thereof and no event has occurred which,
but for the giving of notice or the passage of time, or both, would constitute a
default;
(P) The Borrower has not made any agreement or taken any action which
may cause anyone to become entitled to a commission or finder's fee as a result
of or in connection with the making of the Loan;
(Q) The Borrower's consolidated federal tax returns for all years of
operation, including the year ended September 30, 1994, have been filed with the
Internal Revenue Service and have not been challenged. The Borrower's
consolidated federal tax return for the year ended September 30, 1995 shall be
filed with the Internal Revenue Service by June 15, 1996;
(R) Any Employee Pension Benefit Plans, as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), of the Borrower
and each Subsidiary meet, as of the date hereof, the minimum funding standards
of 29 U.S.C.A. 1082 (Section 302 of ERISA), and no Reportable Event or
Prohibited Transaction, as defined in ERISA, has occurred with respect to any
Employee Benefit Plans, as defined in ERISA, of the Borrower or any Subsidiary;
(S) The liens and security interests created pursuant to Sections 4.02
and 4.03 are and will be at the Closing in all cases first and prior liens
except for Permitted Liens;
(T) Except as shown on Exhibit 1.20, Borrower has no patent claims,
------------
trademark or copyright registrations or other filings or applications protecting
its Intellectual Property in any jurisdiction; and
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<PAGE>
(U) The Borrower is in full compliance with all of its tenant
obligations under that certain Commercial Lease dated December 19, 1995 between
the Borrower and Cummings Properties Management, Inc.; the Landlord's Consent
and Waiver dated as of April 4, 1996 among the Borrower, Cummings Properties
Management, Inc. and the Lender is in full force and effect; and the Borrower
knows of no default under the Commercial Lease.
5.02 Survival.
All of the representations and warranties set forth in Section 5.01
shall survive until all Obligations are satisfied in full and there remain no
outstanding commitments hereunder.
ARTICLE 6. COVENANTS OF THE BORROWER
6.01 Affirmative Covenants.
The Borrower does hereby covenant and agree with the Lender that, so
long as any of the Obligations remain unsatisfied or any commitments hereunder
remain outstanding, it will comply, or if appropriate cause its Subsidiaries to
comply, at all times with the following affirmative covenants:
(A) The Borrower will use the proceeds of the Loan for working capital
purposes and will furnish the Lender such evidence as it may reasonably require
with respect to such use;
(B) The Borrower will furnish the Lender:
(1) As soon as available, (i) but in any event within thirty (30) days
after the close of each month in each fiscal year: (a) a statement of
stockholders' equity and a statement of changes in financial position of the
Borrower for such month; (b) an income statement of the Borrower for such month;
and (c) a balance sheet of the Borrower as of the end of such month, and (ii)
but in any event within thirty (30) days after the close of each fiscal quarter
in each fiscal year: (a) a consolidated statement of stockholders' equity and a
consolidated statement of changes in financial position of the Borrower and its
Subsidiaries for such quarter; (b) consolidated and consolidating income
statements of the Borrower and its Subsidiaries for such quarter; and (c)
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such quarter--all in reasonable detail, subject to
normal year-end audit
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<PAGE>
adjustments and certified by the Borrower's president or controller to have been
prepared in accordance with GAAP;
(2) As soon as available, but in any event within one hundred twenty
(120) days after the close of each fiscal year: (a) a consolidated statement of
stockholders' equity and a consolidated statement of changes in financial
position of the Borrower and its Subsidiaries for such fiscal year; (b)
consolidated and consolidating income statements of the Borrower and its
Subsidiaries for such fiscal year; and (c) consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal
year--all such statements to be in reasonable detail, including all supporting
schedules and comments; the consolidated statements and balance sheets to be
audited by Arthur Andersen or another independent certified public accountant
selected by Borrower and acceptable to the Lender, and certified by such
accountants to have been prepared in accordance with GAAP and to present fairly
the consolidated financial position and results of operations of the Borrower
and its Subsidiaries; in addition, the Borrower will obtain from such
independent certified public accountants and deliver to the Lender, within one
hundred twenty (120) days after the close of each fiscal year, their written
statement that in making the examination necessary to their certification they
have obtained no knowledge of any Event of Default by the Borrower, or
disclosing all Events of Default of which they have obtained knowledge (it being
understood and agreed by the Lender that in making their examination, such
accountants shall not be required to go beyond the bounds of generally accepted
auditing procedures for the purpose of certifying financial statements); the
Lender shall have the right, from time to time to discuss the affairs of the
Borrower directly with such independent certified public accountants after
notice to the Borrower and opportunity of the Borrower to be represented at any
such discussions;
(3) Contemporaneously with each monthly and year-end financial report
required by the foregoing paragraphs (1) and (2), a certificate of the president
or controller of the Borrower stating that he has individually reviewed the
provisions of this Agreement and that a review of the activities of the Borrower
during such year or monthly period, as the case may be, has been made by him or
under his supervision, with a view to determining whether the Borrower has
fulfilled all its obligations under this Agreement, and that, to the best of his
knowledge, the Borrower has observed and performed each undertaking contained in
this Agreement and is not in default in the observance or performance of any of
the provisions hereof or, if the Borrower shall be so
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<PAGE>
in default, specifying all such defaults and events of which he may have
knowledge;
(4) Promptly after the sending or making available or filing of the
same, copies of all reports, proxy statements, and financial statements that the
Borrower or any successor Person sends or makes available to its stockholders
and all registration statements and reports that the Borrower or any successor
Person files with the Securities and Exchange Commission;
(5) Within thirty (30) days after the end of each calendar month, in
such form and detail as shall be satisfactory to the Lender, an aging, as of the
end of such month, of Accounts of the Borrower certified by the president or
controller of the Borrower to be complete and correct;
(6) Within thirty (30) days after the end of each calendar month, in
such form and detail as shall be satisfactory to the Lender, a listing of
Borrower's Inventory, showing the amount, size, grade, manufacturer, and cost of
each item or group thereof;
(7) As soon as available, but in any event within one hundred twenty
(120) days after the close of each fiscal year: financial and operating
projections for the next fiscal year--all such projections to contain such
detail and to be in such form as the Lender may request, and to include all
supporting schedules and comments, and to be certified by the president or
controller of the Borrower to be complete;
(8) Upon the Lender's request, from time to time, copies of any or all
agreements, contracts, or commitments referred to in Section 5.01(O) hereof;
(C) The Borrower will maintain its Inventory, Equipment, real estate,
and other properties in good condition and repair (normal wear and tear
excepted), and will pay and discharge or cause to be paid and discharged, when
due, the cost of repairs to, or maintenance of, the same, and will pay or cause
to be paid in a timely manner all rental or mortgage payments due on such real
estate. The Borrower hereby agrees that, in the event it fails to pay or cause
to be paid any such payment, it will promptly notify the Lender thereof, and the
Lender may, in its discretion, do so and on demand be reimbursed therefor by the
Borrower;
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<PAGE>
(D) The Borrower and its Subsidiaries will maintain, or cause to be
maintained, public liability insurance (subject to a maximum of $10,000.00 in
deductibles for each entity) and fire and extended coverage insurance on all
assets that are of a character usually insured by corporations engaged in the
same or similar businesses, all in form and amount sufficient to indemnify the
Borrower or Subsidiary for 100% of the appraised value of any such asset lost or
damaged (subject to any deductible customary in the Borrower's or Subsidiary's
industry) or in an amount consistent with the amount of insurance generally
carried on comparable assets within the industry and with such insurers as may
be satisfactory to the Lender. The Borrower and its Subsidiaries will cause all
such insurance policies to contain a standard mortgage clause and to be payable
to the Lender as its interest may appear, to deliver the policies of insurance
to the Lender, and, in the case of all policies of insurance carried for the
benefit of the Borrower or any Subsidiary by any lessee, sublessee, subtenant,
or other party having rights to occupy or use the mortgage property or any part
thereof or interest therein under any lease, sublease, or other agreement
(whether oral, written, or otherwise evidenced), to cause all such policies to
be payable to the Lender as its interest may appear. Such policies shall
contain a provision whereby they cannot be cancelled except after ten (10) days'
written notice to the Lender. The Borrower will furnish to the Lender such
evidence of insurance as the Lender may require. The Borrower hereby agrees
that, in the event it or any Subsidiary fails to pay or cause to be paid the
premium on any such insurance when due, the Lender, in its discretion, may do so
and be reimbursed by the Borrower therefor. The Borrower and each Subsidiary
hereby assign to the Lender any returned or unearned premiums that may be due
the Borrower or any Subsidiary upon cancellation by the insurer of any such
policy for any reason whatsoever and direct any such insurer to pay the Lender
any amounts so due. Provided, however, that the Lender will pay to the Borrower
or the appropriate Subsidiary any such returned or unearned premiums within five
(5) days after the receipt thereof if there has not occurred and be continuing
an Event of Default hereunder. The Lender is hereby appointed the attorney-in-
fact of the Borrower and each Subsidiary (without requiring the Lender to act as
such) to endorse any check which may be payable to the Borrower or any
Subsidiary to collect any premiums or the proceeds of such insurance (other than
proceeds of public liability insurance), and any amount so collected may be
applied by the Lender toward satisfaction of any of the Obligations if an Event
of Default has occurred and is continuing. If the Lender receives any proceeds
from insurance in the absence of an Event
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<PAGE>
of Default, it shall remit such proceeds to the Borrower or such Subsidiary
within three (3) Business Days after the Lender's receipt of such proceeds;
(E) The Borrower and its Subsidiaries will each pay or cause to be
paid when due, all taxes, assessments, and charges or levies imposed upon it or
on any of its property or which it is required to withhold and pay except where
contested in good faith by appropriate proceedings with adequate reserves
therefor having been set aside on its books; provided, however, that the
Borrower and each Subsidiary shall pay or cause to be paid all such taxes,
assessments, charges or levies forthwith whenever foreclosure on any lien that
may have attached (or security therefor) appears imminent;
(F) The Borrower shall permit the representatives of the Lender to
make reasonable physical inspections at any time during normal business hours of
the Collateral and of the Borrower's facilities, activities, books and Records,
and cause its officers and employees to give full cooperation and assistance in
connection therewith, so that Lender can determine whether the Borrower has
maintained the Borrowing Base at no less than the principal amount of the Loan
outstanding; the cost of such inspections shall be paid for by Borrower as an
additional amount due under the Loan;
(G) The Borrower and its Subsidiaries will each take all necessary
steps to preserve its corporate existence and franchises and comply with all
present and future Laws applicable to it in the operation of its business, and
all material agreements to which it is subject;
(H) The Borrower and its Subsidiaries will each collect its Accounts
and sell its Inventory only in the ordinary course of business;
(I) The Borrower and its Subsidiaries will each keep accurate and
complete Records of its Accounts, Inventory, and Equipment consistent with sound
business practices;
(J) The Borrower and its Subsidiaries will each give prompt notice to
the Lender of (1) any litigation or proceeding in which it is a party if an
adverse decision therein would require it to pay more than $10,000.00 or deliver
assets the value of which exceeds such sum (whether or not the claim is
considered to be covered by insurance); and (2) the institution of any other
suit or proceeding involving it that might materially and adversely
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<PAGE>
affect its operations, financial condition, property, or business prospects;
(K) Within ten (10) days after the filing thereof, the Borrower will
furnish the Lender with copies of federal income tax returns filed by the
Borrower. The Borrower will cause the full amount of each federal and other
income tax refund (including any interest component thereof) received by the
Borrower to be applied as an immediate repayment or partial repayment of the
Loan;
(L) The Borrower and its Subsidiaries will each pay when due (or
within applicable grace periods) all of its other Indebtedness due third Persons
except when the amount thereof is being contested in good faith by appropriate
proceedings and with adequate reserves therefor being set aside on its books;
provided, however, that no payment shall be made in respect to Subordinated
Indebtedness except in strict compliance with all of the terms of subordination
thereof theretofore approved in writing by the Lender. If default be made by
the Borrower or any Subsidiary in the payment of any principal (or installment
thereof) of, or interest on, any such Indebtedness, the Lender shall have the
right, in its discretion, to pay such interest or principal for the account of
the Borrower or such Subsidiary and be reimbursed by the Borrower or such
Subsidiary therefor;
(M) The Borrower and its Subsidiaries will each notify the Lender
immediately if it becomes aware of the occurrence of any Event of Default or of
any fact, condition, or event that only with the giving of notice or passage of
time or both, could become an Event of Default or if it becomes aware of any
material adverse change in the business prospects, financial condition
(including, without limitation, proceedings in bankruptcy, insolvency,
reorganization, or the appointment of a receiver or trustee), or results of
operations of the Borrower, a Subsidiary, or any guarantor or of the failure of
the Borrower or any Subsidiary to observe any of their respective undertakings
hereunder or under the Collateral Documents;
(N) The Borrower and its Subsidiaries will each notify the Lender
thirty (30) days in advance of any change in the location of any of its places
of business or of the establishment of any new, or the discontinuance of any
existing, place of business;
(O) The Borrower and its Subsidiaries will each (1) fund any of its
Employee Pension Benefit Plans in accordance with no less than the minimum
funding standards of 29 U.S.C.A. 1082
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(Section 302 of ERISA); (2) furnish the Lender, promptly after the filing of the
same, with copies of any reports or other statements filed with the United
States Department of Labor or the Internal Revenue Service with respect to any
such Plan; and (3) promptly advise the Lender of the occurrence of any
Reportable Event or Prohibited Transaction with respect to any Employee Benefit
Plan;
(P) With respect to Letters of Credit:
(1) The Borrower shall require that each Letter of Credit issued for
its benefit shall provide that one of the required documents for the first
payment under the Letter of Credit shall be a copy of an assignment of proceeds
executed by the Borrower (the beneficiary of the Letter of Credit) in favor of
the Lender; said assignment shall be for the full amount of the Letter of Credit
and shall provide that all payments under the Letter of Credit shall be made to
the Operating Account;
(2) The Borrower will take all necessary and advisable steps to ensure
that the Letter of Credit will be delivered to the paying or confirming bank and
that said paying or confirming bank shall be authorized to retain the Letter of
Credit on behalf of the Lender, which is the assignee of the proceeds thereof;
(3) In the event that the Borrower is unable to obtain the assignment
of the Letter of Credit in accordance with subparagraphs (1) and (2) above, the
Borrower shall arrange in writing (with a copy to the Lender) with the account
party under the Letter of Credit that the issuer of said Letter of Credit
include therein a provision to the effect that payment under said Letter of
Credit shall be negotiated only at the Lender's counters or, alternatively, that
payment shall be made only to the Operating Account;
(Q) The Borrower shall require payment of all Accounts in U.S. Dollars
or in such other form or currency as is acceptable to the Lender;
(R) So long as any Obligations are outstanding, the Borrower shall
maintain its primary depository accounts with the Lender; and
(U) The Borrower shall maintain:
(1) A Current Ratio, tested at the end of each fiscal quarter, of not
less than 1.5:1.0; and
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(2) A ratio of Current Liabilities to Tangible Net Worth, tested at
the end of each fiscal quarter, of not more than 1.0:1.0.
6.02 Negative Covenants.
The Borrower does hereby covenant and agree with the Lender that, so
long as any of the Obligations remain unsatisfied or any commitments hereunder
remain outstanding, it will comply, or if appropriate cause its Subsidiaries to
comply, at all times with the following negative covenants, unless the Lender
shall otherwise have agreed in writing:
(A) Neither the Borrower nor any Subsidiary will change its name,
enter into any merger, consolidation, reorganization or recapitalization, or
reclassify its capital stock;
(B) Neither the Borrower nor any Subsidiary will sell, transfer,
lease, or otherwise dispose of all or (except in the ordinary course of
business) any material part of its assets;
(C) Neither the Borrower nor any Subsidiary will sell, lease,
transfer, assign, or otherwise dispose of any of the Collateral except in the
ordinary course of business;
(D) Neither the Borrower nor any Subsidiary will sell or otherwise
dispose of, or for any reason cease operating, any of its divisions, franchises,
or lines of business;
(E) Neither the Borrower nor any Subsidiary will mortgage, pledge,
grant, or permit to exist a security interest in, or a lien upon, any of its
assets of any kind, now owned or hereafter acquired, except for Permitted Liens,
liens of the Collateral Documents, and existing liens listed on Exhibit 5.01(N)
---------------
to the extent shown on such Exhibit 1.28 to be permitted to exist after the
------------
Closing;
(F) Neither the Borrower nor any Subsidiary will become liable,
directly or indirectly, as guarantor or otherwise for any obligation of any
other Person, except for the endorsement of commercial paper for deposit or
collection in the ordinary course of business;
(G) Neither the Borrower nor any Subsidiary will incur, create,
assume, or permit to exist any Indebtedness except: (1) the Loan; (2) existing
Indebtedness listed on Exhibit 5.01(N)
---------------
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to the extent shown on such Exhibit 1.28 to be permitted to exist after the
------------
Closing; (3) trade indebtedness incurred in the ordinary course of business
(provided, however, that neither the Borrower nor any Subsidiary may acquire
inventory other than for cash or on open account except as expressly approved in
writing and in advance by the Lender); (4) contingent Indebtedness permitted by
Section 6.02(F); (5) operating lease obligations incurred in the normal course
of business under the current lease arrangement; (6) Indebtedness secured by
Permitted Liens; and (7) Subordinated Indebtedness;
(H) The Borrower shall not declare, pay or set apart any funds for the
payment of any dividends (other than dividends payable in shares of the
Borrower's stock) on any class of shares of the Borrower's stock, or apply any
of its funds, property or assets to, or set apart any funds, property or assets
for, the purchase, redemption or other retirement of, or make any other
distribution, by reduction of capital or otherwise, in respect of any class of
shares of the Borrower's stock, or with respect to any other funds or assets
without the prior written consent of the Lender;
(I) Neither the Borrower nor any Subsidiary will form any subsidiary,
make any investment in (including any assignment of Inventory or other
property), or make any loan in the nature of an investment to, any Person, other
than investments of the Borrower in the Subsidiaries listed on Exhibit 5.01(A);
---------------
(J) Neither the Borrower nor any Subsidiary will make payments on
account of the purchase or lease of consolidated fixed assets that, in the
aggregate, in any fiscal year (commencing with the current fiscal year) will
exceed the depreciation taken or to be taken with respect to consolidated fixed
assets during such year; as used in this paragraph, the term "lease" means a
lease reflected on a consolidated balance sheet of the Borrower and its
Subsidiaries or a lease that should be so reflected under GAAP;
(K) Neither the Borrower nor any Subsidiary will purchase or otherwise
invest in or hold securities, nonoperating real estate, or other nonoperating
assets except: (1) direct obligations of the United States of America, or of a
bank with assets of not less than $50,000,000.00 or other investments approved
in advance in writing by the Lender; (2) the present investment in any such
assets held as of September 30, 1995 and reflected in the Financial Statements;
and (3) operating assets that hereafter become nonoperating assets;
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(L) Neither the Borrower nor any Subsidiary will transfer, purchase or
redeem, or permit any subsidiary to transfer or purchase, any shares of the
Borrower's capital stock unless such transfer, purchase or redemption is
effected solely from the proceeds of and within a reasonable time after the
issuance to third parties by the Borrower or its subsidiary of capital stock
which is in addition to the capital stock of the Borrower or its subsidiary, as
the case may be, outstanding on the date of the Agreement;
(M) Neither the Borrower nor any Subsidiary will prepay any
Subordinated Indebtedness, Indebtedness for borrowed money except the
Obligations, or Indebtedness secured by any of its assets (except the
Obligations), or enter into or modify any agreement as a result of which the
terms of payment of any of the foregoing Indebtedness are waived or modified;
(N) Neither the Borrower nor any Subsidiary will enter into any sale-
leaseback transaction;
(O) Neither the Borrower nor any Subsidiary will acquire or agree to
acquire any stock in, or all or substantially all of the assets of, any Person;
(P) Neither the Borrower nor any Subsidiary will furnish the Lender
any certificate or other document that will contain any untrue statement of
material fact or that will omit to state a material fact necessary to make it
not misleading in light of the circumstances under which it was furnished;
(Q) Neither the Borrower nor any Subsidiary will directly or
indirectly apply any part of the proceeds of the Loan to the purchasing or
carrying of any "margin stock" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, or any regulations, interpretations,
or rulings thereunder;
(R) The Borrower shall make no payments of principal, interest, or of
any other amounts under any Subordinated Indebtedness until all amounts
outstanding under the Loan ("Senior Debt") have been paid in full; in the event
of the dissolution or winding up of the Borrower's business affairs, the
Subordinated Indebtedness shall at all times be subordinated to the Senior Debt.
At such time as there shall exist any Subordinated Indebtedness, the Borrower
shall obtain from the
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subordinated creditor a written undertaking affirming this covenant;
(S) During the term of the Loan, the Borrower shall not make any
advances to any stockholder, Affiliate or related entity (including but not
limited to, partnerships, joint ventures, joint stock companies, corporations,
parent companies or subsidiaries) except that the Borrower may use Loan proceeds
to fund its wholly owned British subsidiary, Vivid Technologies UK Ltd.;
(T) Neither the Borrower nor any Subsidiary shall utilize the Loan for
the purpose of servicing any of the Borrower's pre-existing or future
indebtedness unrelated to the Loan; and
(U) The Borrower shall not incur (i) for any two (2) consecutive
fiscal quarters net operating losses aggregating more than $300,000.00 or (ii)
in any fiscal year, a net operating loss.
ARTICLE 7. DEFAULT
7.01 Events of Default.
The occurrence of any one or more of the following events shall
constitute an Event of Default hereunder:
(A) The Borrower or any guarantor shall fail to pay when due any of
its Obligations to pay money to the Lender;
(B) The Borrower or any guarantor or Subsidiary shall fail to observe
or perform any of its Obligations other than payment of money to be observed or
performed by it hereunder, under any of the Collateral Documents or otherwise,
and such failure shall continue for five (5) days after (1) notice of such
failure from the Lender; or (2) the Lender is notified of such failure or should
have been so notified pursuant to the provisions of Section 6.01(N), whichever
is earlier;
(C) The Borrower or any Subsidiary shall fail to pay any Indebtedness
due any third Persons, and such failure shall continue beyond any applicable
grace period, or the Borrower or any Subsidiary shall suffer to exist any other
event of default under any agreement binding the Borrower or any Subsidiary;
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(D) Any financial statement, representation, warranty, or certificate
made or furnished by or with respect to the Borrower or any guarantor or
Subsidiary to the Lender in connection with this Agreement, or as inducement to
the Lender to enter into this Agreement, or in any separate statement or
document to be delivered to the Lender hereunder, shall be materially false,
incorrect, or incomplete when made;
(E) The Borrower or any guarantor or Subsidiary shall admit its
inability to pay its debts as they mature or shall make an assignment for the
benefit of itself or any of its creditors;
(F) Proceedings in bankruptcy, or for reorganization of the Borrower
or any Subsidiary, or for the readjustment of any of their respective debts
under the Bankruptcy Code, as amended, or any part thereof, or under any other
Laws, whether state or federal, for the relief of debtors, now or hereafter
existing, shall be commenced against or by the Borrower or any guarantor or
Subsidiary and, except with respect to any such proceedings instituted by the
Borrower, guarantor or a Subsidiary, shall not be discharged within ninety (90)
days of their commencement;
(G) A receiver or trustee shall be appointed for the Borrower or any
guarantor or Subsidiary or for any substantial part of their respective assets,
or any proceedings shall be instituted for the dissolution or the full or
partial liquidation of the Borrower or any guarantor or Subsidiary, and except
with respect to any such appointments requested or instituted by the Borrower,
any guarantor or a Subsidiary, such receiver or trustee shall not be discharged
within ninety (90) days of his appointment, and except with respect to any such
proceedings instituted by the Borrower, a guarantor or a Subsidiary, such
proceedings shall not be discharged within ninety (90) days of their
commencement, or the Borrower or any guarantor or Subsidiary shall discontinue
business or materially change the nature of its business, or the Collateral
becomes, in the reasonable judgment of the Lender, insufficient in value to
satisfy the Obligations, or the Lender otherwise reasonably finds itself
insecure as to the prompt and punctual payment and discharge of the Obligations;
(H) The Borrower or any guarantor or Subsidiary shall suffer final
judgments for payment of money aggregating in excess of $10,000.00 and shall not
discharge the same within a period of ninety (90) days unless, pending further
proceedings, execution has not been commenced or, if commenced, has been
effectively stayed;
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(I) A judgment creditor of the Borrower or any guarantor or Subsidiary
shall obtain possession of any of the Collateral by any means, including
(without implied limitation) levy, distraint, replevin, or self-help; or
(J) Any obligee of Subordinated Indebtedness shall fail to comply with
the subordination provisions of the instruments evidencing such Subordinated
Indebtedness.
7.02 Acceleration.
At its option, and at any time, whether immediately or otherwise, the
Lender may, upon the occurrence of any Event of Default, declare all Obligations
of the Borrower or guarantor to the Lender immediately due and payable without
further action of any kind and without notice, demand or presentment.
7.03 Demand Nature of Obligations.
The enumeration of the non-exclusive list of Events of Default in no
way modifies the demand nature of the Obligations. The occurrence of any one or
more Events of Default may cause the Lender (i) to make demand for payment and
performance of all Obligations, (ii) to cease making advances under the Loan,
and (iii) to exercise its cumulative rights and remedies. The Borrower
acknowledges that in so acting the Lender shall be deemed to be acting in a
commercially reasonable manner and in good faith. The Borrower acknowledges
that the occurrence of an Event of Default is not a condition or prerequisite to
the Lender making demand for payment or performance of any of the Obligations.
ARTICLE 8. THE LENDER'S RIGHTS AND REMEDIES
8.01 The Lender's Rights Upon Default.
Upon demand on the Note or the occurrence of an Event of Default and
at any time thereafter, the Lender, without presentment, demand, notice, protest
or advertisement of any kind, will have the rights set forth in this Article.
8.02 Account Debtors.
Upon demand on the Note or the occurrence of an Event of Default and
at any time thereafter, the Lender may notify account
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<PAGE>
debtors, at the Borrower's expense, that the Collateral has been assigned to the
Lender and that payments shall be made directly to the Lender. Upon request of
the Lender, the Borrower will notify such account debtors that their accounts
must be paid to the Lender. Upon demand on the Note or the occurrence of an
Event of Default and at all times thereafter, the Borrower will hold all checks,
drafts, cash and other remittances in trust for the Lender and deliver them in
kind to the Lender. The Lender shall have full power to collect, compromise,
endorse, sell or otherwise deal with the Collateral or proceeds thereof in its
own name or in the name of the Borrower.
8.03 Possession and Foreclosure of Collateral.
Upon demand or the occurrence of an Event of Default and at any time
thereafter, the Lender shall have the following rights and remedies, which
rights and remedies are cumulative and not exclusive: (i) to the extent that
the Borrower could legally do so, the Lender may enter onto, occupy and use any
premises owned by the Borrower or in which the Borrower has any interest; (ii)
the Lender may take possession of all or any Collateral; (iii) in the Lender's
sole discretion, the Lender may operate and use the Borrower's equipment,
complete work in process and sell inventory without being liable to the Borrower
on account of any losses, damage or depreciation that may occur as a result
thereof (so long as the Lender acts in good faith); and (iv) the Lender may
lease or license the Collateral to any Person for such purposes.
In any event, the Lender may sell, lease, assign and deliver the whole
or any part of the Collateral, at public or private sale, for cash, upon credit
or for future delivery, at such prices and upon such terms as the Lender deems
advisable. The Lender may sell or lease Collateral alone or in conjunction with
other property, real or personal, and allocate the sale proceeds or leases among
the items of Collateral sold without the necessity of the Collateral being
present at any such sale, or in view of prospective purchasers thereof. If
notice of sale is legally required, the Borrower agrees that five (5) days oral
notice shall be deemed reasonable. Upon such sale, the Lender may become the
purchaser of the whole or any part of the Collateral sold, discharged from all
claims and free from any right of redemption. In case of any such sale by the
Lender of all or any of the Collateral on credit, or for future delivery, such
Collateral so sold may be retained by the Lender until the selling price is paid
by the purchaser. The Lender shall incur no liability in case of the failure of
the purchaser to take possession and pay for the Collateral so sold. In case of
any
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such failure, the said Collateral may be resold. Any Collateral remaining unsold
after being offered at public auction may be abandoned or disposed of for no
consideration in such manner as the Lender deems appropriate.
In any event, at any time and from time to time the Lender may abandon
the Collateral or any part thereof. The Borrower agrees immediately upon demand
to take possession of any and all abandoned Collateral and to remove it from any
location in the possession of or under the control of the Lender.
8.04 Use of Intellectual Property.
Upon demand on the Note or the occurrence of an Event of Default and
at any time thereafter, the Lender may use all or any part of the Borrower's
Intellectual Property which the Borrower now has or may hereafter acquire. The
Lender may license such Intellectual Property to third parties, seek
registration of such Intellectual Property in any state or nation or prosecute
pending applications for patents, copyrights, trademarks, or service marks in
the Borrower's name in any state or nation.
8.05 Notification of Default to Third Parties.
Upon demand on the Note or the occurrence of an Event of Default and
at any time thereafter, the Lender may notify the Borrower's suppliers, account
debtors and other third parties of the default and of any and all decisions made
and actions taken by the Lender with respect to this Agreement, the Obligations
or the Collateral, without liability of any kind.
8.06 Assembly of Collateral.
Upon demand on the Note or the occurrence of an Event of Default and
at any time thereafter, the Lender may require the Borrower to assemble the
Collateral in a single location at a place to be designated by the Lender and
make the Collateral at all times secure and available to the Lender.
8.07 Right of Set-Off.
Upon demand on the Note or the occurrence of any Event of Default and
at any time thereafter, the Lender may, and is hereby authorized by the
Borrower, at any time and from time to time, to the fullest extent permitted by
applicable Laws, without advance notice to the Borrower (any such notice being
expressly waived by the Borrower), set-off and apply any and all deposits
(general or
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special, time or demand, provisional or final) at any time held and any other
indebtedness at any time owing by the Lender to, or for the credit or the
account of, the Borrower against any or all of the Obligations of the Borrower
or any guarantor, now or hereafter existing, whether or not such Obligations
have matured and irrespective of whether the Lender has exercised any other
rights that it has or may have with respect to such Obligations, including
without limitation any acceleration rights. The Lender agrees promptly to notify
the Borrower after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section 8.07 are in addition to
the other rights and remedies (including, without limitation, other rights of
set-off) which the Lender may have.
8.08 Exercise of Other Remedies.
Upon demand on the Note or the occurrence of any Event of Default and
at any time thereafter, the Lender may exercise the remedies of a Lender
afforded by the Uniform Commercial Code and other applicable law or by the terms
of any agreement between the Borrower and the Lender.
8.09 Cumulative Rights and Remedies.
All rights and remedies of the Lender, whether provided for herein or
in other agreements, instruments or documents or conferred by law, are
cumulative and may be exercised alone or simultaneously.
ARTICLE 9. ATTORNEY-IN-FACT
9.01 Attorney-In-Fact.
Upon demand on the Note or the occurrence of an Event of Default and
at all times thereafter, the Borrower hereby irrevocably appoints the Lender, or
its designee, as the Borrower's true and lawful attorney-in-fact, with full
power as follows: (1) to endorse the name of the Borrower on any assignments,
notes, checks, drafts, money orders, or other instruments of payment for
Collateral; (2) to sign or endorse the name of the Borrower on any negotiable
instrument, invoice, freight or express bill, bill of lading, storage or
warehouse receipts, drafts, assignments, verifications and notices in connection
with Accounts; (3) to obtain, adjust, settle and cancel, in the Borrower's name,
insurance policies as required by
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Section 6.01(D) and to sign the Borrower's name on settlement checks or drafts;
(4) in the Borrower's name, to do any act which this Agreement requires Borrower
to do, and, (5) to give notice to the United States Post Office to effect
changes of address so that mail addressed to the Borrower may be delivered
directly to the Lender. In exercising this power-of-attorney, the Lender shall
not be liable to the extent that it acts in good faith.
ARTICLE 10. MISCELLANEOUS
10.01 Construction.
The provisions of this Agreement shall be in addition to those of any
security agreement, note, or other evidence of liability now or hereafter held
by the Lender, all of which shall be construed as complementary to each other.
To the extent that there appears any conflicts between and among the documents,
the order of precedence in their construction shall be (1) the Note, (2) this
Agreement and (3) other ancillary agreements and documents presented at Closing.
Nothing herein contained shall prevent the Lender from enforcing any or all
other security agreements, notes, or other evidences of liability in accordance
with their respective terms.
10.02 Further Assurance.
From time to time, the Borrower will execute and deliver to the Lender
such additional documents and will provide such additional information as the
Lender may reasonably require to carry out the terms of this Agreement and be
informed of the status and affairs of the Borrower.
10.03 Enforcement and Waiver by the Lender.
The Lender shall have the right at all times to enforce the provisions
of this Agreement and the Collateral Documents in strict accordance with the
terms hereof and thereof, notwithstanding any conduct or custom on the part of
the Lender in refraining from so doing at any time or times. The failure of the
Lender at any time or times to enforce its rights under such provisions,
strictly in accordance with the same, shall not be construed as having created a
custom in any way or manner contrary to specific provisions of this Agreement or
as having in any way or manner modified or waived the same. All rights and
remedies of the Lender are cumulative and concurrent and the
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exercise of one right or remedy shall not be deemed a waiver or release of any
other right or remedy.
10.04 Expenses of the Lender.
The Borrower will, on demand, reimburse the Lender for all expenses,
including the reasonable fees and expenses of legal counsel for the Lender,
incurred by the Lender in connection with the preparation, administration,
amendment, modification, or enforcement of this Agreement and the Collateral
Documents and the collection or attempted collection of any of the Obligations.
10.05 Notices.
Any notices or consents required or permitted by this Agreement shall
be in writing and shall be deemed delivered if delivered in person or if sent by
certified mail, postage prepaid, return receipt requested, facsimile or
telegraph, as follows, unless such address is changed by written notice
hereunder:
(A) If to the Borrower:
Vivid Technologies, Inc.
10E Commerce Way
Woburn, Massachusetts 01801
Attention: S. David Ellenbogen, President
With a copy to:
Jeffrey L. Keffer, Esquire
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
(B) If to the Lender:
BayBank, N.A.
7 New England Executive Park
Burlington, Massachusetts 01803
Attention: David J. Gerbereux, Vice President
and to:
Richard A. Sheils, Jr., Esquire
Bowditch & Dewey
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311 Main Street
Worcester, Massachusetts 01608
10.06 Waiver and Indemnification by the Borrower.
To the maximum extent permitted by applicable Laws, the Borrower:
(A) Waives (1) protest of all commercial paper at any time held by the
Lender on which the Borrower is in any way liable; (2) except as the same may
herein be specifically granted, notice of acceleration and of intention to
accelerate; and (3) notice and opportunity to be heard, after acceleration in
the manner provided in Section 7.02, before exercise by the Lender of the
remedies of self-help, set-off, or of other summary procedures permitted by any
applicable Laws or by any agreement with the Borrower, and, except where
required hereby or by any applicable Laws, notice of any other action taken by
the Lender; and
(B) Indemnifies the Lender and its officers, attorneys, agents, and
employees from all claims for loss or damage caused by any act or omission on
the part of any of them except willful misconduct.
10.07 Participation.
Notwithstanding any other provision of this Agreement, the Borrower
understands that the Lender may at any time enter into participation agreements
with one or more participating banks whereby the Lender will allocate certain
percentages of its commitment to them. The Borrower acknowledges that, for the
convenience of all parties, this Agreement is being entered into with the Lender
only and that its obligations under this Agreement are undertaken for the
benefit of, and as an inducement to, any such participating bank as well as the
Lender, and the Borrower hereby grants to each such participating bank, to the
extent of its participation in the Loan, the right to set off deposit accounts
maintained by the Borrower with such bank.
10.08 Applicable Law.
This Agreement is entered into and performable in the Commonwealth of
Massachusetts and shall be subject to and construed and enforced in accordance
with the laws of the Commonwealth of Massachusetts.
10.09 Binding Effect, Assignment, and Entire Agreement.
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This Agreement shall inure to the benefit of, and shall be binding upon,
the respective successors and permitted assigns of the parties hereto. The
Borrower has no right to assign any of its rights or obligations hereunder
without the prior written consent of the Lender. This Agreement, including the
Exhibits hereto, all of which are hereby incorporated herein by reference, and
the documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties and may be amended only by a writing signed on
behalf of each party.
10.10 Severability.
If any provision of this Agreement shall be held invalid under any
applicable Laws, such invalidity shall not affect any other provision of this
Agreement that can be given effect without the invalid provision, and, to this
end, the provisions hereof are severable.
10.11 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a
sealed instrument as of the day and year first above written.
VIVID TECHNOLOGIES, INC.
By:
- --------------------- -------------------------------
Witness S. David Ellenbogen
President
BAYBANK, N.A.
By:
- --------------------- -------------------------------
Witness David J. Gerbereux
Vice President
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NOTE
----
$3,000,000.00 Framingham, Massachusetts
April 4, 1996
FOR VALUE RECEIVED, VIVID TECHNOLOGIES, INC., a Massachusetts corporation
with its principal place of business at 10E Commerce Way, Woburn, Massachusetts
(the "Borrower"), promises to pay to BAYBANK, N.A. (the "Lender"), or order, ON
DEMAND, at the Lender's branch office at 7 New England Executive Park,
Burlington, Massachusetts, the principal sum of THREE MILLION AND 00/100 DOLLARS
($3,000,000.00) or such lesser amounts as shall from time to time be
outstanding, in lawful money of the United States of America, with interest from
the date of advancement on the unpaid balance at the rate and in the manner
hereinafter provided.
The unpaid principal of this Note from time to time outstanding shall bear
interest, computed on the basis of the actual number of days elapsed over a year
assumed to have 360 days, at a rate per annum equal to the Lender's Prime Rate
of interest, established from time to time by the Lender (the "Prime Rate"),
such interest rate to be adjusted from time to time on the effective date of any
change in the Prime Rate announced by the Lender. The Prime Rate shall be that
rate of interest announced from time to time by the Lender as its Prime Rate.
Interest shall be payable monthly in arrears beginning one month from the date
hereof and thereafter continuing on the same day of each succeeding month;
provided, however, that all indebtedness evidenced by this Note, if not sooner
paid, shall in any event be due and payable on February 28, 1997 (the "Maturity
Date").
The Borrower may borrow, repay (without penalty), and reborrow the
principal hereunder prior to the Maturity Date in accordance with the terms of
the Agreement as hereafter defined and incorporated herein, provided (i) there
has been no occurrence of an Event of Default or (ii) the Lender has not made
demand on the Borrower.
Each payment made hereunder shall be applied first to interest then due on
the unpaid balance of principal and then to principal. Upon expiration of any
applicable grace period,
1
<PAGE>
overdue payments of principal (whether at stated maturity, by acceleration or
otherwise) and, to the extent permitted by law, overdue interest, shall bear
interest, compounded monthly and payable on demand in immediately available
funds, at a rate per annum equal to four percent (4.00%) above the Prime Rate,
fully floating; provided that if such interest exceeds the maximum amount
permitted to be paid under applicable law, then such interest shall be reduced
to such maximum permitted amount.
If a payment of principal or interest due hereunder is not made within ten
(10) days of its due date, the Borrower will also pay on demand in addition
thereto a late charge equal to five percent (5.00%) of the amount of such
payment.
This Note is issued pursuant to the provisions of a certain Line of Credit
Loan and Security Agreement dated May 23, 1995, as amended by a First Amended
and Restated Line of Credit Loan and Security Agreement dated of even date
herewith, both by and between the Borrower and the Lender, all of the terms and
conditions of which are incorporated herein by reference, as the same may from
time to time be amended (together the "Agreement"). No reference to the
Agreement nor any provision thereof shall affect or impair the absolute and
unconditional obligation of the Borrower to pay the principal of and interest on
this Note as herein provided. An Event of Default under the Agreement shall
also constitute an Event of Default hereunder.
The indebtedness evidenced by this Note is secured as set forth in the
Agreement.
This Note may be prepaid before maturity in whole or in part without
penalty or premium.
Any deposits or other sums at any time credited by or due from the holder
to the Borrower or any endorser or guarantor hereof and any securities or other
property of the Borrower or any endorser or guarantor hereof at any time in the
possession or custody of the holder may at all times be held and treated as
collateral security for the payment of this Note and any and all other
liabilities (direct or indirect, absolute or contingent, sole, joint or several,
secured or unsecured, due or to become due, now existing or hereafter arising)
of any such maker to the holder. Upon the occurrence of an Event of Default,
the holder may apply or set-off such deposits or other sums against such
liabilities at any time.
2
<PAGE>
The Borrower and each guarantor, endorser or other person now or hereafter
liable for the payment of any of the indebtedness evidenced by this Note,
severally agree, by making, guaranteeing or endorsing this Note or by making any
agreement to pay any of the indebtedness evidenced by this Note, to waive
presentment for payment, protest and demand, notice of protest, demand and or
dishonor and nonpayment of this Note, and consents, on one or more occasions,
without notice or further assent (a) to the substitution, exchange or release of
the collateral securing this Note or any part thereof at any time, (b) to the
acceptance or release by the holder or holders hereof at any time of any
additional collateral or security for or other guarantors of this Note, (c) to
the modification or amendment, at any time, and from time to time, of this Note,
the Agreement, or any instrument securing this Note at the request of any person
liable hereon, (d) to the granting by the holder hereof of any extension of the
time for payment of this Note or for the performance of the agreements,
covenants and conditions contained in this Note, the Agreement, or any other
instrument securing this Note, at the request of any person liable hereon, and
(e) to any and all forbearances and indulgences whatsoever. Such consent shall
not alter or diminish the liability of any person.
The Borrower agrees to pay all expenses and costs, including reasonable
attorneys' fees and costs of collection, which may be incurred by the holder
hereof in connection with the enforcement of any obligations hereunder,
including without limitation representation of the holder in any bankruptcy or
insolvency proceedings in which the Borrower is a party in interest.
IN WITNESS WHEREOF, the Borrower has executed this Note by its duly
authorized officer as an instrument under seal as of the day and year first
written above.
Witness: VIVID TECHNOLOGIES, INC.
By:
- -------------------------- --------------------------------
S. David Ellenbogen, President
3
<PAGE>
EXHIBIT 10.04
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS
REGISTERED UNDER THE ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE
CORPORATION, IS OBTAINED TO THE EFFECT THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
Shares Issuable Upon Exercise: (1) shares of Common Stock of Vivid
Technologies, Inc., subject to adjustment as
provided herein
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
Expires (3)
THIS CERTIFIES THAT, for value received, (2), is entitled to subscribe for
and purchase (1) shares (the "Warrant Shares") of the fully paid and
nonassessable Common Stock, $.01 par value (the "Common Stock") of Vivid
Technologies, Inc., a Massachusetts corporation (the "Company"), at a price per
share of $1.50 (such price and such other price as shall result, from time to
time, from adjustments specified herein is herein referred to as the "Warrant
Price"), subject to the provisions and upon the terms and conditions hereinafter
set forth. As used herein, the term "Warrant Shares" shall mean the Company's
presently authorized Common Stock, or any stock into or for which such Common
Stock shall have been or may hereafter be converted or exchanged pursuant to the
Articles of Organization of the Company as from time to time amended as provided
by law and in such Articles (hereinafter the "Charter").
1. Term. Subject to the provisions of this Warrant, the purchase right
----
represented by this Warrant is exercisable, in whole or in part, at any time and
from time to time from and after February 2, 1994 and prior to the earlier of
the expiration date set forth on the face of this Warrant or the fifth annual
anniversary date of the consummation of the Company's initial public offering of
its Common Stock, the aggregate proceeds from which (net of any fees,
commissions or underwriter's discounts) is at least $5,000,000.
2. Method of Exercise; Net Issue Exercise.
--------------------------------------
2.1 Method of Exercise; Payment; Issuance of New Warrant. The
----------------------------------------------------
purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time
<PAGE>
to time, by either, at the election of the holder hereof, (a) the surrender of
this Warrant (with the notice of exercise form attached hereto as Exhibit A-1
duly executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check or by wire transfer, of an amount equal to
the then applicable Warrant Price per share multiplied by the number of Warrant
Shares then being purchased or (b) if in connection with a registered public
offering of the Company's securities (provided that such offering includes the
Warrant Shares and that the holder shall have elected to participate therein
pursuant to the exercise of the registration rights referred to in Article 7 of
the Conversion Agreement of the Company dated as of February 2, 1994 pursuant to
which this Warrant has been issued), the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-2 duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company and any underwriter, in the case of an underwritten
registered public offering, for payment to the Company either by certified or
bank check or by wire transfer or from the proceeds of the sale of Warrant
Shares to be sold by the holder in such public offering of an amount equal to
the then applicable Warrant Price per Warrant Share multiplied by the number of
Warrant Shares then being purchased. The person or persons in whose name(s) any
certificate(s) representing Warrant Shares shall be issuable upon exercise of
this Warrant shall be deemed to have become the holder(s) of record of, and
shall be treated for all purposes as the record holder(s) of, the shares
represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised and the then applicable Warrant Price paid. In the event of
any exercise of the rights represented by this Warrant, certificates for the
shares of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within thirty days of receipt of such notice and
payment of the then applicable Warrant Price and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Warrant Shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be issued to the holder hereof as soon as possible and
in any event within such thirty-day period.
2.2 Net Issue Exercise.
------------------
(a) If at the time the holder proposes to exercise this Warrant the
Company has theretofore effected a registered public offering of its Common
Stock under the Securities Act of 1933, as amended (the "Act") in lieu of
exercising this Warrant, the holder may elect to receive Warrant Shares equal to
the value of this Warrant (or the portion thereof being cancelled) by surrender
of this Warrant at the principal office of the Company together with notice of
such election in which event the Company
- 2 -
<PAGE>
shall issue to the holder a number of shares of the Warrant Shares computed
using the following formula:
X = Y (A - B)
-------
A
Where X - The number of Warrant Shares to be issued to the
holder.
Y - the number of Warrant Shares purchasable under
this Warrant.
A - the fair market value of one Warrant Share.
B - Warrant Price (as adjusted to the date of such
calculations).
(b) For purposes of this Section, fair market value of a Warrant Share
shall mean the average of the closing bid and asked prices of the Company's
Common Stock quoted in the Over-The-Counter Market Summary or the closing price
quoted on any exchange on which the Common Stock is listed, whichever is
applicable, as published in the Eastern Edition of The Wall Street Journal for
the ten trading days prior to the date of determination of fair market value, or
if no transactions have occurred during such period, the last closing price at
which such Common Stock has traded.
3. Stock Fully Paid; Reservation of Shares. All Warrant Shares that may
---------------------------------------
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of Warrant
Shares to provide for the exercise of the right represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and kind
------------------------------------------------
of securities purchasable upon the exercise of the Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
4.1 Reclassification. In case of any reclassification, change or
----------------
conversion of securities of the class of securities issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), the Company, shall execute a new Warrant (in form and substance
reasonably satisfactory to the holder of this Warrant)
- 3 -
<PAGE>
providing that the holder of this Warrant shall have the right to exercise such
new Warrant and upon such exercise and payment of the then applicable Warrant
Price to receive, in lieu of each Warrant Share theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification or change
by a holder of one share of Common Stock. Such new Warrant shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4.1. The provisions of this Section 4.1
shall similarly apply to successive reclassifications and changes.
4.2 Subdivisions or Combinations of Shares. If the Company at any
--------------------------------------
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Warrant Price and the number of Warrant Shares
issuable upon exercise hereof shall be equitably adjusted.
4.3 Stock Dividends. If the Company at any time while this Warrant is
---------------
outstanding and unexpired shall pay a dividend payable in shares of Common Stock
(except any distribution specifically provided for in the foregoing Sections 4.1
and 4.2), then the Warrant Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (a) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (b) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution and the number of Warrant Shares subject to this
Warrant shall be proportionately adjusted.
4.4 Dilutive Issuances. In the event the Company shall issue
------------------
additional shares of Common Stock or any securities convertible into,
exchangeable for or exercisable for Common Stock (the "Additional Securities")
without consideration or for a consideration per share less than the applicable
Warrant Price in effect on the date of and immediately prior to such issue
(other than shares of Common Stock issued to employees and consultants of the
Company in accordance with Section 5.12 of the Company's Series C and Series D
Preferred Stock Purchase Agreement dated January 25, 1991 (the "Preferred Stock
Purchase Agreement"), up to a maximum of 1,000,000 shares as adjusted for any
dividend or distribution of shares of Common Stock), then and in such event,
such applicable Warrant Price shall be reduced, concurrently with such issue, to
a price (calculated to the nearest tenth of a cent) determined by multiplying
such applicable Warrant Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of Common Stock which the aggregate consi-
- 4 -
<PAGE>
deration received by the corporation for the total number of shares of
Additional Securities so issued would purchase at such applicable Warrant Price;
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of such
Additional Securities so issued. For the purpose of performing the calculations
required by this Section 4.4, all shares of Common Stock issuable upon the
conversion, exchange or exercise of outstanding securities (including, without
limitation, options issued to employees and consultants) shall be deemed to be
outstanding, and immediately after the consideration for any shares of
Additional Securities has been received, they shall be deemed to be outstanding.
4.5 No Impairment. The Company will not, by amendment of its Charter
-------------
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Article 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
4.6 Notices of Record Date. In the event of any taking by the Company
----------------------
of a record of its shareholders for the purpose of determining shareholders who
are entitled to receive payment of any dividend or other distribution, or for
the purpose of determining shareholders who are entitled to vote in connection
with any proposed merger or consolidation of the Company with or into any other
corporation, or any proposed sale, lease or conveyance of all or substantially
all of the assets of the Company, or any proposed liquidation, dissolution or
winding up of the Company, the Company shall mail to the holder of this Warrant,
at least fifteen (15) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or vote, and the amount and character of such
dividend, distribution or vote.
5. Notice of Adjustments. Whenever the Warrant Price shall be adjusted
---------------------
pursuant to the provisions hereof, the Company shall within thirty (30) days of
such adjustment deliver a certificate signed by its chief financial officer to
the registered holder(s) hereof setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated and the Warrant Price after giving effect to such
adjustment.
6. Fractional Shares. No fractional Warrant Shares will be issued in
-----------------
connection with any exercise hereunder, but in lieu of
- 5 -
<PAGE>
such fractional shares the Company shall make a cash payment therefor upon the
basis of the Warrant Price then in effect.
7. Compliance with Securities Act; Disposition of Warrant or Shares.
----------------------------------------------------------------
7.1 Compliance with Securities Act. The holder of this Warrant, by
------------------------------
acceptance hereof, confirms as to itself the representations made by each
Investor in the Conversion Agreement and agrees to the placement of a
restrictive transfer legend on this Warrant and the certificates representing
the Warrant Shares.
7.2 Disposition of Warrant and Shares. With respect to any offer,
---------------------------------
sale or other disposition of this Warrant or any Warrant Shares acquired
pursuant to the exercise of this Warrant prior to registration of such shares,
the holder hereof and each subsequent holder of this Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, if reasonably
requested by the Company (and, in such case, such counsel and opinion must be
reasonably acceptable to the Company), to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act) as then in effect or any federal or state law then in effect) of this
Warrant or such Warrant Shares and indicating whether or not under the Act
certificates for this Warrant or such Warrant Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to insure compliance with the Act. Each certificate
representing this Warrant or the Warrant Shares thus transferred (except a
transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to insure compliance with the Act,
unless in the aforesaid opinion of counsel for the holder, such legend is not
required in order to insure compliance with the Act. Nothing herein shall
restrict the transfer of this Warrant or any portion hereof by the initial
holder hereof to any partner of the holder, any partnership affiliated with the
holder, or to any partner of any such partnership, provided such transfer may be
made in compliance with applicable federal and state securities laws. The
Company may issue stop transfer instructions to its transfer agent in connection
with the foregoing restrictions.
8. Rights as Shareholder; Additional Rights.
----------------------------------------
8.1 Shareholder Rights. No holder of the Warrant, as such, shall be
------------------
entitled to vote or receive dividends or be deemed the holder of Warrant Shares
or any other securities of the Company which may at any time be issuable on the
exercise thereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to vote for
- 6 -
<PAGE>
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to receive notice of meetings (except as otherwise provided
in Section 4.7 of this Warrant), or to receive dividends or subscription rights
or otherwise until this Warrant shall have been exercised and the Warrant Shares
purchasable upon the exercise hereof shall have become deliverable, as provided
herein.
8.2 Mergers. Unless the Company provides the holder of this Warrant
-------
with at least the greater of (a) 30 days' notice or (b) such greater amount of
notice as Massachusetts law requires be given to shareholders with power to vote
at a meeting on any transaction described hereinafter of the terms and
conditions of the proposed transaction, the Company will not (i) sell, lease,
exchange, convey or otherwise dispose of all or substantially all of its
property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of. No transaction described in this Section 8.2 shall be consummated
unless either (a) the sale of this Warrant is arranged in connection with any
such transaction on terms satisfactory to the holder hereof or (b) the holder
hereof receives in connection with such transaction either (i) a new Warrant (in
form and substance satisfactory to the holder of this Warrant) exercisable for
the kind and amount of shares of stock, other securities, money and property
receivable upon such transaction by a holder of Common Stock or (ii) the
remainder of (x) securities, money or other property receivable upon such
transaction by a holder of Common Stock having the same number of shares of
Common Stock as the number for which this Warrant is exercisable pursuant to
Section 2.2 hereof immediately prior to such transaction, minus (y) the then
-----
applicable Warrant Price per share multiplied by such number of Warrant Shares.
9. Representations and Warranties. This Warrant is issued and delivered
------------------------------
on the basis of the following:
9.1 Authorization and Delivery. This Warrant has been duly authorized
--------------------------
and executed by the Company and when delivered will be the valid and binding
obligation of the Company enforceable in accordance with its terms;
9.2 Warrant Shares. The Warrant Shares have been duly authorized and
--------------
reserved for issuance by the Company and, when issued and paid for in accordance
with the terms hereof, will be validly issued, fully paid and nonassessable;
9.3 Rights and Privileges. The rights, preferences, privileges and
---------------------
restrictions granted to or imposed upon the Warrant Shares and the holders
thereof are as set forth herein and
- 7 -
<PAGE>
in the Company's Charter and the Conversion Agreement, true and complete copies
of which have been delivered to the original warrantholder; and
9.4 No Inconsistency. The execution and delivery of this Warrant are
----------------
not, and the issuance of the Warrant Shares upon exercise of this Warrant in
accordance with the terms hereof will not be, inconsistent with the Company's
Charter or by-laws, do not and will not contravene any law, governmental rule or
regulation, judgment or order applicable to the Company, and do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration with or the taking of any action in respect of or by, any
Federal, state or local government authority or agency or other person.
10. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. Notices. Any notice, request or other document required or permitted
-------
to be given or delivered to the holder hereof or the Company shall be delivered
by facsimile where confirmation of receipt by the receiving party's receiver can
be documented, or delivered by hand, or shall be sent by reputable overnight
courier, certified or registered mail, postage prepaid, to each such holder at
its address as shown on the books of the Company or to the Company at the
address indicated therefore on the signature page of this Warrant.
12. Binding Effect on Successors. Subject to the provisions of Section
----------------------------
8.2, this Warrant shall be binding upon any corporation succeeding the Company
by merger or consolidation, and all of the obligations of the Company relating
to the Warrant Shares issuable upon the exercise of this Warrant shall be as set
forth in the Conversion Agreement, the Company's Charter and the Company's by-
laws (each as amended from time to time) and shall survive the exercise and
termination of this Warrant and all of the covenants and agreements herein and
in such other documents and instruments of the Company shall inure to the
benefit of the successors and assigns of the holder hereof. The Company will,
at the time of the exercise of this Warrant, in whole or in part, upon request
of the holder hereof but at the Company's expense, acknowledge in writing its
continuing obligation to the holder hereof in respect of any rights (including,
without limitation, any right to registration of the Warrant Shares) to which
the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof to
--------
make any such request shall not affect the
- 8 -
<PAGE>
continuing obligation of the Company to the holder hereof in respect of such
rights.
13. Lost Warrants or Stock Certificates. The Company covenants to the
-----------------------------------
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
14. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
15. Governing Law. This Warrant shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
The Commonwealth of Massachusetts.
VIVID TECHNOLOGIES, INC.
By: ______________________________
S. David Ellenbogen, President
Date: ____________________________
- 9 -
<PAGE>
EXHIBIT A-1
-----------
Notice of Exercise
------------------
To:
1. The undersigned hereby elects to purchase _______ shares of Common
Stock of Vivid Technologies, Inc. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or, subject to compliance with the restrictions on
transfer set forth in Section 7 of the Warrant, in such other name or names as
are specified below:
______________________________
(Name)
______________________________
______________________________
______________________________
(Address)
3. The undersigned represents that the aforesaid shares being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
___________________________
Signature
____________________
Date
- 10 -
<PAGE>
EXHIBIT A-2
-----------
Notice of Exercise
------------------
To:
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S-______, filed ____________________, 19__, the undersigned
hereby elects to purchase ___________ shares of Common Stock of the Company (or
such lesser number of shares as may be sold on behalf of the undersigned at the
Closing) pursuant to the terms of the attached Warrant.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such ___________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $_______________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior to
the Closing.
___________________________
Signature
____________________
Date
- 11 -
<PAGE>
Exhibit 10.05
THE SECURITIES REPRESENTED BY THIS WARRANT (AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS WARRANT) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES STATUTE. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933 AND ANY APPLICABLE STATE SECURITIES STATUTE, OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE THEREUNDER.
Shares Issuable Upon Exercise: 42,667 shares of Common Stock
of Vivid Technologies, Inc.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
Expires January 31, 2002
THIS CERTIFIES THAT, for value received, Dominion Fund II, L.P., a California
Limited Partnership, is entitled to subscribe for and purchase 42,667 shares (as
adjusted pursuant to the provisions hereof) (the "Warrant Shares") of the fully
paid and nonassessable Common Stock, $.01 par value (the "Common Stock") of
Vivid Technologies, Inc., a Massachusetts corporation (the "Company"), at a
price per share of $1.50 (such price and such other price as shall result, from
time to time, from adjustments specified herein is herein referred to as the
"Warrant Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth. As used herein, the term "Warrant Shares" shall mean the
Company's presently authorized Common Stock, or any stock into or for which such
Common Stock shall have been or may hereafter be converted or exchanged pursuant
to the Articles of Organization of the Company as from time to time amended as
provided by law and in such Articles (hereinafter the "Charter"), and the term
"Grant Date" shall mean January 31, 1992.
1. Term. Warrant is exercisable, in whole or in part, at any time and
----
from time to time from and after the Grant Date and prior to the earlier of
January 31, 2002 or the fifth annual anniversary date of the consummation of the
Company's initial public offering of its Common Stock, the aggregate proceeds
from which (net of any fees, commissions or underwriter's discounts) is at least
$5,000,000.
2. Method of Exercise: Net Issue Exercise.
--------------------------------------
2.1 Method of Exercise: Payment: Issuance of New Warrant. The
----------------------------------------------------
purchase right represented by this Warrant may be exercised by the holder
hereof, in whole or in part and from time to time, by either, at the election of
the holder hereof, (a) the surrender of this Warrant (with the notice of
exercise form attached hereto as Exhibit A-1 duly executed) at the principal
office of the Company and by the payment to the Company, by certified or bank
check or by wire transfer, of an amount equal to the then applicable Warrant
Price per share multiplied by the number of Warrant Shares then being purchased
or (b) if in connection with a registered public
-1-
<PAGE>
offering of the Company's securities (provided that such offering includes the
Warrant Shares and that the holder shall have elected to participate therein
pursuant to the exercise of the registration rights referred to in Section 8.2
hereof), the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A-2 duly executed) at the principal office of the
Company together with notice of arrangements reasonably satisfactory to the
Company and any underwriter, in the case of an underwritten registered public
offering, for payment to the Company either by certified or bank check or by
wire transfer or from the proceeds of the sale of Warrant Shares to be sold by
the holder in such public offering of an amount equal to the then applicable
Warrant Price per Warrant Share multiplied by the number of Warrant Shares then
being purchased. The person or persons in whose name(s) any certificate(s)
representing Warrant Shares shall be issuable upon exercise of this Warrant
shall be deemed to have become the holder(s) of record of, and shall be treated
for all purposes as the record holder(s) of, the shares represented thereby (and
such shares shall be deemed to have been issued) immediately prior to the close
of business on the date or dates upon which this Warrant is exercised and the
then applicable Warrant Price paid. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so purchased
shall be delivered to the holder hereof as soon as possible and in any event
within thirty days of receipt of such notice and payment of the then applicable
Warrant Price and, unless this Warrant has been fully exercised or expired, a
new Warrant representing the portion of the Warrant Shares, if any, with
'respect to which this Warrant shall not then have been exercised shall also be
issued to the holder hereof as soon as possible and in any event within such
thirty-day period.
2.2 Net Issue Exercise.
------------------
(a) If at the time the holder proposes to exercise this Warrant the
Company has theretofore effected a registered public offering of its Common
Stock under the Securities Act of 1933, in lieu of exercising this Warrant, the
holder may elect to receive Warrant Shares equal to the value of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with notice of such election in which
event the Company shall issue to the holder a number of shares of the Warrant
Shares computed using the following formula:
X = Y (A - B)
-------
A
Where X - the number of warrant Shares to be issued to the holder.
Y - the number of Warrant Shares purchasable under this Warrant.
A - the fair market value of one Warrant Share.
B - Warrant Price (as adjusted to the date of such calculations).
(b) For purposes of this Section, fair market value of a Warrant
Share shall mean the average of the closing bid and asked prices of the
Company's Common Stock quoted in
-2-
<PAGE>
the Over-The-Counter Market Summary or the closing price quoted on any exchange
on which the Common Stock is listed, whichever is applicable, as published in
the Eastern Edition of The Wall Street Journal for the ten trading days prior to
the date of determination of fair market value, or if no transactions have
occurred during such period, the last closing price at which such Common Stock
has traded.
3. Stock Fully Paid: Reservation of Shares. All Warrant Shares that may
---------------------------------------
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by the Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of Warrant
Shares to provide for the exercise of the right represented by this Warrant.
4. Adjustment Of Warrant Price and Number of Shares. The number and kind
------------------------------------------------
of securities purchasable upon the exercise of the Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
4.1 Reclassification. In case of any reclassification, change or
----------------
conversion of securities of the class of securities issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), the Company, shall execute a new Warrant (in form and substance
reasonably satisfactory to the holder of this Warrant) providing that the holder
of this Warrant shall have the right to exercise such new Warrant and upon such
exercise and payment of the then applicable Warrant Price to receive, in lieu of
each Warrant Share theretofore issuable upon exercise of this Warrant, the kind
and amount of shares of stock, other securities, money and property receivable
upon such reclassification or change by a holder of one share of Common Stock.
Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Paragraph 4. The provisions of this Section 4.1 shall similarly apply to
successive reclassifications and changes.
4.2 Subdivisions or Combination of Shares. If the Company at any
-------------------------------------
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Warrant Price and the number of Warrant Shares
issuable upon exercise hereof shall be equitably adjusted.
4.3 Stock Dividends. If the Company at any time while this Warrant
---------------
is outstanding and unexpired shall pay a dividend payable in shares of Common
Stock (except any distribution specifically provided for in the foregoing
Sections 4.1 and 4.2), then the Warrant Price shall be adjusted, from and after
the date of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (a) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (b) the
denominator of which shall be the total number of shares of
-3-
<PAGE>
Common Stock outstanding immediately after such dividend or distribution and the
number of Warrant Shares subject to this Warrant shall be proportionately
adjusted.
4.4 Dilutive Issuances. In the event the Company shall issue
------------------
additional shares of Common Stock or any securities convertible into,
exchangeable for or exercisable for Common Stock (the "Additional Securities")
without consideration or for a consideration per share less than the applicable
Warrant Price in effect on the date of and immediately prior to such issue
(other than shares of Common Stock issued to employees and consultants of the
Company in accordance with Section 5.12 of the Company's Series C and Series D
Preferred Stock Purchase Agreement dated January 25, 1991 (the "Preferred Stock
Purchase Agreement"), up to a maximum of 1,000,000 shares as adjusted for any
dividend or distribution of shares of Common Stock), then and in such event,
such applicable Warrant Price shall be reduced, concurrently with such issue, to
a price (calculated to the nearest tenth of a cent) determined by multiplying
such applicable Warrant Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of Common Stock which the aggregate consideration
received by the corporation for the total number of shares of Additional
Securities so issued would purchase at such applicable Warrant Price; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of such Additional
Securities so issue. For the purpose of performing the calculations required by
this Section 4.4, all shares of Common Stock issuable upon the conversion,
exchange or exercise of outstanding securities (including, without limitation,
options issued to employees and consultants) shall be deemed to be outstanding,
and immediately after the consideration for any shares of Additional Securities
has been received, they shall be deemed to be outstanding.
4.5 Pre-Emptive Rights. The Company hereby grants to the holder
------------------
hereof the right to maintain its percentage ownership interest in the Company to
the same extent and in the same manner afforded to holders of the Company's
Preferred Stock pursuant to Article 8 of the Preferred Stock Purchase Agreement.
For the purposes of such Article 8, the holder hereof shall be deemed to be the
holder of a number of shares of Voting Stock equal to the number of shares of
Common Stock of the Company actually owned by such holder plus the number of
Warrant Shares for which this Warrant is exercisable at the time of the issuance
of New Shares (as defined in the Preferred Stock Agreement).
4.6 No Impairment. The Company will not, by amendment of its Charter
-------------
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Article 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
4.7 Notices of Record Date. In the event of any taking by the
----------------------
Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other
distribution, or for the purpose of determining shareholders
-4-
<PAGE>
who are entitled to vote in connection with any proposed merger or consolidation
of the Company with or into any other corporation, or any proposed sale, lease
or conveyance of all or substantially all of the assets of the Company, or any
proposed liquidation, dissolution or winding up of the Company, the Company
shall mail to the holder of this Warrant, at least fifteen (15) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or vote,
and the amount and character of such dividend, distribution or vote.
5. Notice of Adjustments. Whenever the Warrant Price shall be adjusted
---------------------
pursuant to the provisions hereof, the Company shall within thirty (30) days of
such adjustment deliver a certificate signed by its chief financial officer to
the registered holder(s) hereof setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Warrant Price after giving effect to such
adjustment.
6. Fractional Shares. No fractional Warrant Shares will be issued in
-----------------
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
-------------------------------------------------------------------
Preferred Stock.
- ---------------
7.1 Compliance with Securities Act. The holder of this Warrant, by
------------------------------
acceptance hereof, confirms as to itself the representations made by the
Purchaser in the Warrant Purchase Agreement dated January 31, 1992 between the
Company and Dominion Fund II, L.P., a California Limited Partnership and agrees
to .the placement of a restrictive transfer legend on this Warrant and the
certificates representing the Warrant Shares.
7.2 Disposition Of Warrant and Shares. With respect to any offer,
---------------------------------
sale or other disposition of this Warrant or any Warrant Shares acquired
pursuant to the exercise of this Warrant prior to registration of such shares,
the holder hereof and each subsequent holder of this Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, if reasonably
requested by the Company (and, in such case, such counsel and opinion must be
reasonably acceptable to the Company), to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Securities Act of 1933 (the "Act") as then in effect or any federal or state
law then in effect) of this Warrant or such Warrant Shares and indicating
whether or not under the Act certificates for this Warrant or such Warrant
Shares to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Act. Each certificate representing this Warrant or the Warrant Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Act, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to insure compliance with the Act. Nothing
herein shall restrict the transfer of this Warrant or any portion hereof by the
initial holder hereof to any partner of the holder, any partnership affiliated
with the
-5-
<PAGE>
holder, or to any partner of any such partnership, provided such transfer may be
made in compliance with applicable federal and state securities laws. The
Company may issue stop transfer instructions to its transfer agent in connection
with the foregoing restrictions.
8. Rights as Shareholder: Information.
-----------------------------------
8.1 Shareholder Rights. No holder of the Warrant, as such, shall be
------------------
entitled to vote or receive dividends or be deemed the holder of Warrant Shares
or any other securities of the Company which may at any time be issuable on the
exercise thereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to receive notice of meetings (except as otherwise provided in Section 4.7 of
this Warrant), or to receive dividends or subscription rights or otherwise until
this Warrant shall have been exercised 'and the Warrant Shares purchasable upon
the exercise hereof shall have become deliverable, as provided herein.
8.2 Rights Upon Exercise. Upon exercise of this Warrant, the person
--------------------
or persons to whom the Warrant Shares are issued upon such exercise shall obtain
the registration rights contained in Article 9 of the Preferred Stock Agreement
(other than the rights contained in Section 9.03 of such Agreement) with the
Warrant Shares being deemed "Registrable Shares" within the meaning of such
Agreement. Whether or not this Warrant is exercised, the Company shall give the
holder of this Warrant not less than the notice the Company is obligated
pursuant to the Preferred Stock Purchase Agreement to give to the holders of
Registrable Shares thereunder, of its intention to file a registration statement
under the Securities Act of 1933 with respect to any shares of its Common Stock
or with respect to any securities convertible into or exchangeable or
exercisable for any shares of its Common Stock.
8.3 Financial Statements and Information. The Company shall deliver
------------------------------------
to the registered holder hereof
(a) at the times stated in Section 5.05 of the Preferred Stock
Agreement, the financial statements, certificates and other statements and
documents required to be delivered by the Company to its Preferred Shareholders
pursuant to such Section 5.05; and
(b) any other information or data provided generally to the
shareholders of the Company.
9. Additional Rights.
-----------------
9.1 Secondary Sales. The Company agrees to assist the holder of this
---------------
Warrant in obtaining liquidity if opportunities to make secondary sales of the
Company's securities become available. To this end, the Company will promptly
provide the holder of this Warrant with notice of any offer made directly to the
Company to acquire from the Company's security holders more than five percent
(5%) of the total voting power of the Company, will not interfere
-6-
<PAGE>
with the holder in arranging the sale of this Warrant to the person or persons
making such offer and will provide reasonable information to the holder and such
persons.
9.2 Mercers. Unless the Company provides the holder of this Warrant
-------
with at least the greater of (a) 30 days' notice or (b) such greater amount of
notice as Massachusetts law requires be given to shareholders with power to vote
at a meeting on any transaction described hereinafter of the terms and
conditions of the proposed transaction, the Company will not (i) sell, lease,
exchange, convey or otherwise dispose of all or substantially all of its
property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of. No transaction described in this Section 9.2 shall be consummated
unless either (a) the sale of this Warrant is arranged in connection with any
such transaction on terms satisfactory to the holder hereof or (b) the holder
hereof receives in connection with such transaction either (i) a new Warrant (in
form and substance satisfactory to the holder of this Warrant) exercisable for
the kind and amount of shares of stock, other securities, money and property
receivable upon such transaction by a holder of Common Stock or (ii) the
remainder of (x) securities, money or other property receivable upon such
transaction by a holder of Common Stock having the same number of shares of
Common Stock as the number for which this Warrant is exercisable pursuant to
Section 2.2 hereof immediately prior to such transaction, minus (y) the then
-----
applicable Warrant Price per share multiplied by such number of Warrant Shares.
10. Representations and Warranties. This Warrant is issued and delivered
------------------------------
on the basis of the following:
10.1 Authorization and Delivery. This Warrant has been duly
--------------------------
authorized and executed by the Company and when delivered will be the valid and
binding obligation of the Company enforceable in accordance with its terms;
10.2 Warrant Shares. The Warrant Shares have been duly authorized
--------------
and reserved for issuance by the Company and, when issued and paid for in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable;
10.3 Rights and Privileges. The rights, preferences, privileges and
---------------------
restrictions granted to or imposed upon the Warrant Shares and the holders
thereof are as set forth herein and in the Company's Charter and the Preferred
Stock Agreement, true and complete copies of which have been delivered to the
original warrantholder; and
10.4 No Inconsistency. The execution and delivery of this Warrant
----------------
are not, and the issuance of the Warrant upon exercise of this Warrant in
accordance with the terms hereof will not be, inconsistent with the Company's
Charter or by-laws, do not and will not contravene any law, governmental rule or
regulation, judgment or order applicable to the Company, and do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration with or the taking of
-7-
<PAGE>
any action in respect of or by, any Federal, state or local government authority
or agency or other person.
11. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request or other document required or permitted
-------
to be given or delivered to the holder hereof or the Company shall be delivered
by facsimile where confirmation of receipt by the receiving party's receiver can
be documented, or delivered by hand, or shall be sent by reputable overnight
courier, certified or registered mail, postage prepaid, to each such holder at
its address as shown on the books of the Company or to the Company at the
address indicated therefore on the signature page of this Warrant.
13. Binding Effect on Successors. Subject to the provisions of Section
----------------------------
9.2, this Warrant shall be binding upon any corporation succeeding the Company
by merger or consolidation, and all of the obligations of the Company relating
to the Warrant Shares issuable upon the exercise of this Warrant shall be as set
forth in the Preferred Stock Agreement, the Company's Charter and the Company's
by-laws (each as amended from time to time) and shall survive the exercise and
termination of this Warrant and all of the covenants and agreements herein and
in such other documents and instruments of the Company shall inure to the
benefit of the successors and assigns of the holder hereof. The Company will, at
the time of the exercise of this Warrant, in whole or in part, upon request of
the holder hereof but at the Company's expense, acknowledge in writing its
continuing obligation to the holder hereof in respect of any rights (including,
without limitation, any right to registration of the Warrant Shares) to which
the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant;/~, that the failure of the holder hereof to make
any such request shall not affect the continuing obligation of the Company to
the holder hereof in respect of such rights.
14. Lost Warrants or Stock Certificates. The Company covenants to the
-----------------------------------
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably' satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new warrant or stock
certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
15. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
16. Governing Law. This Warrant shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
The Commonwealth of Massachusetts.
-8-
<PAGE>
VIVID TECHNOLOGIES, INC.
By:
-------------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Date:
-----------------------------------
-9-
<PAGE>
EXHIBIT A-1
-----------
Notice of Exercise
------------------
To:
1. The undersigned hereby elects to purchase ______________ shares of
Common Stock of Vivid Technologies, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or, subject to compliance with the restrictions on
transfer set forth in Section 7 of the Warrant, in such other name or names as
are specified below:
--------------------------------
(Name)
--------------------------------
--------------------------------
--------------------------------
(Address)
3. The undersigned represents that the aforesaid shares being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
-----------------------------------
Signature
- -------------------------
Date
-10-
<PAGE>
EXHIBIT A-2
-----------
Notice of Exercise
------------------
To:
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S---, filed _________________________, 19____, the undersigned
hereby elects to purchase ___________ shares of Common Stock of the Company (or
such lesser number of shares as may be sold on behalf of the undersigned at the
Closing) pursuant to the terms of the attached Warrant.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $ ___________________ or, if less, the
net proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such shares,
the undersigned agrees to deliver the difference to the Company prior to the
Closing.
-------------------------------------------
Signature
- ---------------------------
Date
-11-
<PAGE>
EXHIBIT 10.06
VIVID TECHNOLOGY, INC.
----------------------
1989 COMBINATION STOCK OPTION PLAN
----------------------------------
(AS AMENDED THROUGH MAY 7, 1996)
Section I. Purpose of the Plan.
-------------------
The purposes of this Vivid Technology, Inc. 1989 Combination Stock Option
Plan (the "1989 Plan") are (i) to provide long-term incentives and rewards to
those key employees (the "Employee Participants") of Vivid Technologies, Inc.
(the "Corporation") and its subsidiaries (if any), and any other persons (the
"Non-employee Participants") who are in a position to contribute to the long-
term success and growth of the Corporation and its subsidiaries, (ii) to assist
the Corporation in retaining and attracting executives and key employees with
requisite experience and ability, and (iii) to associate more closely the
interests of such executives and key employees with those of the Corporation's
stockholders. The term "key employees" shall include division and department
managers, supervisory personnel and other persons who are also employees of the
Corporation or of a Parent or Subsidiary who the Board of Directors or the
Committee shall deem to be valuable contributors to the success of the
Corporation.
Section II. Definitions.
-----------
Code. The "Code" is the Internal Revenue Code of 1986, as it may be
----
amended from time to time.
Common Stock. "Common Stock" is the $.01 par value common stock of the
------------
Corporation.
Committee. "Committee" is defined in Section III, paragraph (a).
---------
Corporation. "Corporation" is defined in Section I.
-----------
Corporation ISOs. "Corporation ISOs" are all stock options (including
----------------
1989 Plan ISOs) which (i) are Incentive Stock Options and (ii) are granted on or
after January 1, 1989 under any plans (including this 1989 Plan) of the
Corporation, a Parent Corporation and/or a Subsidiary Corporation.
Employee Participants. "Employee Participants" is defined in Section
---------------------
I.
Fair Market Value. The "Fair Market Value" of any property is the
-----------------
value of the property as reasonably determined by the Committee.
Incentive Stock Option. An "Incentive Stock Option" is a stock option
----------------------
which is treated as an incentive stock option under Section 422A of the Code.
1989 Plan. "1989 Plan" is defined in Section I.
---------
1989 Plan ISOs. "1989 Plan ISOs" are Stock Options which are Incentive
--------------
Stock Options.
<PAGE>
Non-employee Participants. "Non-employee Participants" is defined in
-------------------------
Section I.
Non-qualified Option. A "Non-qualified Option" is a Stock Option
--------------------
which does not qualify as an Incentive Stock Option or for which the Committee
provides, in the terms of such option and at the time such option is granted,
that the option shall not be treated as an Incentive Stock Option.
Parent Corporation. "Parent Corporation" has the meaning provided in
------------------
Section 425(e) of the Code.
Participants. "Participants" are all persons who are either Employee
------------
Participants or Non-employee Participants.
Permanent and Total Disability. "Permanent and Total Disability" has
------------------------------
the meaning provided in Section 22(e)(3) of the Code.
Stock Options. Stock Options are rights granted pursuant to this 1989
-------------
Plan to purchase shares of Common Stock at a fixed price.
Subsidiary Corporation. "Subsidiary Corporation" has the meaning
----------------------
provided in Section 425(f) of the Code.
Ten Percent Stockholder. "Ten Percent Stockholder" means, with respect
-----------------------
to a 1989 Plan ISO, any individual who directly or indirectly owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Corporation or any Parent Corporation or any Subsidiary Corporation
at the time such 1989 Plan ISO is granted.
Section III. Administration.
--------------
(a) The Committee. The Plan shall be administered by the Board of
-------------
Directors of the Corporation, or if the Board so determines, by a Compensation
Committee designated by the Board of Directors of the Corporation (the
administering body is hereafter referred to as the "Committee"). The Committee
shall serve at the pleasure of the Board of Directors, which may from time to
time, and in its sole discretion, discharge any member, appoint additional new
members in substitution for those previously appointed and/or fill vacancies
however caused. A majority of the Committee shall constitute a quorum and the
acts of a majority of the members present at any meeting at which a quorum is
present shall be deemed the action of the Committee.
(b) Authority and Discretion of the Committee. Subject to the express
-----------------------------------------
provisions of this 1989 Plan and provided that all actions taken shall be
consistent with the purposes of this 1989 Plan, and subject to ratification by
the Board Of Directors only if required by applicable law, the Committee shall
have full and complete authority and the sole discretion to: (i) determine
those persons who shall constitute Employee Participants and Non-employee
Participants; (ii) select the Participants to whom Stock Options shall be
granted under this 1989 Plan; (iii) determine the size and the form of the Stock
Options, if any, to be granted to any Participant; (iv) determine the time or
times such Stock Options shall be granted including the grant of Stock Options
in connection with other awards made, or compensation paid, to the Participant;
(v) establish the terms and conditions upon which such Stock Options may be
exercised and/or transferred, including the exercise of Stock Options in
connection with other awards made, or compensation paid, to the Participant;
(vi) make or alter any restrictions and
-2-
<PAGE>
conditions upon such Stock Options and the Stock received on exercise thereof,
including, but not limited to, providing for limitations on the Participant's
right to keep any Stock received on termination of employment; and (vii) adopt
such rules and regulations, establish, define and/or interpret these and any
other terms and conditions, and make all determinations (which may be on a case-
by-case basis) deemed necessary or desirable for the administration of this 1989
Plan. Notwithstanding any provision of this 1989 Plan to the contrary, only
Employee Participants shall be eligible to receive 1989 Plan ISOs.
(c) Applicable Law. This 1989 Plan, and all Stock Options shall be
--------------
governed by the law of the state in which the Corporation is incorporated.
Section IV. Terms of Stock Options.
----------------------
(a) Agreements. Stock Options shall be evidenced by a written agreement
----------
between the Corporation and the Participant awarded the Stock Option. Said
agreement shall be in such form, and contain such terms and conditions (not
inconsistent with this 1989 Plan) as the Committee may determine. If the Stock
Option described therein is not intended to be an Incentive Stock Option, such
agreement shall include the following, or a similar statement: "This stock
option is not intended to be an Incentive Stock Option, as that term is
described in Section 422A of the Internal Revenue Code of 1986, as amended."
(b) Term. Stock Options shall be for such periods as may be determined by
----
the Committee, provided that in the case of 1989 Plan ISOs, the term of any such
1989 Plan ISO shall not extend beyond three months after the time the
Participant ceases to be an employee of the Corporation. Notwithstanding the
foregoing, the Committee may provide in a 1989 Plan ISO that in the event of the
Permanent and Total Disability or death of the Participant, the 1989 Plan ISO
may be exercised by the Participant or his estate (if applicable) for a period
of up to one year after the date of such Permanent and Total Disability or
Death. In no event may a 1989 Plan ISO be exercisable (including provisions, if
any, for exercise in installments) subsequent to ten years after the date of
grant, or, in the case of 1989 Plan ISOs granted to Ten Percent Stockholders,
more than five years after the date of grant.
(c) Purchase Price. The purchase price of shares purchased pursuant to any
--------------
Stock Option shall be determined by the Committee, and shall be paid by the
employee in full upon exercise, (a) in cash, (b) by delivery of shares of Common
Stock (valued at their Fair Market Value on the date of such exercise), (c) any
other property (valued at its Fair Market Value on the date of such exercise),
or (d) any combination of cash, stock and other property, each of the foregoing
only as the Committee, in its sole discretion, may permit. In no event will the
purchase price of Common Stock subject to a 1989 Plan ISO be less than the Fair
Market Value of the Common Stock on the date of the issuance of the 1989 Plan
ISO, provided that in the case of 1989 Plan ISOs granted to Ten Percent
Stockholders, the purchase price shall not be less than 110% of the Fair Market
Value of the Common Stock on the date of issuance of the 1989 Plan ISO.
(d) Further Restrictions as to Incentive Stock Options. To the extent that
--------------------------------------------------
the aggregate Fair Market Value of Common Stock with respect to which
Corporation ISOs (determined without regard to this section) are exercisable for
the first time by any Employee Participant during any calendar year exceeds
$100,000, such Corporation ISOs shall be treated as options which are not
Incentive Stock Options.
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<PAGE>
(e) Restrictions. At the discretion of the Committee, the Common Stock
------------
issued pursuant to the Stock Options granted hereunder may be subject to
restrictions on vesting or transferability.
(f) Withholding of Taxes. Pursuant to applicable Federal, state, local or
--------------------
foreign laws, the Corporation may be required to collect income or other taxes
upon the grant of a Stock Option to, or exercise of a Stock Option by, a holder.
The Corporation may require, as a condition to the exercise of a Stock Option,
or demand, at such other time as it may consider appropriate, that the Employee
pay the Corporation the amount of any taxes which the Corporation may determine
is required to be withheld or collected, and the Employee shall comply with the
requirement or demand of the Corporation.
(g) Securities Law Compliance. Upon exercise (or partial exercise) of a
-------------------------
Stock Option, the Employee shall make such representations and furnish such
information as may, in the opinion of counsel for the Corporation, be
appropriate to permit the Corporation to issue or transfer Stock in compliance
with the provisions of applicable federal or state securities laws. The
Corporation, in its discretion, may postpone the issuance and delivery of Stock
upon any exercise of this Option until completion of such registration or other
qualification of such shares under any federal or state laws, or stock exchange
listing, as the Corporation may consider appropriate. The Corporation may
require that prior to the issuance or transfer of Stock upon exercise of a Stock
Option, the Employee enter into a written agreement to comply with any
restrictions on subsequent disposition that the Corporation deems necessary or
advisable under any applicable federal and state securities laws. Certificates
of Stock issued hereunder may be legended to reflect such restrictions.
(h) Right to Stock Option. No employee of the Corporation or any other
---------------------
person shall have any claim or right to be a participant in this 1989 Plan or to
be granted a Stock Option hereunder. Neither this 1989 Plan nor any action
taken hereunder shall be construed as giving any person any right to be retained
in the employ of the Corporation. Nothing contained hereunder shall be
construed as giving any person any equity or interest of any kind in any assets
of the Corporation or creating a trust of any kind or a fiduciary relationship
of any kind between the Corporation and any such person. As to any claim for
any unpaid amounts under this 1989 Plan, any person having a claim for payments
shall be an unsecured creditor.
(i) Indemnity. Neither the Board of Directors nor the Committee, nor any
---------
members of either, nor any employees of the Corporation or any subsidiary, shall
be liable for any act, omission, interpretation, construction or determination
made in good faith in connection with their responsibilities with respect to
this 1989 Plan, and the Corporation hereby agrees to indemnify the members of
the Board of Directors, the members of the Committee, and the employees of the
Corporation and its subsidiaries in respect of any claim, loss, damage, or
expense (including counsel fees) arising from any such act, omission,
interpretation, construction or determination to the full extent permitted by
law.
(j) Participation by Foreigners. Without amending this 1989 Plan, except
---------------------------
to the extent required by the Code in the case of Incentive Stock Options, the
Committee may modify grants made to participants who are foreign nationals or
employed outside the United States so as to recognize differences in local law,
tax policy, or custom.
Section V. Amendment and Termination; Adjustments Upon Changes in Stock.
------------------------------------------------------------
The Board of Directors of the Corporation may at any time, and from time to
time, amend, suspend or terminate this 1989 Plan in whole or in part; provided,
however, that the
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<PAGE>
Board of Directors may not materially increase the benefits accruing to
Participants, increase the number of shares of Common Stock reserved for
purposes of this 1989 Plan, extend the term of this 1989 Plan or materially
modify the requirements to be a Participant in this 1989 Plan without further
approval by the affirmative vote of at least a majority of the holders of the
outstanding shares of Common Stock. Except as provided herein, no amendment,
suspension or termination of this 1989 Plan may affect the rights of a
Participant to whom a Stock Option has been granted without such Participant's
consent. The Committee is specifically authorized to convert the unexercised
portion of any 1989 Plan ISO granted to an Employee Participant to a Non-
qualified Option at any time prior to the exercise, in full, of such 1989 Plan
ISO. If there shall be any change in the Common Stock or to any Stock Option
granted under this 1989 Plan through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure of the Corporation, appropriate adjustments may be made by the Board
of Directors of the Corporation (or if the Corporation is not the surviving
corporation in any such transaction, the Board of Directors of the surviving
corporation) in the aggregate number and kind of shares subject to this 1989
Plan, and the number and kind of shares and the price per share subject to
outstanding options, provided that such adjustment does not affect the
qualification of any 1989 Plan ISO as an Incentive Stock Option. In connection
with the foregoing, the Board of Directors may issue new Stock Options in
exchange for outstanding Stock Options.
Section VI. Shares of Stock Subject to the Plan.
-----------------------------------
The number of shares of Common Stock that may be the subject of awards under
this 1989 Plan shall not exceed an aggregate of 1,250,000 shares. Shares to be
delivered under this 1989 Plan may be either authorized but unissued shares of
Common Stock or treasury shares. Any shares subject to an option hereunder
which for any reason expires unexercised, shares reacquired by the Corporation
because restrictions do not lapse, shares returned because payment is made
hereunder in stock of equivalent value rather than in cash, and/or shares
reacquired from a recipient for any other reason shall, at such time, no longer
count towards the aggregate number of shares which have been the subject of
Stock Options issued hereunder, and such number of shares shall be subject to
further awards under this 1989 Plan, provided the total number of shares then
eligible for award under this 1989 Plan may not exceed the total specified in
the first sentence of this Section VI.
Section VII. Effective Date and Term of this Plan.
------------------------------------
The effective date of this 1989 Plan is June 22, 1989 (the "Effective Date")
and awards under this 1989 Plan may be made for a period of ten years commencing
on the Effective Date. The period during which a Stock Option may be exercised
may extend beyond that time as provided herein.
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<PAGE>
EXHIBIT 10.07
VIVID TECHNOLOGIES, INC.
1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. The purpose of this 1996 Nonemployee Director Stock Option
-------
Plan is to attract and retain the services of experienced and knowledgeable
independent directors of the Corporation for the benefit of the Corporation and
its stockholders and to provide additional incentives for such independent
directors to continue to work for the best interests of the Corporation and its
stockholders through continuing ownership of its common stock.
2. Definitions. As used herein, each of the following terms has the
-----------
indicated meaning:
"Affiliate" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated association or other entity (other
than the Corporation) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Corporation including, without limitation, any member of an affiliated group of
which the Corporation is a common parent corporation as provided in Section 1504
of the Internal Revenue Code of 1986, as amended,.
"Corporation" means Vivid Technologies, Inc.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Eligible Director" means each director of the Corporation who is not then
an employee of the Corporation.
"Fair Market Value" means the last sale price of the Shares as reported on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") or on a national securities exchange on which the Shares may be
traded on the date of the granting of the Option. If the Shares are not
publicly traded, the fair market value shall mean the fair market value of the
Shares as determined by the Board of Directors.
"Option" means the contractual right to purchase Shares upon the specific
terms set forth in this Plan.
"Option Exercise Period" means the period commencing on the date of grant of
an Option pursuant to this Plan and ending ten years from the date of grant.
"Plan" means this Vivid Technologies, Inc. 1996 Nonemployee Director Stock
Option Plan.
"Shares" means the Common Stock, $.01 par value, of the Corporation.
<PAGE>
3. Stock Subject to the Plan. The aggregate number of Shares that may be
-------------------------
issued and sold under the Plan shall be 125,000 shares. The Shares to be issued
upon exercise of Options granted under this Plan shall be made available, at the
discretion of the Board of Directors, from (i) treasury Shares and/or Shares
reacquired by the Corporation for such purposes, including Shares purchased in
the open market, (ii) authorized but unissued Shares, and (iii) Shares
previously reserved for issuance upon exercise of Options which have expired or
been terminated. If any Option granted under this Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
Shares covered thereby shall become available for grant as additional Options
under the Plan so long as it shall remain in effect.
4. Administration of the Plan. The Plan shall be administered by the
--------------------------
Board of Directors of the Corporation (the "Board"). The Board shall, subject
to the provisions of the Plan, grant options under the Plan and shall have the
power to construe the Plan, to determine all questions as to eligibility, and to
adopt and amend such rules and regulations for the administration of the Plan as
it may deem desirable. The Board may delegate any and all of its authority
hereunder to one or more Committees of the Board.
5. Eligibility; Grant of Options. Each Eligible Director will be granted
-----------------------------
an Option to purchase 10,000 shares of Common Stock (the "Initial Option")
effective on the date he or she is first elected to the Board; provided, however
that no Eligible Director elected to the Board prior to October 10, 1996 shall
receive an Initial Option. In addition, each Eligible Director who has served
as a Director for a full fiscal year will be entitled to receive options to
purchase an additional 2,500 shares of Common Stock (the "Additional Options")
on June 30 of each year (provided the Director continues to be an Eligible
Director on that date) until the Director has received Additional Options to
purchase 25,000 shares of Common Stock.
6. Terms of Options and Limitations Thereon.
----------------------------------------
(a) Option Agreement. Each Option granted under this Plan shall be
----------------
evidenced by an option agreement between the Corporation and the Option holder
and shall be upon such terms and conditions not inconsistent with this Plan as
the Board may determine. Each Option shall explicitly state that it is not
intended to be an "incentive stock option" as that term is defined in Section
422A of the Internal Revenue Code.
(b) Price. The price at which any Shares may be purchased pursuant to
-----
the exercise of an Option shall be the Fair Market Value of the Shares on the
date of grant, but in no event shall the price be less than the par value of the
Shares.
(c) Exercise of Options. Subject to Paragraph 7 of this Plan, each
-------------------
Option granted under this Plan may be exercised in full at one time or in part
from time to time only during the Option Exercise Period by the giving of
written notice, signed by the person or persons exercising the Option, to the
Corporation stating the numbers of Shares with respect to which the Option is
being exercised, accompanied by full payment for such Shares pursuant to section
7(b) hereof; provided, however, (i) if a person to whom an Option has been
-------- -------
granted is permanently disabled or dies during the Option Exercise Period, the
portion of such Option then
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<PAGE>
exercisable, as provided in Paragraph 7(a) shall be exercisable by him or her or
by the executors, administrators, legatees or distributees of his or her estate
during the 12 months following his or her or death or permanent disability and,
(ii) if a person to whom an Option has been granted ceases to be a director of
the Corporation for any cause other than death or permanent disability, the
portion of Option then exercisable shall be exercisable during the thirty (30)
day period following the date such person ceased to be a director, but, in any
event, only to the extent vested pursuant to Paragraph 7(a) hereof.
(d) Non-Assignability. No Option or right or interest in an Option
-----------------
shall be assignable or transferable by the holder except by will or the laws of
descent and distribution and during the lifetime of the holder shall be
exercisable only by him or her.
7. Vesting: Payment.
----------------
(a) Subject to Paragraph 8 of this Plan, Options granted under this
Plan may be exercised as follows: (i) the Initial Options may be exercised
during the Option Exercise Period at the rate of 20% per year, commencing one
year after the date of grant, such that the Option may be exercised in full from
and after five years from the date of grant, and (ii) the Additional Options may
be exercised during the Option Exercise Period at any time after six months from
the date of grant.
(b) If a person to whom an Option is granted ceases to be an Eligible
Director, then each Option issued to said person shall be exercisable, during
the remainder of the Option Exercise Period or such shorter period as specified
in subparagraph 6(c), only as to the number of Shares as to which the Option was
exercisable immediately prior to said termination of affiliation, unless
otherwise determined by the Board of Directors.
(c) The purchase price of Shares upon exercise of an Option shall be
paid by the Option holder in full upon exercise and may be paid (i) in cash or,
if the Corporation's shares are traded on NASDAQ or a national securities
exchange; (ii) by delivery of Shares having a Fair Market Value on the date of
exercise equal to the purchase price, or (iii) any combination of cash and
Shares.
(d) No Shares shall be issued or transferred upon exercise of any
Option under this Plan unless and until all legal requirements applicable to the
issuance or transfer of such shares and such other requirements as are
consistent with the Plan have been complied with to the satisfaction of the
Board, including without limitation those described in Paragraph 10 hereof.
8. Stock Adjustments.
(a) If the Corporation is a party to any "Change in Control" event,
then all Options outstanding as of the date of the Change in Control event and
not then exercisable shall become fully exercisable to the full extent of the
original grant; provided, however, that if the rights granted under this
Paragraph 8(a) would cause an otherwise eligible transaction to be
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<PAGE>
ineligible for pooling of interest accounting treatment or the Board determines
that such rights would otherwise have an adverse effect on the Corporation, then
the Board shall have the power to make arrangements, which shall be binding upon
the holders of unexpired Options, for the substitution of new options for, or
the assumption by another corporation of, any unexpired Options then outstanding
hereunder. For purposes of the Plan, a "Change in Control" event shall include
the following:
(x) (i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the then outstanding shares of common stock of
the Corporation (the "Outstanding Corporation Common Stock") or the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities") or (ii) the approval by the stockholders of the
Corporation of a reorganization, merger, consolidation, complete liquidation or
dissolution of the Corporation, the sale or disposition of all or substantially
all of the assets of the Corporation or similar corporate transaction (in each
case referred to in this Paragraph 8(a) as a "Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly);
excluding, however, the following: (i) any acquisition by, or consummation of a
Corporate Transaction with, any subsidiary of the Corporation or by an employee
benefit plan (or related trust) sponsored or maintained by the Corporation or an
Affiliate, (ii) the acquisition by, or consummation of a Corporate Transaction
with, any Person who beneficially owned, immediately prior to such acquisition
or Corporate Transaction, directly or indirectly, 20% or more of the Outstanding
Corporation Common Stock or Outstanding Corporation Voting Securities, or (iii)
any Corporate Transaction, if more than a majority of the beneficial ownership
of the Outstanding Corporation Voting Securities after the Corporate Transaction
is held directly or indirectly by Persons who held directly or indirectly the
beneficial ownership of the Outstanding Corporation Voting Securities before the
Corporate Transaction; or
(y) A change in the composition of the Board of Directors such that the
individuals who, as of October 9, 1996, constitute the Board (such Board shall
be hereinafter referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, for purposes of
this Paragraph 8(a), that any individual who becomes a member of the Board
subsequent to such date whose election, or nomination for election by the
Corporation's stockholders, was approved by a vote of at least a majority of
those individuals who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board; but,
provided, further, that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so considered as a member
of the Incumbent Board.
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<PAGE>
(b) If by reason of recapitalization, reclassification, stock split-
up, combination of shares, separation (including a spin-off) or dividend on the
Stock payable in Shares, the outstanding Shares of the Corporation are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Corporation, the Board shall conclusively
determine the appropriate adjustment in the exercise prices of outstanding
Options and in the number and kind of shares as to which outstanding Options
shall be exercisable.
(c) In the event of a transaction of the type described in Paragraphs
(a) and (b) above, the total number of Shares on which Options may be granted
under this Plan shall be appropriately adjusted by the Board.
9. No Rights Other Than Those Expressly Created. No person affiliated
with the Corporation or other person shall have any claim or right to be granted
an Option hereunder. Neither this Plan nor any action taken hereunder shall be
construed as (i) giving any Option holder any right to continue to be affiliated
with the Corporation, (ii) giving any Option holder any equity or interest of
any kind in any assets of the Corporation, or (iii) creating a trust of any kind
or a fiduciary relationship of any kind between the Corporation and any such
person. No Option holder shall have any of the rights of a stockholder with
respect to Shares covered by an Option until such time as the Option has been
exercised and Shares have been issued to such person.
10. Miscellaneous.
(a) Withholding of Taxes. Pursuant to applicable federal, state,
local or foreign laws, the Corporation may be required to collect income or
other taxes upon the grant of an Option to, or exercise of an Option by, a
holder. The Corporation may require, as a condition to the exercise of an
Option, that the recipient pay the Corporation, at such time as the Board
determines, the amount of any taxes which the Board may determine is required to
be withheld.
(b) Securities Law Compliance. Upon exercise of an Option, the holder
shall be required to make such representations and furnish such information as
may, in the opinion of counsel for the Corporation, be appropriate to permit the
Corporation to issue or transfer the Shares in compliance with the provisions of
applicable federal or state securities laws. The Corporation, in its
discretion, may postpone the issuance and delivery of Shares upon any exercise
of an Option until completion of such registration or other qualification of
such Shares under any federal or state laws, or stock exchange listing, as the
Corporation may consider appropriate. The Corporation is not obligated to
register or qualify the Shares under federal or state securities laws and may
refuse to issue such Shares if neither registration nor exemption therefrom is
practical. The Board may require that prior to the issuance or transfer of any
Shares upon exercise of an Option, the recipient enter into a written agreement
to comply with any restrictions on subsequent disposition that the Board or the
Corporation deems necessary or advisable under any applicable federal and state
securities laws. Certificates representing the Shares issued hereunder may be
legended to reflect such restrictions.
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<PAGE>
(c) Indemnity. The Board shall not be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with its responsibilities with respect to the Plan, and the Corporation hereby
agrees to indemnify the members of the Board, in respect of any claim, loss,
damage, or expense (including counsel fees) arising from any such act, omission,
interpretation, construction or determination to the full extent permitted by
law.
11. Effective Date; Amendment; Termination.
--------------------------------------
(a) The effective date of this Plan shall be the date of the approval
of stockholders of the Corporation holding at least a majority of the voting
stock of the Corporation.
(b) The date of grant of any Option granted hereunder shall be the
date upon which the Eligible Director to whom the Option is granted becomes a
director of the Corporation.
(c) The Board, or any Committee who has been delegated the authority
to do so, may at any time, and from time to time, amend, suspend or terminate
this Plan in whole or in part. Except as provided herein, no amendment,
suspension or termination of this Plan may adversely affect the rights of any
person under an Option that has been granted to such person without such
person's consent.
(d) This Plan shall terminate ten years from its effective date, and
no Option shall be granted under this Plan thereafter, but such termination
shall not affect the validity of Options granted prior to the date of
termination.
Dates of Board of Director Adoption: October 8, 1996.
Dates of Stockholder Adoption: October , 1996.
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<PAGE>
EXHIBIT 10.08
VIVID TECHNOLOGIES, INC.
1996 EQUITY INCENTIVE PLAN
--------------------------
Section 1. Purpose
-------
The purpose of the Vivid Technologies, Inc. 1996 Equity Incentive Plan (the
"Plan") is to attract and retain key employees, directors, advisors and
consultants to provide an incentive for them to assist Vivid Technologies, Inc.
(the "Company") to achieve long-range performance goals, and to enable them to
participate in the long-term growth of the Company.
Section 2. Definitions
-----------
(a) "Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a
significant financial interest as determined by the Committee.
(b) "Award" means any Option, Stock Appreciation Right, Performance or Award
Share, or Restricted Stock awarded under the Plan.
(c) "Award Share" means a share of Common Stock awarded to an employee,
director, advisor or consultant without payment therefor.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" means a committee of not less than three members of the Board
appointed by the Board to administer the Plan. Alternatively, if the Board
so designates, the President of the Company shall serve as the sole member
of the Committee.
(g) "Common Stock" or "Stock" means the Common Stock, par value $.01 per share,
of the Company.
(h) "Company" means Vivid Technologies, Inc.
(i) "Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Board, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, Designated Beneficiary
shall mean the Participant's estate.
(j) "Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Board
in good faith or in the manner established by the Board from time to time.
(k) "Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
(l) "Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 which is not intended to be
an Incentive Stock Option.
<PAGE>
(m) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
(n) "Participant" means a person selected by the Board to receive an Award under
the Plan.
(o) "Performance Cycle" or "Cycle" means the period of time selected by the
Board during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
(p) "Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals awarded to a Participant under Section 8.
(q) "Restricted Period" means the period of time selected by the Board during
which an award of Restricted Stock may be forfeited to the Company.
(r) "Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
(s) "Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a
Participant under Section 7.
(t) "Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
Section 3. Administration
--------------
The Plan shall be administered by the Board. The Board shall have authority
to adopt, alter and repeal such administrative rules, guidelines and practices
governing the operation of the Plan as it shall from time to time consider
advisable, and to interpret the provisions of the Plan. The Board's decisions
shall be final and binding. To the extent permitted by applicable law, the
Board may delegate to the Committee the power to make Awards to Participants and
all determinations under the Plan with respect thereto.
Section 4. Eligibility
-----------
All employees and, in the case of Awards other than Incentive Stock Options,
directors, advisors and consultants of the Company or any Affiliate capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible, are eligible to be
Participants in the Plan.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b), Awards may be made under the
Plan of Options to acquire not in excess of 750,000 shares of Company Common
Stock. Other Awards may be made as the Board may determine, provided that a
maximum of 750,000 shares of Common Stock may be issued under this Plan. If
any Award in respect of shares of Common Stock expires or is terminated
unexercised or is forfeited for any reason or settled in a manner that
results in fewer shares outstanding than were initially awarded, including
without limitation the surrender of shares in payment for the Award or any
tax obligation thereon, the shares subject to such Award or so surrendered,
as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award under the
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<PAGE>
Plan, subject, however, in the case of Incentive Stock Options, to any
limitation required under the Code. Common Stock issued through the
assumption or substitution of outstanding grants from an acquired company
shall not reduce the shares available for Awards under the Plan. Shares
issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) In the event that the Board determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase
Common Stock at a price substantially below fair market value, or other
similar transaction affects the Common Stock such that an adjustment is
required in order to preserve the benefits or potential benefits intended to
be made available under the Plan, then the Board, subject, in the case of
Incentive Stock Options, to any limitation required under the Code, shall
equitably adjust any or all of (i) the number and kind of shares in respect
of which Awards may be made under the Plan, (ii) the number and kind of
shares subject to outstanding Awards, and (iii) the award, exercise or
conversion price with respect to any of the foregoing, and if considered
appropriate, the Board may make provision for a cash payment with respect to
an outstanding Award, provided that the number of shares subject to any
Award shall always be a whole number.
Section 6. Stock Options
-------------
(a) Subject to the provisions of the Plan, the Board may award Incentive Stock
Options and Nonstatutory Stock Options and determine the number of shares to
be covered by each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The terms and
conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder.
(b) The Board shall establish the option price at the time each Option is
awarded, which price shall not be less than 100% of the Fair Market Value of
the Common Stock on the date of award with respect to Incentive Stock
Options.
(c) Each Option shall be exercisable at such times and subject to such terms and
conditions as the Board may specify in the applicable Award or thereafter.
The Board may impose such conditions with respect to the exercise of
Options, including conditions relating to applicable federal or state
securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option until
payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent
permitted by the Board at or after the award of the Option, by delivery of a
note or shares of Common Stock owned by the optionholder, including
Restricted Stock, valued at their Fair Market Value on the date of delivery,
or such other lawful consideration as the Board may determine.
(e) The Board may provide for the automatic award of an Option upon the delivery
of shares to the Company in payment of an Option for up to the number of
shares so delivered.
(f) In the case of Incentive Stock Options the following additional conditions
shall apply:
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<PAGE>
(i) Such options shall be granted only to employees of the Company, and shall
not be granted to any person who owns stock that possesses more than ten
percent of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation (as those terms are
defined in section 422(b) of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder), unless, at the time
of such grant, the exercise price of such option is at least 110% of the
fair market value of the stock that is subject to such option and the
option shall not be exercisable more than five years after the date of
grant;
(ii) Such options shall not be exercisable more than ten years from the date
hereof and shall not be exercisable more than ten years from the date of
grant;
(iii) Such options shall, by their terms, be transferable by the optionee only
by will or the laws of descent and distribution, and shall be exercisable
only by such employee during his lifetime.
Section 7. Stock Appreciation Rights
-------------------------
Subject to the provisions of the Plan, the Board may award SARs in tandem
with an Option (at or after the award of the Option), or alone and unrelated to
an Option. SARs in tandem with an Option shall terminate to the extent that the
related Option is exercised, and the related Option shall terminate to the
extent that the tandem SARs are exercised.
Section 8. Performance Shares
------------------
(a) Subject to the provisions of the Plan, the Board may award Performance
Shares and determine the number of such shares for each Performance Cycle
and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of
Performance Cycles may differ from each other. The payment value of
Performance Shares shall be equal to the Fair Market Value of the Common
Stock on the date the Performance Shares are earned or, in the discretion of
the Board, on the date the Board determines that the Performance Shares have
been earned.
(b) The Board shall establish performance goals for each Cycle, for the purpose
of determining the extent to which Performance Shares awarded for such Cycle
are earned, on the basis of such criteria and to accomplish such objectives
as the Board may from time to time select. During any Cycle, the Board may
adjust the performance goals for such Cycle as it deems equitable in
recognition of unusual or non-recurring events affecting the Company,
changes in applicable tax laws or accounting principles, or such other
factors as the Board may determine.
(c) As soon as practicable after the end of a Performance Cycle, the Board shall
determine the number of Performance Shares which have been earned on the
basis of performance in relation to the established performance goals. The
payment values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Board shall determine,
at or after the time of award, whether payment values will be settled in
whole or in part in cash or other property, including Common Stock or
Awards.
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<PAGE>
Section 9. Restricted Stock
----------------
(a) Subject to the provisions of the Plan, the Board may award shares of
Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of
Restricted Stock may be issued for no cash consideration or such minimum
consideration as may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as permitted by the Board, during the
Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Board may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the
Participant and unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the
Company. At the expiration of the Restricted Period, the Company shall
deliver such certificates to the Participant or if the Participant has died,
to the Participant's Designated Beneficiary.
Section 10. Stock Units
-----------
(a) Subject to the provisions of the Plan, the Board may award Stock Units
subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules as the Board shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit Award shall
be issued for no cash consideration or such minimum consideration as may be
required by applicable law. Such shares of Common Stock may be designated as
Award Shares by the Board.
Section 11. General Provisions Applicable to Awards
---------------------------------------
(a) Documentation. Each Award under the Plan shall be evidenced by a writing
-------------
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Board considers necessary or advisable to
achieve the purposes of the Plan or comply with applicable tax and
regulatory laws and accounting principles.
(b) Board Discretion. Each type of Award may be made alone, in addition to or
----------------
in relation to any other type of Award. The terms of each type of Award
need not be identical, and the Board need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Board at the time
of award or at any time thereafter. Without limiting the foregoing, an
Award may be made by the Board, in its discretion, to any 401(k), savings,
pension, profit sharing or other similar plan of the Company in lieu of or
in addition to any cash or other property contributed or to be contributed
to such plan.
(c) Settlement. The Board shall determine whether Awards are settled in whole
----------
or in part in cash, Common Stock, other securities of the Company, Awards or
other property. The Board may permit a Participant to defer all or any
portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock.
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<PAGE>
(d) Dividends and Cash Awards. In the discretion of the Board, any Award under
-------------------------
the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(e) Termination of Employment. The Board shall determine the effect on an Award
-------------------------
of the disability, death, retirement or other termination of employment of a
Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
receive payment of an Award or exercise rights thereunder.
(f) Change in Control. In order to preserve a Participant's rights under an
-----------------
Award in the event of a change in control of the Company, the Board in its
discretion may, at the time an Award is made or at any time thereafter, take
one or more of the following actions: (i) provide for the acceleration of
any time period relating to the exercise or realization of the Award, (ii)
provide for the purchase of the Award upon the Participant's request for an
amount of cash or other property that could have been received upon the
exercise or realization of the Award had the Award been currently
exercisable or payable, (iii) adjust the terms of the Award in a manner
determined by the Board to reflect the change in control, (iv) cause the
Award to be assumed, or new rights substituted therefor, by another entity,
or (v) make such other provision as the Board may consider equitable and in
the best interests of the Company.
(g) Withholding. The Participant shall pay to the Company, or make provision
-----------
satisfactory to the Board for payment of, any taxes required by law to be
withheld in respect of Awards under the Plan no later than the date of the
event creating the tax liability. In the Board's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued
at their Fair Market Value on the date of delivery. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the Participant.
(h) Foreign Nationals. Awards may be made to Participants who are foreign
-----------------
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Board considers necessary
or advisable to achieve the purposes of the Plan or comply with applicable
laws.
(i) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including substituting therefor another Award of the same
or a different type, changing the date of exercise or realization and
convening an Incentive Stock Option to a Nonstatutory Stock Option, provided
that the Participant's consent to such action shall be required unless the
Board determines that the action, taking into account any related action,
would not materially and adversely affect the Participant.
Section 12. Miscellaneous
-------------
(a) No Right To Employment. No person shall have any claim or right to be
----------------------
granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to continued employment. The Company expressly
reserves the right at any time to dismiss a Participant free from any
liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of
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<PAGE>
Common Stock to be distributed under the Plan until he or she becomes the
holder thereof. A Participant to whom Common Stock is awarded shall be
considered the holder of the Stock at the time of the Award except as
otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the shareholders of the Company,
--------------
the Plan shall be effective on October 8, 1996. Prior to such approval,
Awards may be made under the Plan expressly subject to such approval.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
-----------------
any portion thereof at any time, provided that no amendment shall be made
without shareholder approval if such approval is necessary to comply with
any applicable tax requirement.
(e) Governing Law. The provisions of the Plan shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware.
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<PAGE>
EXHIBIT 10.09
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
COMMERCIAL LEASE
In consideration of the covenants herein contained, Cummings Properties
Management, Inc., hereinafter called LESSOR, does hereby lease to VIVID
TECHNOLOGIES, INC. (a Massachusetts corporation), 590 Lincoln Street, Waltham,
Massachusetts 02154 hereinafter called LESSEE, the following described premises,
hereinafter called the leased premises: approximately 43,200 square feet at 10-
E Commerce Way, Woburn, Massachusetts 01801 as shown on Exhibit A attached
---------
hereto.
TO HAVE AND HOLD the leased premises for a term of five (5) years commencing at
noon on March 1, 1996 and ending at noon on February 28, 2001 unless sooner
terminated as hereinafter provided. LESSOR and LESSEE now covenant and agree
that the following terms and conditions shall govern this lease during the term
hereof and for such further time as LESSEE shall hold the leased premises.
1. RENT. LESSEE shall pay to LESSOR base rent at the rate of three hundred
eighty-eight thousand eight hundred ($388,800.00) U.S. dollars per year, drawn
on a U.S. bank, payable in advance in monthly installments of $32,400.00 on the
first day in each calendar month in advance, the first monthly payment to be
made on or before March 1, 1996, including payment in advance of appropriate
fractions of a monthly payment for any portion of a month at the commencement or
end of said lease term. All payments shall be made to LESSOR or agent at 200
West Cummings Park, Woburn, Massachusetts 01801, or at such other place as
LESSOR shall from time to time in writing designate. If the "Cost of Living"
has increased as shown by the Consumer Price Index (Boston, Massachusetts, all
items, all urban consumers), U.S. Bureau of Labor Statistics, the amount of base
rent due during each calendar year of this lease and any extensions thereof
shall be annual adjusted in proportion to any increase in the Index. All such
adjustments shall take place with the rent due on January 1 of each year during
the lease term. The base month from which to determine the amount of each
increase in the Index shall be January 1996, which figure shall be compared with
the figure for November 1996, and each November thereafter to determine the
percentage increase (if any) in the base rent to be paid during the following
calendar year. In the event that the Consumer Price Index as presently computed
is discontinued as a measure of "Cost of Living" changes, any adjustment shall
then be made on the basis of a comparable index then in general use.
2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the
amount of sixty-five thousand ($65,000.00) dollars upon the execution of this
lease by LESSEE, which shall be held as security for LESSEE's performance as
herein provided and refunded to LESSEE without interest at the end of this lease
subject to LESSEE's satisfactory compliance with the conditions hereof. LESSEE
may not apply the security deposit first, then to offset any outstanding invoice
or other payment due
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<PAGE>
to LESSOR, with the balance applied to outstanding rent. If all or any portion
of the security deposit is applied to cure a default or breach during the term
of the lease, LESSEE shall be responsible for restoring said deposit forthwith
and failure to do so shall be considered a substantial default under the lease.
LESSEE's failure to remit the full security deposit or any portion thereof when
due shall also constitute a substantial lease default.
3. USE OF PREMISES. LESSEE shall use the leased premises only for the
purpose of executive and administrative offices, electronic research and
development, and light manufacturing.
4. ADDITIONAL RENT. LESSEE shall pay to LESSOR as additional rent a
proportionate share (based on square footage leased by LESSEE as compared with
the total leaseable square footage of the building of which the leased premises
are a part) of any increase in the real estate taxes levied against the land and
building of which the leased premises are a part, whether such increase is
caused by an increase in the tax rate, or the assessment on the property, or a
change in the method of determining real estate taxes. LESSEE shall make
payment within thirty (30) days of written notice from LESSOR that such
increased taxes are payable, and any additional rent shall be prorated should
the lease terminate before the end of any tax year. The base from which to
determine the amount of any increase in taxes shall be the rate and the
assessment in effect as of July 1, 1996. In the event that said building was
not assessed as a completed building as of the aforementioned date, then the
base assessment shall be as of the first date when the building is assessed as a
completed structure.
5. UTILITIES. LESSOR shall provide equipment per LESSOR's building standard
specifications to heat the leased premises in season and to cool all office
areas between May 1 and November 1. LESSEE shall pay all charges for heat and
electricity used on the leased premises. LESSEE shall pay LESSOR for all water
and sewer use as reasonably determined by LESSOR by a separate water meter
serving the leased premises, and LESSEE shall pay LESSOR a proportionate share
of any other fees and charges excluding tie-in fees and capital expenditures for
which LESSEE is not otherwise responsible hereunder relating in any way to water
or sewer use at the building. No plumbing, construction or electrical work
(excluding data or telephone wiring) of any type shall be done without LESSOR's
prior written approval and the appropriate municipal permit.
6. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation,
activity or work shall be conducted in the leased premises or use made thereof
which may be unlawful, improper, noisy, or contrary to any applicable statute,
regulation, ordinance or bylaw. LESSEE shall keep all employees working in the
leased premises covered with Worker's Compensation Insurance and shall obtain
any licenses and permits necessary for LESSEE's occupancy. LESSEE shall be
responsible for causing any alterations by LESSEE which are allowed hereunder to
be
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<PAGE>
in full compliance with any applicable statute, regulation, ordinance or bylaw
and for causing the leased premises to be in such full compliance in connection
with LESSEE's specific use.
7. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the
leased premises, or of the property of which they are a part, be substantially
damaged by fire or other casualty, or be taken by eminent domain, LESSOR or
LESSEE may elect to terminate this lease as provided hereinbelow. When such
fire, casualty, or taking renders the leased premises or a portion thereof
reasonably unsuitable for their intended use, a just and proportionate abatement
of rent shall be made, and LESSEE may elect to terminate this lease if: (a)
LESSOR fails to give written notice within thirty (30) days of intention to
restore the leased premises, or (b) LESSOR fails to restore the leased premises
to a condition suitable for their intended use within ninety (90) days of said
fire, casualty or taking. LESSOR reserves all rights for damages or injury to
the leased premises for any taking by eminent domain, except for damage to
LESSEE's property, equipment, or unamortized improvements installed by LESSEE or
LESSEE's relocation costs.
8. MAINTENANCE OF PREMISES. LESSOR will be responsible for all structural
maintenance of the <a> and for the maintenance <b> of all space heating and
cooling equipment, sprinklers, doors, locks, plumbing, and electrical wiring,
but specifically excluding damage caused by the careless, malicious, willful, or
negligent acts of LESSEE or [C], chemical, water or corroding damage to LESSEE's
property from any source except LESSOR's negligence, chemical, water or
corrosion damage caused by LESSEE, and maintenance of any non "building
standard" leasehold improvements. LESSEE agrees to maintain at its expense all
other interior non-structural aspects of the leased premises in the same
condition as they are at the commencement of the term or as they may be put in
during the term of this lease, normal wear and tear and damage by fire or other
casualty or the act or omission of LESSOR or its agents only excepted, and
whenever necessary, to replace light bulbs, plate glass and other glass therein,
acknowledging that the leased premises are now in good order and the light bulbs
and glass whole. LESSEE will properly control or vent all solvents, degreasers,
smoke, odors, etc. and shall not cause the area surrounding the leased premises
to be in anything other than a neat and clean condition, depositing all waste in
appropriate receptacles. LESSEE shall be solely responsible for any damage to
plumbing equipment, sanitary lines, or any other portion of the building which
results from the discharge or use of any acid or corrosive substance by LESSEE.
LESSEE shall not permit the leased premises to be overloaded, damaged, stripped
or defaced, nor suffer any waste, and will not keep animals within the leased
premises. If the leased premises include any wooden mezzanine type space, the
floor capacity of such space is suitable only for office use, light storage or
assembly work. If the leased premises are carpeted or partially carpeted,
LESSEE will protect carpet with plastic or masonite chair pads under any rolling
chairs. Unless heat is provided at LESSOR's expense, LESSEE shall maintain
sufficient heat to prevent freezing of pipes or other damage. Any increase in
air conditioning equipment or electrical capacity, or any
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<PAGE>
installation and/or maintenance of equipment which is necessitated by some
specific aspects of LESSEE's use of the leased premises shall be at LESSEE's
expense. All maintenance provided by LESSOR shall be during LESSOR's normal
business hours.
9. ALTERATIONS. LESSEE shall not make structural alterations or additions
of any kind to the leased premises, but may make nonstructural alterations
provided LESSOR consents thereto in writing, but without LESSOR's consent for
any such alteration costing less than $18,000.00. All such allowed alterations
shall be at LESSEE's expense and shall conform with LESSOR's construction
specifications. If LESSOR provides any services or maintenance for LESSEE in
connection with such alterations or otherwise under this lease at LESSEE's
request or as a result of LESSEE's breach of its lease obligations (after
expiration of any applicable grace period) any just invoice will be prompt paid.
LESSEE shall not permit any mechanics' liens, or similar liens to remain upon
the leased premises in connection with work of any character performed or
claimed to have been performed at the direction of LESSEE and shall cause any
such lien to be released or removed or bonded over without cost to LESSOR upon
thirty (30) days' notice. Any alterations or additions shall become part of the
leased premises and the property of LESSOR. Any alterations completed by LESSOR
shall be LESSOR's "building standard" unless noted otherwise. LESSOR shall have
the right at any time to change the arrangement of parking areas, stairs,
walkways or other common areas of the building of which the leased premises are
a part provided any changes do not materially impair LESSEE's access to and use
of the leased premises or LESSEE's five exclusive parking spaces.
10. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or sublet
or allow any other firm or individual to occupy the whole or any part of the
leased premises without LESSOR's prior written consent. Notwithstanding such
assignment or subleasing, LESSEE and GUARANTOR shall remain liable to LESSOR for
the payment of all rent and for the full performance of the covenants and
conditions of this lease. LESSEE shall pay LESSOR promptly for legal and
administrative expenses incurred by LESSOR in connection with any consent
requested hereunder by LESSEE.
11. SUBORDINATION. This lease shall be subject and subordinate to any and
all mortgages and other instruments in the nature of a mortgage, now or at any
time hereafter, and LESSEE shall, when requested, promptly execute and deliver
such written instruments as shall be necessary to show the subordination of this
lease to said mortgages or other such instruments in the nature of a mortgage.
12. LESSOR'S ACCESS. LESSOR or agents of LESSOR may, upon reasonable prior
notice, at any reasonable time enter to view the leased premises, to make
repairs and alterations as LESSOR is required hereunder to perform,. should
elect to do for the leased premises, the common areas or any other portions of
the building of which the leased premises are a part to make repairs which
LESSEE is required but has failed to do, and to show the leased premises to
others.
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<PAGE>
13. SNOW REMOVAL. The plowing of snow from all roadways, accessways and
unobstructed parking and loading areas shall be at the sole expense of LESSOR.
The control of snow and ice on all steps serving the leased premises and all
other areas not readily accessible to plows shall be the sole responsibility of
LESSEE. Notwithstanding the foregoing, however, LESSEE shall hold LESSOR and
OWNER harmless from any and all claims by LESSEE's agents, representatives,
employees, callers or invitees for damage or personal injury resulting in any
way from snow or ice on any area serving the leased premises, except for claims
arising out of LESSOR's negligence to the extent covered by LESSEE's insurance
required to be maintained hereunder.
14. ACCESS AND PARKING. LESSEE shall have the right without additional
charge to use parking facilities provided for the leased premises in common with
others entitled to the use thereof. For purposes of LESSEE's liability and
insurance under Sections 13 and 15. Said parking areas plus any stairs,
walkways, elevators or other common areas shall in all cases be considered a
part of the leased premises to the extent that they are utilized by LESSEE, or
LESSEE's employees, agents, callers or invitees. LESSEE will not obstruct in
any manner any portion of the building or the walkways or approaches to said
building, and will conform to all rules and regulations now or hereafter made by
LESSOR for parking, and for the care, use, or alteration of the building, its
facilities and approaches, provided the same (i) do not derogate from LESSEE's
rights hereunder and (ii) are applied uniformly to all tenants in the building.
LESSEE further warrants that LESSEE will use reasonable efforts to not permit
any employee or visitor to violate this or any other covenant or obligation of
LESSEE. No unattended parking will be permitted between 7:00 PM and 7:00 AM
without LESSOR's prior written approval, and from December 1 through March 31
annually, such parking shall be permitted only in those areas specifically
designated for assigned overnight parking. Unregistered or disabled vehicles,
or storage trailers of any type, may not be parked at any time. LESSOR may tow,
at LESSEE's sole risk and expense, any misparked vehicle belonging to LESSEE or
LESSEE's agents, employees, invitees or callers, at any time. LESSOR shall not
be responsible for providing any security services for the leased premises.
15. LESSEE'S LIABILITY AND INSURANCE. Except for claims resulting from the
sole negligence, act or omission of LESSOR or its agents, LESSEE shall be solely
responsible as between LESSOR and LESSEE for deaths or personal injuries to all
persons whomsoever occurring in or on the leased premises (including any
extension thereof) as described in Section 1 from whatever cause arising, and
damage to property to whomsoever belonging arising out of the use, control,
condition or occupation of the leased premises by LESSEE; and subject to
Paragraph M of the Rider, LESSEE agrees to indemnify and save harmless LESSOR
and OWNER from any and liability, including but not limited to expenses, damage,
causes of action, suits, claims or judgments caused by or in any way growing out
of any matters aforesaid, except for death, personal injuries or property damage
resulting from the sole negligence of LESSOR or its agents. LESSEE will secure
and carry at its own
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<PAGE>
expense a comprehensive general liability policy insuring LESSEE, LESSOR and
OWNER against any claims based on bodily injury (including death) or property
damage arising out of the condition of the leased premises or their use by
LESSEE, such policy to insure LESSEE, LESSOR and OWNER against any claim up to
One Million (1,000,000) Dollars in the case of any one accident involving bodily
injury (including death), and up to One Million (1,000,000) Dollars against any
claim for damage to property. LESSOR and OWNER shall be included in each such
policy as additional insureds. LESSEE will file with LESSOR prior to occupancy
certificates and any applicable riders or endorsements showing that such
insurance is in force, and thereafter will file renewal certificates prior to
the expiration of any such policies. All such insurance certificates shall
provide that such policies shall not be canceled without at least ten (10) days
prior written notice to each insured. In the event LESSEE shall fail to provide
or maintain such insurance at any time during the term of this lease, then
LESSOR may elect to contract for such insurance at LESSEE's expense.
16. FIRE INSURANCE. Subject to the provisions of Section 6, LESSEE shall not
permit any use of the leased premises which will adversely affect or make
voidable any insurance on the property of which the leased premises are a part,
or on the contents of said property, or which shall be contrary to any law or
regulation from time to time established by the Insurance Services Office (or
successor), local Fire Department, LESSOR's insurer, or any similar body for a
use not set forth in Section 3 hereinabove, LESSEE shall on demand reimburse
LESSOR, and all other tenants, all extra insurance premiums caused by LESSEE's
use of the leased premises. LESSEE shall not vacate the leased premises other
than during LESSEE's customary non-business days or hours.
17. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has
dealt with no broker or third person with respect to this lease and LESSEE
agrees to indemnify LESSOR against any brokerage claims arising by virtue of
this lease. LESSOR warrants and represents to LESSEE that LESSOR has employed
no exclusive broker or agent in connection with the letting of the leased
premises.
18. SIGNS. LESSOR authorizes, and LESSEE at LESSEE's expense agrees to
erect, signage for the leased premises in accordance with LESSOR's building
standards for style, size, location, etc. LESSEE shall obtain the prior written
consent of LESSOR before erecting any sign on the leased premises, which consent
shall include approval as to size, wording, design and location. LESSOR may
remove and dispose of any sign not approved, erected or displayed in conformance
with the lease. LESSOR consents to signage as shown on Exhibit B attached.
19. DEFAULT AND ACCELERATION OF RENT. In the event that (a) LESSEE shall
default in the observance or performance of any LESSEE's covenants, agreements,
or obligations hereunder, other than substantial monetary payments as provided
below, and such default shall not be corrected within thirty (30) days after
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<PAGE>
written notice thereof, or more if LESSEE is diligently prosecuting a cure but
is unable to complete within said 30 day period, the LESSOR shall have the right
thereafter, while such default continues and without demand or further notice,
to re-enter and take possession of the leased premises, to declare the term of
this lease ended, and to remove LESSEE's effects by process of law, without
being guilty of any manner of trespass, and without prejudice to any remedies
which might be otherwise used for arrears of rent or other default or breach of
the lease. If LESSEE shall default in the payment of the security deposit,
rent, taxes, or any substantial invoice for goods and/or services or other sum
herein specified, and such default shall continue for ten (10) days after
written notice thereof, and, because both parties agree that nonpayment of said
sums when due is a substantial breach of the lease, and, because the payment of
rent in monthly installments is for the sole benefit and convenience of LESSEE,
then in addition to the foregoing remedies the entire balance of rent which is
due hereunder up to a maximum of two years rent, shall become immediately due
and payable as liquidated damages. LESSOR, without being under any obligation
to do so and without thereby waiving any default, may remedy same for the
account and at the expense of LESSEE. If LESSOR pays or incurs any obligations
for the payment of money in connection therewith, such sums paid or obligations
incurred plus interest and costs, shall be paid to LESSOR by LESSEE as
additional rent. Any sums received by LESSOR from or on behalf of LESSEE at any
time shall be applied first to any unamortized improvements completed for
LESSEE's occupancy, then to offset any outstanding invoice or other payment due
to LESSOR, with the balance applied to outstanding rent. LESSEE agrees to pay
reasonable attorney's fees and/or administrative costs incurred by LESSOR in
enforcing any or all obligations of LESSEE under this lease at any time. LESSEE
shall pay LESSOR interest at the rate of fifteen (15%) percent per annum on any
payment from LESSEE to LESSOR which is past due.
20. NOTICE. Any notice from LESSOR to LESSEE relating to the leased premises
or to the occupancy thereof shall be deemed duly served when left at the leased
premises addressed to LESSEE, or served by constable, or sent to the leased
premises by certified mail, return receipt requested, postage prepaid, addressed
to LESSEE. Any notice from LESSEE to LESSOR relating to the leased premises or
to the occupancy thereof shall be deemed duly served when served by constable,
or delivered to LESSOR by hand, by recognized commercial overnight carrier or by
certified mail, return receipt requested, postage prepaid, addressed to LESSOR
at 200 West Cummings Park, Woburn, MA 01801 or at LESSOR's last designated
address. No oral notice or representation shall have any force or effect. Time
is of the essence in service of any notice.
21. OCCUPANCY. In the event that LESSEE takes possession of said premises
prior to the start of said term, LESSEE will perform and observe all of LESSEE's
covenants from the date upon which LESSEE takes possession except the obligation
for the payment of rent. In the event that LESSEE continues to occupy or
control all or any part of the leased premises after the agreed termination of
this lease without
-7-
<PAGE>
the written permission of LESSOR, the LESSEE shall be liable to LESSOR for any
and all loss, damages or expenses incurred by LESSOR, and all other terms of
this lease shall continue to apply except that rent shall be due in full monthly
installments at a rate of one hundred fifty (150) percent of that which would
otherwise be due under this lease, it being understood between the parties that
such extended occupancy is as a tenant at sufferance and is solely for the
benefit and convenience of LESSEE. LESSEE's control or occupancy of all or any
part of the leased premises beyond noon on the last day of any monthly rental
period shall constitute LESSEE's occupancy for an entire additional month, and
increased rent as provided in this section shall be due and payable immediately
in advance. LESSOR's acceptance of any payments from LESSEE during such
extended occupancy shall not alter LESSEE's status as a tenant at sufferance.
22. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution
against fire and agrees to provide and maintain approved, labeled fire
extinguishers, emergency lighting equipment, and exit signs and complete any
other modifications within the leased premises resulting from LESSEE's specific
use as required or recommended by the Insurance Services Office (or successor
organization), OSHA, the local Fire Department, or any similar body.
23. OUTSIDE AREA. No goods, equipment, or things of any type or description
shall be held or stored outside the leased premises at any time without prior
written consent from LESSOR. Any goods, equipment or things left outside the
leased premises without LESSOR's prior written consent shall be deemed abandoned
and may be removed at LESSEE's expense without notice by LESSOR. A single two-
yard capacity dumpster is hereby authorized for the disposal of trash, provided
that the location of said receptacle is approved by LESSOR. LESSEE agrees to
have said container provided and serviced at its expense by whichever disposal
firm may from time to time be designated by LESSOR, provided such rates are
reasonably competitive. If a dumpster is provided on a shared cost basis,
LESSEE shall pay its proportionate share of the costs associated with said
dumpster.
24. ENVIRONMENT. LESSEE will so conduct and operate the leased premises as
not to interfere in any way with the use and enjoyment of other portions of the
same or neighboring buildings by others by reason of odors, smoke, smells,
noise, pets accumulation of garbage or trash, vermin or other pests, or
otherwise, and will at its expense employ a professional pest control service if
necessary as a result of LESSEE's operations. LESSEE agrees to maintain
efficient and effective devices for preventing damage to heating equipment from
solvents, degreasers, cutting oils, propellant, etc. which may be present at the
leased premises. No hazardous materials or wastes shall be stored, disposed of,
or allowed to remain at the leased premises at any time, except in compliance
with any applicable statutes, regulations, ordinances and the like, and LESSEE
shall be solely responsible for any and all corrosion or other damage associated
with the use, storage and/or disposal of same by LESSEE.
-8-
<PAGE>
25. RESPONSIBILITY. Subject to the provisions of Sections 8 and 15 and
Paragraphs M and O of the Rider, neither LESSOR nor OWNER shall be held liable
to anyone for loss or damages at the leased premises because in any way by the
use, leakage, seepage or escape of water from any source, or for the cessation
of any service rendered customarily to said premises or buildings, agreed to by
breakdowns, trouble or scarcity in obtaining fuel, electricity, service or
supplies from the sources from which they are usually obtained for said
building, or any cause beyond LESSOR's reasonable control.
26. SURRENDER. LESSEE shall at the termination of this lease remove all of
LESSEE's goods and effects from the leased premises. LESSEE shall deliver to
LESSOR the leased premises and all keys and locks thereto, all fixtures and
equipment connected therewith, and all alterations, additions and improvements
made to or upon the leased premises, whether completed by LESSEE, LESSOR or
others, including but not limited to any offices, partitions, window blinds
affixed, floor coverings (including computed floors), plumbing fixtures, air
conditioning equipment and ductwork of any type, exhaust fans or heaters, water
coolers, burglar alarms, telephone wiring, air or gas distribution piping,
compressors, overhead cranes, hoists, trolleys or conveyors, counters, all
electrical work, including but not limited to lighting fixtures of any type,
wiring, conduit, EMT, transformers, distribution panels, bus ducts, raceways,
outlets and disconnects, and furnishings or equipment which have been welded to
any wall, floor or ceiling or which have been plumbed to the water supply,
drainage or venting systems serving the leased premises. LESSEE shall deliver
the leased premises sanitized from any chemicals or other contaminants, and
broom clean and in the same condition as they were at the commencement of this
lease or any priori lease between the parties for the leased premises, or as
they were modified during said term with LESSOR's written consent, reasonable
wear and tear and damage by fire or other casualty or the act or omission of
LESSOR or its agents only excepted. In the event of LESSEE's failure to remove
any of LESSEE's property from the leased premises upon termination of the lease,
LESSOR is hereby authorized, without liability to LESSEE for loss or damage
thereto, and at the sole risk of LESSEE, to remove and store any such property
at LESSEE's expense, or to retain same under LESSOR's control, or to sell at
public or private sale (without notice), any or all of the property not so
removed and to apply the net proceeds of such sale to the payment of any sum due
hereunder, or to destroy such abandoned property. In no case shall the leased
premises be deemed surrendered to LESSOR until the termination date provided
herein or such other date as may be specified in a written agreement between the
parties, notwithstanding the delivery of any keys to LESSOR.
27. GENERAL. (a) The invalidity or unenforceability or any provision of this
lease shall not affect or render invalid or unenforceable any other provision
hereof. (b) The obligations of this lease shall run with the land, and this
lease shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, except that LESSOR and OWNER shall be
liable only for obligations occurring or arising while lessor, owner, or master
lessee of the premises. (c) Any action or proceeding arising out of the subject
matter of this
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<PAGE>
lease shall be brought by LESSEE only in a court of the Commonwealth of
Massachusetts. (d) If LESSOR is acting under or as agent for any trust or
corporation, the obligations of LESSOR shall be binding upon the trust or
corporation, but not upon any trustee, officer, director, shareholder, or
beneficiary of the trust or corporation individually. (e) If LESSOR is not
the owner (OWNER) of the leased premises, LESSOR represents that said OWNER has
agreed to be bound by the terms of this lease. (f) This lease is made and
delivered in the Commonwealth of Massachusetts, and shall be interpreted,
construed, and enforced in accordance with the laws thereof. (g) This lease
was the result of negotiations between parties of equal bargaining strength, and
when executed by both parties shall constitute the entire agreement between said
parties. No other oral or written representation shall have any effect hereon,
and this agreement may not be altered, extended or amended except by written
agreement attached hereto or as otherwise provided herein. (h) Except as
otherwise expressly set forth herein, LESSOR makes no warranty, express or
------------------------------------
implied concerning the suitability of the leased premises for LESSEE's intended
- -------
use. (i) LESSEE agrees that if LESSOR does not deliver possession of the
leased premises as herein provided for any reason, LESSOR shall not be liable
for any damages to LESSEE for such failure, but LESSOR agrees to use reasonable
efforts to deliver possession to LESSEE at the earliest possible date, and the
proportionate abatement of rent for such time as LESSEE may be deprived of
possession of said leased premises shall be LESSEE's sole remedy. (j) Neither
the submission of this lease form, nor the prospective acceptance of the
security deposit and/or rent shall constitute a reservation of or option for the
leased premises, or an offer to lease, it being expressly understood and agreed
that this lease shall not bind either party in any manner whatsoever until it
has been executed by both parties. (k) LESSEE shall not be entitled to
exercise any option contained herein if LESSEE is in default of any terms or
conditions hereof. (l) The headings in this lease are for convenience only and
shall not be considered part of the terms hereof (m) No endorsement by LESSEE
on any check shall bind LESSOR in any way.
28. SECURITY AGREEMENT. THIS PARAGRAPH DOES NOT APPLY
29. WAIVERS, ETC. No consent or waiver, express or implied, by LESSOR, to or
of any breach of any covenant, condition or duty of LESSEE shall be construed as
a consent or waiver to or of any other breach of the same or any other covenant,
condition or duty. If LESSEE is several persons, several corporations or a
partnership, LESSEE's obligations are joint or partnership and also several.
Unless repugnant to the context, "LESSOR" and "LESSEE" mean the person or
persons, natural or corporate, named above as LESSOR and as LESSEE respectively,
and their respective heirs, executors, administrators, successors and assigns.
30. FIVE-YEAR EXTENSION. This lease, including all terms, conditions,
escalations, etc. shall be extended for one addition successive period of five
(5) years provided LESSEE shall serve written notice to LESSOR of LESSEE's
desire to so extend the lease. The time for serving such written notice shall
be not more than
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<PAGE>
twelve (12) months or less than six (6) months prior to the expiration of the
then current lease period. Time is of the essence.
31. ADDITIONAL PROVISIONS. (Continued on attached rider if necessary.)
- See Attached Rider -
IN WITNESS WHEREOF, LESSOR AND LESSEE have hereunto set their hands and
common seals and intend to be legally bound hereby this ___ day of ________,
19__.
LESSOR: LESSEE:
CUMMINGS PROPERTIES VIVID TECHNOLOGIES, INC.
MANAGEMENT, INC.
By:_________________________________ By:_____________________________________
, President
GUARANTY
THIS PARAGRAPH DOES NOT APPLY
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<PAGE>
RIDER
A. LESSOR, at its sole cost and expense, shall modify the existing primary warm
air heating system by replacing the electric resistance heaters with natural
gas-fired duct heaters. Thereafter, LESSOR shall be responsible for
maintenance of the gas heaters as "building standard" equipment as provided
in Section 8 of the lease. LESSOR agrees that said heating system shall be
adequate for normal office and production use and that said modifications
shall be completed prior to delivery of possession, in a good and
workmanlike manner and in compliance with all applicable building codes.
B. LESSOR, if requested to do so by LESSEE, and at LESSEE's sole expense as set
forth below, shall make alterations to the leased premises desired by LESSEE
according to a plan to be mutually agreed upon by both parties. At LESSEE's
request, the cost of certain alterations agreed to in advance and completed
by LESSOR or LESSOR's agents may be incorporated into the lease by separate
amendment to be attached hereto, amortized over the lease term without
interest and paid for by LESSEE in the same manner as base rent which shall
otherwise by due. Provided said lease amendment (including final plans) is
fully executed on or before January 1, 1996, LESSOR shall complete said
alterations before or about February 28, 1996.
C. This lease is conditioned upon the full execution of a lease termination
agreement between LESSOR and Information International, Inc. ("Triple I") on
or before January 1, 1996.
D. * Whenever LESSOR's or LESSEE's consent, agreement or approval is required
under this lease, said consent, agreement or approval shall not be
unreasonably withheld or delayed.
E. LESSEE shall have the right to assign this lease or sublet the leased
premises to an affiliated corporation, namely a corporation in which LESSEE
owns at least a fifty percent interest, which owns at least a fifty percent
interest in LESSEE, with which LESSEE merges, or which is formed as a result
of a merger or consolidation involving LESSEE, without further consent from
LESSOR, provided LESSEE so notifies LESSOR in writing to that effect on a
timely basis. The provisions of Section 10 shall govern said assignment in
all other respects. In addition, LESSOR hereby consents to a sublease by
LESSEE to Triple I of all or a portion of the leased premises commencing on
or about March 1, 1996.
F. LESSEE's agreement to subordinate this lease to any and all institutional
mortgages and/or other instruments in the nature of a mortgage, now or at
any time hereafter, is conditional upon the mortgagee's written agreement
that LESSEE's possession will not thereafter be disturbed so long as LESSEE
is not in default in the payment of rent or other covenants or obligations
hereof.
G. LESSOR shall erect signage designating five (5) parking spaces in front of
the leased premises for LESSEE's exclusive use. LESSOR shall have no
responsibility for enforcing said parking restriction.
H. Without affecting or modifying in any way the provisions of Section 15
above, LESSOR shall secure and carry at its own expense a comprehensive
general liability policy insuring the building of which the leased premises
are a part ("the Building"), including all common areas, for any claim,
including both bodily injury and property damage, up to at least One Million
($1,000,000.00) Dollars. In addition, LESSOR agrees to maintain 100%
replacement cost, extended "all risk" casualty insurance in a commercially
reasonable amount for the Building.
I. * In the event this lease is terminated and LESSEE pays LESSOR accelerated
rent in accordance with the provisions of Section 19 herein, LESSOR agrees
to make reasonable efforts to re-let the leased premises and otherwise
mitigate its damages resulting from such termination. LESSOR shall credit
LESSEE for any rents actually received by LESSOR over the balance of the
lease term minus any costs incurred by LESSOR in re-letting the premises.
LESSOR's failure to re-let the leased premises despite LESSOR's reasonable
efforts shall not limit LESSEE's liability hereunder.
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<PAGE>
J. With respect to any environmental contamination or other condition existing
prior to the commencement of LESSEE's occupancy hereunder, LESSOR shall hold
LESSEE harmless from any and all suits, judgments, or liabilities for any
"release", as defined in Section 101(22) of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), of
any "hazardous substance" as defined in Section 101(14) of CERCLA, or with
respect to any other substance or material regulated by any past, present or
future laws or regulations, or any petroleum (including crude oil or any
fraction thereof) as a result of any activity on the property of which the
leased premises are a part occurring prior to LESSEE's occupancy and not
caused by LESSEE.
K. With respect to any contamination or other condition caused by LESSEE or its
agents or otherwise arising by virtue of LESSEE's use or operations
hereunder, LESSEE shall hold LESSOR harmless from any and all suits,
judgments, or liabilities for any "release", as defined in Section 101(22)
of CERCLA, of any "hazardous substance" as defined in Section 101(14) of
CERCLA, or with respect to any other substance or material regulated by any
past, present or future laws or regulations, or any petroleum (including
crude oil or any fraction thereof).
L. Prior to the termination date of this lease, LESSEE may remove the two 50-
cycle generators with motor controls, the 5-ton air conditioning unit
serving LESSEE's clean room and any other trade fixtures and equipment
supplied and installed by LESSEE that have been bolted, nailed, screwed,
glued or otherwise attached to any wall, floor or ceiling, or which have
been directly wired to any portion of the electrical system, if LESSEE is
not in default of this lease beyond any applicable grace period and if
LESSEE repairs any and all damage resulting from such removal prior to the
end of the lease term. Time is of the essence.
M. LESSOR and LESSEE do hereby mutually release and discharge each other of and
from all liability and responsibility to the other for any loss, damage or
liability to the extent covered by insurance maintained or required to be
maintained hereunder. LESSOR and LESSEE shall obtain waivers of subrogation
with respect to all property damage policies required to be maintained
hereunder.
N. LESSOR warrants and represents, to the best of its knowledge and belief,
that there are no underground storage tanks at the leased premises other
than any tanks connected to the sanitary sewer system; that there is no
pending litigation affecting the leased premises; that MHP Realty, Inc. has
good and clear marketable title to the leased premises, with no recorded
liens; and that there is no additional municipal assessment pending with
respect to the leased premises or the Building.
O. In the event that LESSOR is in default of its maintenance or repair
responsibilities as required by this lease and, following thirty (30) days
written notice by LESSEE (or a shorter time in the event of an emergency),
fails to cure said default, then LESSEE shall have the right to complete
said maintenance or repairs. LESSOR shall reimburse LESSEE for the
reasonable cost of any such maintenance or repairs upon presentation of a
proper invoice therefor, and in the event that LESSOR fails to do so within
thirty (30) days following receipt of said invoice, LESSEE may deduct said
reasonable cost from its monthly rental payment.
P. With respect to Section 4 hereinabove, LESSOR agrees to pay any increase in
real estate taxes over the longest period allowed by law and agrees that
LESSEE shall not be charged for any late fees or penalties assessed against
LESSOR by the taxing authority. Any real estate tax abatements granted by
the taxing authority shall be taken into account by LESSOR in determining
whether there has been any increase in real estate taxes.
Q. In the event that the utility service to the leased premises is interrupted
as a result of LESSOR's negligent acts or omissions for longer than five (5)
consecutive business days, then LESSEE shall be entitled to an abatement of
rent for any such interruption beyond the initial five (5) business days to
the extent compensation is not available under LESSEE's business
interruption or other insurance.
-13-
<PAGE>
R. LESSEE shall reasonably and quietly have, hold and enjoy the premises for
the term hereof without hindrance or molestation from LESSOR, provided
LESSEE is not in arrears of any rent or invoice payment and is not in
default of this lease beyond any applicable grace period.
S. With respect to Section 7 hereinabove, should a substantial portion of the
leased premises, or of the property of which they are a part, be
substantially damaged by fire or other casualty, or be taken by eminent
domain, LESSOR may elect to terminate this lease provided no more than two
(2) years remains in the lease term. If more than two (2) years remains in
the lease term, LESSOR agrees to restore the leased premises to a condition
reasonably suitable for their intended use by LESSEE, provided LESSEE
relinquishes its right to terminate this lease pursuant to Section 7.
T. * With reference to Section 15 hereinabove, LESSEE shall include LESSOR and
OWNER on LESSEE's comprehensive general liability policy as additional
insureds using standard endorsement IS0 Form CG 20 26 11 85 or another form
approved in advance by LESSOR.
U. In the event that the City of Woburn or any other governmental or state
agency issues a citation to LESSEE prohibiting the use of the leased
premises for the purposes set forth in Section 3 and said citation is
adjudged valid after LESSEE has exhausted all applicable administrative
appeals and appealed to at least one level of the court system (e.g.
Superior Court or Land Court) then LESSEE may cancel this lease by serving
LESSOR with thirty (30) days prior written notice to that effect, and
neither party shall thereafter have any further obligation to the other.
V. To the extent it is not LESSEE's responsibility pursuant to Section 6
hereinabove, LESSOR shall be responsible for causing the Building to be in
compliance with any applicable statute, regulation, ordinance or bylaw. In
addition, LESSOR shall comply with any applicable laws in carrying out its
responsibilities under this lease.
W. "Building standard" improvements as used in this lease shall refer to the
existing improvements at the leased premises and any further alterations
other than those alterations that are necessitated by some specific aspect
of LESSEE's use.
X. In the event that delivery of the leased premises, with such alterations as
are agreed upon pursuant to Paragraph B substantially completed except for
punch list items, is delayed beyond April 1, 1996 for any reason except
delay caused by Triple I, then in addition to the abatement of rent that is
provided in Section 27(i) hereinabove, LESSEE shall receive a rent credit
equal to one day's rent for each day beyond April 1, 1996 that the leased
premises are not delivered. Further, in the event that the leased premises
are not delivered on or before April 30, 1996 for any reason except delay
caused by Triple I, then LESSEE may elect to terminate this lease upon
written notice to LESSOR, effective immediately upon receipt, whereupon all
moneys paid hereunder shall be refunded and the parties shall have no
further obligation to one another. The remedies provided in this paragraph,
in addition to those provided in Section 27(i) hereinabove, shall be
LESSEE's sole remedies for any delay by LESSOR in delivering the leased
premises.
Y. With respect to Section 21, LESSOR shall not be entitled to recover indirect
or consequential damages unless (i) LESSOR has given LESSEE forty-five (45)
days prior written notice informing LESSEE that LESSOR intends to seek
indirect or consequential damages, and (ii) LESSEE has failed to vacate the
premises within said 45-day period.
-14-
<PAGE>
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement, made and entered into this ____ of ___________, 199_
("Agreement"), by and between Vivid Technologies, Inc., a ______________
corporation ("Company"), and <1> ("Indemnitee").
WHEREAS, the Company desires to retain the availability of its existing
directors and to be in a position to attract additional persons to serve in such
capacity; and
WHEREAS, highly competent persons are becoming more reluctant to serve as
directors or in other capacities unless they are provided with adequate
protection through insurance or adequate indemnification against inordinate
risks of claims and actions against them arising out of their service to and
activities on behalf of the Company; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that
Indemnitee be indemnified to the fullest extent permitted.
NOW, THEREFORE, in consideration of the premises and the covenants contained
herein, the Company and Indemnitee do hereby covenant and agree as follows:
ARTICLE I
Definitions
-----------
For purposes of this Agreement the following terms shall have the meanings
indicated:
1.01 "Board" shall mean the Board of Directors of the Company.
-----
1.02 "Change of Control" shall mean any of the following events:
-----------------
(a) Unless approved by the affirmative vote of at least two-thirds
(2/3) of those members of the Board who are in office immediately
prior to the event(s):
(1) the merger (except for a merger of a wholly-owned subsidiary
into the Company in which the Company is the surviving
corporation) or consolidation of the Company with, or the
sale or disposition of 50% or more of the assets of the
Company to, any person or entity or group of associated
persons or entities; or
<PAGE>
(2) the direct or indirect beneficial ownership in the aggregate
of equity securities of the Company representing twenty
percent (20%) or more of the total combined voting power of
the Company's then issued and outstanding equity securities
by any person or entity, or group of associated persons or
entities acting in concert, not affiliated (within the
meaning of the Securities Act of 1933) with the Company as
of the date of this Agreement; or
(3) the shareholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company.
For purposes of this clause (a), "beneficial ownership" and
"equity securities" shall have the meanings given under Rules
13d-3 and 3a11-1, respectively, under the Securities Exchange
Act of 1934.
(b) A change in the composition of the Board at any time during any
consecutive twenty-four (24) month period such that the
"Continuing Directors" cease for any reason to constitute at
least a seventy percent (70%) majority of the Board. For purposes
of this clause (b), "Continuing Directors" means those members of
the Board who either:
(1) were directors at the beginning of such consecutive twenty-
four (24) month period; or
(2) were elected by, or on the nomination or recommendation of,
at least a two-thirds (2/3) majority (consisting of at least
4 directors) of the then-existing Board.
1.03 "Corporate Status" describes the status of a person who is or was a
----------------
director, officer, employee, agent, trustee or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise for which such person is or was serving as a director,
officer, employee or agent at the express written request of the Company.
1.04 "Court" means the Court of Chancery of the State of Delaware, the
-----
court in which the Proceeding in respect of which indemnification is sought by
the Indemnitee shall have been brought or is pending, or another court having
subject jurisdiction and personal jurisdiction over the parties.
1.05 "Disinterested Director" means a director of the Company who is not
----------------------
and was not and is not threatened to be a party to the Proceeding in respect of
which indemnification is sought by Indemnitee.
1.06 "Enterprise" shall mean the Company and any other corporation,
----------
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the express written request of the Company
as a director, officer, employee, agent, trustee or fiduciary.
1.07 "Expenses" shall include, without limitation, all reasonable
--------
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the types customarily incurred in connection with prosecuting,
-2-
<PAGE>
defending, preparing to prosecute or defend, investigating or being or preparing
to be a witness in a Proceeding.
1.08 "Good Faith" shall mean Indemnitee having acted in good faith and in a
----------
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any Proceeding which is criminal
in nature, having had no reasonable cause to believe Indemnitee's conduct was
unlawful.
1.09 "Independent Counsel" means a law firm, or a member of a law firm,
-------------------
that is experienced in matters of corporation law and may include law firms or
members thereof that are regularly retained by the Company but not any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing and
applicable to such counsel, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
1.10 "Proceeding" includes any pending, threatened or completed action,
----------
suit, arbitration, alternate dispute resolution mechanism, investigation
(including any internal corporate investigation), administrative hearing or any
other pending, threatened or completed proceeding whether civil, criminal,
administrative or investigative, other than one initiated by Indemnitee. For
purposes of the foregoing sentence, a "Proceeding" shall not be deemed to have
been initiated by Indemnitee where Indemnitee seeks pursuant to Article VIII of
this Agreement to enforce Indemnitee's rights under this Agreement.
ARTICLE II
Term of Agreement
-----------------
This Agreement shall continue until and terminate upon the later of: (i)
ten (10) years after the date that Indemnitee shall have ceased to serve as a
director, officer, employee, agent, trustee or fiduciary of the Company or of
any other Enterprise; or (ii) the final termination of all pending Proceedings
in respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Article VIII of this Agreement relating thereto.
ARTICLE III
Services by Indemnitee, Notice of Proceedings
---------------------------------------------
3.01 Services. Indemnitee agrees to serve or continue to serve as a
--------
Director of the Company for so long as he is duly elected or appointed.
Indemnitee may at any time and for any reason resign from such position (subject
to any other contractual obligation or any obligation imposed by operation of
law).
3.02 Notice of Proceeding. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, but the omission so to notify the Company shall not relieve
the Company from its obligations hereunder.
-3-
<PAGE>
ARTICLE IV
Indemnification
---------------
4.01 In General. In connection with any Proceeding, the Company shall
----------
indemnify, and advance Expenses, to Indemnitee as provided in this Agreement and
to the fullest extent permitted by applicable law in effect on the date hereof
and to such greater extent as applicable law may hereafter from time to time
permit.
4.02 Proceedings Other Than Proceedings by or in the Right of the Company.
--------------------------------------------------------------------
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 4.02 if, by reason of Indemnitee's Corporate Status, Indemnitee is, or
is threatened to be made, a party to or is otherwise involved in any Proceeding,
other than a Proceeding by or in the right of the Company. Indemnitee shall be
indemnified against Expenses, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with such Proceeding or any claim, issue or matter therein,
if Indemnitee acted in Good Faith.
4.03 Proceedings by or in the Right of the Company. Indemnitee shall be
---------------------------------------------
entitled to the rights of indemnification provided in this Section 4.03 if, by
reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened to be
made, a party to or is otherwise involved in any Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Indemnitee shall be
indemnified against Expenses, judgments, penalties, and amounts paid in defense
or settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with such Proceeding or any claim, issue or matter therein,
if Indemnitee acted in Good Faith. Notwithstanding the foregoing, no such
indemnification shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification shall nevertheless be made
by the Company in such event if and only to the extent that the Court which is
considering the matter shall deem proper.
4.04 Indemnification of a Party Who is Wholly or Partly Successful.
-------------------------------------------------------------
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of Indemnitee's Corporate Status, a party to or is
otherwise involved in and is successful, on the merits or otherwise, in any
Proceeding, Indemnitee shall be indemnified to the maximum extent permitted by
law, against all Expenses, judgments, penalties, fines, and amounts paid in
defense or settlement, actually and reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or otherwise, as
to one or more but less than all claims, issues or matters in such Proceeding,
the Company shall indemnify Indemnitee to the maximum extent permitted by law,
against all Expenses, judgments, penalties, fines, and amounts paid in defense
or settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section 4.04 and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
4.05 Indemnification for Expenses of a Witness. Notwithstanding any other
-----------------------------------------
provision of this Agreement, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a
-4-
<PAGE>
witness in any Proceeding, Indemnitee shall be indemnified against all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith.
ARTICLE V
Advancement of Expenses
-----------------------
Notwithstanding any provision to the contrary in Article VI, the Company
(acting through the Chairman, President or any Vice President of the Company)
shall advance all reasonable Expenses which, by reason of Indemnitee's Corporate
Status, were incurred by or on behalf of Indemnitee in connection with any
Proceeding, within twenty (20) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances,
whether prior to or after final disposition of such Proceeding. Such statement
or statements shall reasonably evidence the Expenses incurred by Indemnitee and
shall include or be preceded or accompanied by an undertaking by or on behalf of
Indemnitee to repay any Expenses if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified against such Expenses. Any advance
and undertakings to repay pursuant to this Article V shall be unsecured and
interest free and without reference to the financial ability of the Indemnitee
to make such repayment. Advancement of Expenses pursuant to this Article V
shall not require approval of the Board of Directors or the shareholders of the
Company, or of any other person or body. The Secretary of the Company shall
promptly advise the Board in writing of the request for advancement of Expenses,
of the amount and other details of the advance and of the undertaking to make
repayment pursuant to this Article V.
ARTICLE VI
Procedures for Determination of Entitlement to Indemnification
--------------------------------------------------------------
6.01 Initial Request. To obtain indemnification under this Agreement
---------------
(other than advancement of Expenses pursuant to Article V), Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonable necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall promptly advise
the Board in writing that Indemnitee has requested indemnification.
6.02 Method of Determination. A determination (if required by applicable
-----------------------
law) with respect to Indemnitee's entitlement to indemnification shall be made
as follows:
(a) if a Change in Control has occurred, unless Indemnitee shall
request in writing that such determination be made in accordance
with clause (b) of this Section 6.02, the determination shall be
made by Independent Counsel in a written statement to the Board,
a copy of which shall be delivered to Indemnitee;
(b) if a Change of Control has not occurred, and subject to Section
6.05, the determination shall be made by the Board by a majority
vote of a quorum consisting of Disinterested Directors (or
pursuant to unanimous written consent in lieu of a meeting if all
of the Company's Directors are Disinterested). In the event that
a quorum of the Board consisting of Disinterested Directors is
not obtainable or, even if obtainable, such quorum
-5-
<PAGE>
of Disinterested Directors so directs, the determination shall be
made by Independent Counsel in a written opinion to the Board, a
copy of which shall be delivered to Indemnitee.
6.03 Selection, Payment, Discharge, of Independent Counsel. In the event
-----------------------------------------------------
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 6.02 of this Agreement, the Independent Counsel
shall be selected, paid, and discharged in the following manner:
(a) If a Change of Control has not occurred, the Independent Counsel
shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising Indemnitee of the identity
of the Independent Counsel so selected.
(b) If a Change of Control has occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request
that such selection be made by the Board, in which event clause
(a) of this section shall apply), and Indemnitee shall give
written notice to the Company advising it of the identity of the
Independent Counsel so selected.
(c) Following the initial selection described in clauses (a) and (b)
of this Section 6.03, Indemnitee or the Company, as the case may
be, may, within seven (7) days after such written notice of
selection has been given, deliver to the other party a written
objection to such selection. Such objection may be asserted only
on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in
Section 1.10 of this Agreement, and the objection shall set forth
with particularity the factual basis of such assertion. Absent a
proper and timely objection, the person so selected shall act as
Independent Counsel. If such written objection is made, the
Independent Counsel so selected may not serve as Independent
Counsel unless and until a court has determined that such
objection is without merit.
(d) Either the Company or Indemnitee may petition a Court if the
parties have been unable to agree on the selection of Independent
Counsel within twenty (20) days after submission by Indemnitee of
a written request for indemnification pursuant to Section 6.01 of
this Agreement. Such petition may request a determination whether
an objection to the party's selection is without merit and/or
seek the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall
designate. A person so appointed shall act as Independent Counsel
under Section 6.02 of this Agreement.
(e) The Company shall pay any and all reasonable fees and expenses of
Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to this Agreement, and the
Company shall pay all reasonable fees and expenses incident to
the procedures of this Section 6.03, regardless of the manner in
which such Independent Counsel was selected or appointed.
(f) Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 8.01(c) of this Agreement,
Independent Counsel shall be
-6-
<PAGE>
discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional
conduct then prevailing).
6.04 Cooperation. Indemnitee shall cooperate with the person, persons or
-----------
entity making the determination with respect to Indemnitee's entitlement to
indemnification under this Agreement, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification), and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
6.05 Payment. If it is determined that Indemnitee is entitled to
-------
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination.
ARTICLE VII
Presumptions and Effect of Certain Proceedings
----------------------------------------------
7.01 Burden of Proof. In making a determination with respect to
---------------
entitlement to indemnification hereunder, the person, persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 6.01 of this Agreement, and the Company shall have
the burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.
7.02 Effect of Other Proceedings. The termination of any Proceeding or of
---------------------------
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of guilty or of nolo contendere or its equivalent,
---------------
shall not (except as otherwise expressly provided in this Agreement) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in Good Faith.
7.03 Reliance as Safe Harbor. For purposes of any determination of Good
-----------------------
Faith, Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's
action is based on the records or books of account of the Enterprise, including
financial statements, or on information supplied to Indemnitee by the officers
of the Enterprise in the course of their duties, or on the advice of legal
counsel for the Enterprise or on information or records given or reports made to
the Enterprise by an independent certified public accountant or by an appraiser
or other expert selected with reasonable care by the Enterprise. The provisions
of this Section 7.03 shall not be deemed to be exclusive or to limit in any way
the other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
7.04 Actions of Others. The knowledge and/or actions, or failure to act,
-----------------
of any director, officer, employee, agent, trustee or fiduciary of the
Enterprise shall not be imputed to Indemnitee for purposes of determining the
right to indemnification hereunder.
-7-
<PAGE>
ARTICLE VIII
Remedies of Indemnitee
----------------------
8.01 Application. This Article VIII shall apply in the event of a Dispute.
-----------
For purposes of this Article, "Dispute", shall mean any of the following events:
(a) a determination is made pursuant to Article VI of this Agreement
that Indemnitee is not entitled to indemnification under this
Agreement;
(b) advancement of Expenses is not timely made pursuant to Article V
of this Agreement;
(c) the determination of entitlement to be made pursuant to Section
6.02 of this Agreement has not been made within ninety (90) days
after receipt by the Company of the request for indemnification;
(d) payment of indemnification is not made pursuant to Section 4.05
of this Agreement within ten (10) days after receipt by the
Company of a written request therefor; or
(e) payment of indemnification is not made within ten (10) days after
a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made
pursuant to Article VI of this Agreement.
8.02 Adjudication. In the event of a Dispute, Indemnitee shall be entitled
------------
to an adjudication in an appropriate Court of Indemnitee's entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at
Indemnitee's option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which a
Dispute arose. The Company shall not oppose Indemnitee's right to seek any such
adjudication or award in arbitration.
8.03 De Novo Review. In the event that a determination shall have been
--------------
made pursuant to Article VI of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Article VIII shall be conducted in all respects as a de novo trial, or
-------
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. In any such proceeding or arbitration, the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
8.04 Company Bound. If a determination shall have been made or deemed to
-------------
have been made pursuant to Article VI of this Agreement that Indemnitee is
entitled to indemnification, the Company shall be bound by such determination in
any judicial proceeding or arbitration absent (i) a misstatement by Indemnitee
of a material fact, or any omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with
Indemnitee's request for indemnification, or (ii) a prohibition of such
indemnification under applicable law.
-8-
<PAGE>
8.05 Procedures Valid. The Company shall be precluded from asserting in
----------------
any judicial proceeding or arbitration commenced pursuant to this Article VIII
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
8.06 Expenses of Adjudication. In the event that Indemnitee, pursuant to
------------------------
this Article VIII, seeks a judicial adjudication of or an award in arbitration
to enforce Indemnitee's rights under, or to recover damages for breach of, this
Agreement, Indemnitee shall be entitled to recover from the Company, and shall
be indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses in Section 1.07 of this Agreement)
actually and reasonably incurred by Indemnitee in such adjudication or
arbitration, but only if Indemnitee prevails therein. If it shall be determined
in such adjudication or arbitration that Indemnitee is entitled to receive part
but not all of the indemnification or advancement of Expenses sought, the
expenses incurred by Indemnitee in connection with such adjudication or
arbitration shall be appropriately prorated.
ARTICLE IX
Non-exclusivity, Insurance, Subrogation
---------------------------------------
9.01 Non-Exclusivity. The rights of indemnification and to receive
---------------
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Company's Certificate of Incorporation, the Company's
By-Laws, any agreement, a vote of shareholders or a resolution of Disinterested
directors, or otherwise. No amendment, alteration, rescission or replacement of
this Agreement or any provision hereof shall be effective as to Indemnitee with
respect to any action taken or omitted by such Indemnitee in Indemnitee's
Corporate Status prior to such amendment, alteration, rescission or replacement.
9.02 Insurance. The Company may maintain, at its expense, an insurance
---------
policy or policies to protect itself and Indemnitee against liability arising
out of the subject matter of this Agreement or otherwise.
9.03 Subrogation. In the event of any payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
9.04 No Duplicative Payment. The Company shall not be liable under this
----------------------
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
-9-
<PAGE>
ARTICLE X
General Provisions
------------------
10.01 Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's legal representatives, heirs, executors and
administrators.
10.02 Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each
portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is
not itself invalid, illegal or unenforceable) shall not in any
way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any section of
this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or
unenforceable.
10.03 No Adequate Remedy. The parties declare that it is impossible to
------------------
measure in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the provisions
hereof, such party against whom such action or proceeding is brought hereby
waives the claim or defense that such party has an adequate remedy at law, and
such party shall not urge in any such action or proceeding the claim or defense
that the other party has an adequate remedy at law.
10.04 Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
10.05 Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
10.06 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
If to Indemnitee, to: As shown with Indemnitee's
signature below.
-10-
<PAGE>
If to the Company, to: Vivid Technologies, Inc.
10E Commerce Way
Woburn, MA 01801
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
10.07 Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
10.08 Entire Agreement. This Agreement constitutes the entire agreement
----------------
and understanding between the parties hereto in reference to all the matters
herein agreed upon. This Agreement replaces in full all prior indemnification
agreements or understandings of the parties hereto, and any all such prior
agreements or understandings are hereby rescinded by mutual agreement.
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the
day and year first above written.
VIVID TECHNOLOGIES, INC.
ATTEST:
BY: ___________________________
Its___________________________
BY:______________________
INDEMNITEE
______________________________
Less Than 1 Greater Than
Address: Less Than 2 Greater Than
-11-
<PAGE>
EXHIBIT 10.11
VIVITECH, INC.
SERIES A AND SERIES B PREFERRED STOCK PURCHASE AGREEMENT
June 22, 1989
<PAGE>
TABLE OF CONTENTS
----- -- --------
<TABLE>
<CAPTION>
Section Page
- -------- ----
<S> <C>
S1. Authorization; Purchase and Sale of Securities........ 1
1.01 Authorization of the Securities................. 1
1.02 Sale of the Securities.......................... 1
1.03 Certain Definitions............................. 1
1.04 The Closing..................................... 1
1.05 Use of Proceeds................................. 2
2. Representations and Warranties of the Company......... 2
2.01 Organization and Good Standing.................. 2
2.02 Capitalization.................................. 2
2.03 Financial Statements............................ 3
2.04 Absence of Changes.............................. 3
2.05 Compliance with Other Instruments............... 3
2.06 Authorization................................... 4
2.07 Finders......................................... 4
2.08 Taxes........................................... 4
2.09 Litigation...................................... 4
2.10 Properties...................................... 4
2.11 Compliance with Law............................. 5
2.12 Subsidiaries, Joint Ventures.................... 5
2.13 Contracts and Commitments....................... 5
2.14 Outstanding Indebtedness........................ 5
2.15 Patents, Trademarks............................. 5
2.16 Conflicting Agreements.......................... 5
2.17 Compliance with Securities Act of 1933.......... 6
2.18 Disclosure...................................... 6
2.19 Closing Date.................................... 6
3. Representations and Warranties of Founders............ 6
3.01 Conflicting Agreements.......................... 7
3.02 Conflict of Interests........................... 7
4. Representations and Warranties of Investors........... 7
4.01 Investment Intent............................... 7
4.02 Authorization................................... 8
4.03 Restricted Securities........................... 8
4.04 Finders......................................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ---------- ----
<S> <C>
5. Covenants of the Company.............................. 8
5.01 Compliance with Law............................. 8
5.02 Accounting System............................... 9
5.03 Board of Directors.............................. 9
(a) Representatives of Investors................ 9
(b) Voting Agreement............................ 9
(c) Expense of Directors........................ 10
(d) Board Approval Requirements................. 10
5.04 Inspection...................................... 10
5.05 Financial Statements and Other
Information................................... 10
5.06 Key Man Insurance and Other Insurance........... 11
5.07 Proprietary Information Agreements.............. 11
5.08 Material Changes and Litigation................. 12
5.09 Executive Compensation.......................... 12
5.10 Transactions with Affiliates.................... 12
5.11 Dividends....................................... 12
5.12 Issuance of Stock............................... 13
5.13 Merger; Sale of Assets.......................... 13
6. Conditions to Obligations of Investors
at the Closing...................................... 13
6.01 Representations and Warranties Correct.......... 13
6.02 Performance of Covenants and Agreements......... 13
6.03 Opinion of Counsel to the Company............... 13
6.04 Legal Action.................................... 15
6.05 Filing of Articles of Amendment................. 15
6.06 Restricted Stock Agreements..................... 15
6.07 Hologic License Agreement.......................
6.08 Hologic Management Agreement....................
6.09 Shareholders Agreement.......................... 16
6.10 Compliance Certificate.......................... 16
6.11 Proceedings Satisfactory........................ 16
7. Conditions to Obligations of the Company
at the Closing...................................... 16
8. Participation in Future Offerings..................... 16
8.01 Eligible Offerings; Notice...................... 16
8.02 Acceptance...................................... 17
8.03 Percentage Interest............................. 17
8.04 Excluded Offerings.............................. 17
8.05 No Accumulation................................. 17
8.06 Rights Personal................................. 17
8.07 Termination of Rights........................... 18
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- --------- ----
<S> <C>
9. Registration Rights................................... 18
9.01 Certain Definitions............................. 18
9.02 Sale or Transfer of the Shares.................. 19
9.03 Required Registration........................... 19
9.04 Incidental Registrations........................ 20
9.05 Registration Procedures......................... 21
9.06 Allocation of Expenses.......................... 23
9.07 Indemnification................................. 23
9.08 Indemnification with Respect to
Underwritten Offering........................ 24
9.09 Rule 144 Reporting.............................. 24
10. Definitions.......................................... 25
11. Miscellaneous Provisions............................. 25
11.01 Construction................................... 25
11.02 Notices........................................ 25
11.03 Assignment..................................... 26
11.04 Succession to Rights........................... 26
11.05 Amendments and Waiver.......................... 26
11.06 Counterparts................................... 27
11.07 Headings....................................... 27
11.08 Expenses....................................... 27
11.09 Confidential Information....................... 27
11.10 Knowledge and Absence of Personal
Liability of Certain Persons................ 27
Exhibits
- --------
List of Investors..................................... Exhibit A
Articles of Amendment................................. Exhibit B
Restricted Stock Agreement............................ Exhibit C
Hologic License and Technology Agreement.............. Exhibit D
Hologic Management Services Agreement................. Exhibit E
Shareholders Agreement................................ Exhibit F
</TABLE>
-iii-
<PAGE>
SERIES A AND SERIES B PREFERRED STOCK PURCHASE AGREEMENT
------ - --- ------ - --------- ----- -------- ---------
This Agreement, made and entered into the 22nd day of March, 1986 June,
1989 by and among VIVITECH, Inc., a corporation organized and existing under the
laws of the Commonwealth of Massachusetts (the "Company"), and the investors
listed on Exhibit A hereto (the "Investors").
The parties hereto hereby agree as follows:
1. Authorization; Purchase and Sale of Securities
-------------- -------- --- ---- -- ----------
1.01 Authorization of the Securities. The Company will on or before the
------------- -- --- ----------
Closing Date (as defined in Section 1.04 below) file with the Secretary of the
Commonwealth of Massachusetts Articles of Amendment to the Articles of
Organization of the Company in the form of Exhibit B hereto (the "Articles of
Amendment"), creating a class of 484,375 shares of Preferred Stock, $.01 par
value, of the Company and establishing and designating the relative rights and
preferences of the Series A Preferred Stock (the "Series A Preferred") and the
Series B Preferred Stock (the "Series B Preferred") of the Company; and the
Company will have authorized the issuance to the Investors, pursuant to this
Agreement, of up to 234,375 shares of Series A Preferred and 250,000 shares of
Series B Preferred.
1.02 Sale of the Securities. Subject to the terms and conditions hereof,
---- -- --- ----------
the Company hereby agrees to sell to each of the Investors, and each of the
Investors agrees to purchase from Company on the Closing Date, the number of
shares of Series A Preferred and Series B Preferred set forth opposite his or
its name under "Closing Date" on Exhibit A hereto. The purchase price for each
share of Series A Preferred sold pursuant to this Agreement will be $10.00. The
purchase price for each share of Series B Preferred sold pursuant to this
Agreement will be $0.625.
1.03 Certain Definitions. All of the shares of Series A Preferred and
------- -----------
Series B Preferred being purchase hereunder are hereinafter sometimes referred
to as the "Shares." The total number of shares of the Company's Common Stock,
and any other securities issued or issuable upon conversion of the Series B
Preferred, are hereinafter sometimes referred to as the "Conversion Stock." The
Shares and the Conversion Stock are hereinafter sometimes collectively referred
to as the "Securities."
1.04 The Closing. The closing of the transactions contemplated by this
--- -------
Agreement (herein referred to as the "Closing") shall take place at the offices
of Brown, Rudnick, Freed & Gesmer, One Financial Center, Boston, Massachusetts
at 11:00 A.M., on June 22, 1989, or at such other place or on such other date or
time as shall be mutually agreed to by the Company and counsel to the Investors
(hereinafter referred to as the "Closing Date"). At the Closing, the Company
will deliver to each Inves-
-1-
<PAGE>
tor who is purchasing Shares at the Closing certificates, in such denominations
and registered in such name as each Investor may designate by notice to the
Company, representing the shares of Series A Preferred and Series B Preferred to
be purchased on the Closing Date by each Investor from the Company, against
payment of the purchase price for such Shares in cash or by certified or bank
cashier's check payable to the order of the Company.
1.05 Use of Proceeds. Not less than 95% of the proceeds to the Company
--- -- --------
from the sale of the Shares shall be used by the Company for the development,
manufacturing and marketing of products described in the Company's Business Plan
dated March, 1989 (the "Business Plan").
2. Representations and Warranties of the Company.
--------------- --- ---------- -- --- -------
The Company hereby represents and warrants to each Investor as follows:
2.01 Organization and Good Standing. The Company is a corporation duly
------------ --- ---- --------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Company has all requisite corporate power
and authority, and holds all licenses, permits and other required authorizations
from governmental authorities, necessary to conduct its business as now
conducted and the business contemplated by this Agreement, and is duly qualified
and in good standing in each jurisdiction in the United States where the failure
to qualify would have a material adverse effect on its operations or financial
condition. The Company has delivered to counsel to the Investors true, correct
and complete copies of the Company's Articles of Organization and bylaws in
effect on the date hereof.
2.02 Capitalization. The Company's authorized capitalization consists of
--------------
5,000,000 shares of Common Stock, $.01 par value, of which 1,500,000 shares are
issued and outstanding. After giving effect to the transactions contemplated
hereby, the authorized capital of the Company will consist of (i) 484,375 shares
of Preferred Stock, $.01 par value, of which (a) 234,375 shares will be
designated Series A Preferred Stock and will be outstanding, and (b) 250,000
shares will be designated Series B Preferred Stock and will be outstanding; and
(ii) 5,000,000 shares of Common Stock, of which 1,500,000 shares will be
outstanding. All of the outstanding shares of the Company's stock have been
duly and validly authorized and issued, and the issuance of the Shares pursuant
to the terms of this Agreement shall be, on the Closing Date, duly and validly
authorized, and no further approval or authority of the shareholders or the
directors of the Company or of any governmental authority or agency will be
required by the Company for the issuance and sale of the Shares as contemplated
by this Agreement. When issued and sold to the Investors, the Shares will be
duly and validly issued, fully paid and non-assessable, and the Articles of
Amendment and the certificates representing the Shares will be duly and validly
authorized, executed and delivered by the Company and will con-
-2-
<PAGE>
stitute valid and legally binding obligations in accordance with their
respective terms. The holders of the capital stock of the Company are not
entitled to any preemptive rights with respect to the sale of the Shares or any
other equity securities of the Company and are not entitled to any registration
rights, with respect to the capital stock held by them, for registration under
the Securities Act. Except as set forth in Schedule 2.02, there are no
outstanding options, warrants or other rights or commitments, written or oral,
to purchase or otherwise acquire any authorized but unissued shares of the
capital stock of the Company, or any security directly or indirectly convertible
into or exchangeable for shares of the capital stock of the Company.
2.03 Financial Statements. The Company has furnished to counsel for the
--------- ----------
Investors a balance sheet as of May 31, 1989 and statement of cash flow for the
period from the Company's incorporation (May 11, 1989) through May 31, 1989
(which balance sheet and statements are hereinafter referred to as the
"Financial Statements"). The Financial Statements were prepared in accordance
with generally accepted accounting principles, are correct and complete in all
material respects and fairly present the financial condition and operations of
the Company at the date thereof and for the period covered thereby.
2.04 Absence of Changes. Subsequent to the date of the balance sheet
------- -- -------
contained in the Financial Statements (the "Statement Date"), there has not been
any material adverse change in the condition (financial or otherwise), net worth
or results of operations of the Company, nor, to the knowledge of the Company,
has there occurred any event which would require disclosure in the Company's
financial statements in order that they may correctly, completely and fairly
present its financial condition in accordance with generally accepted accounting
principles.
2.05 Compliance with Other Instruments. The Company is not in default in
---------- ---- ----- -----------
the performance of any material obligation, agreement or condition contained in
any bond or debenture or any other evidence of indebtedness or any indenture or
loan agreement of the Company which default affords to any Person the
unconditional right to accelerate any material indebtedness or terminate any
material right or agreement of the Company, and the Company is not in violation
of its Articles of Organization or bylaws. Neither the sale of the Shares, nor
the execution and delivery of this Agreement, nor the fulfillment of the terms
herein set forth and the consummation of the transactions contemplated hereby,
will (i) conflict with or constitute a breach of, default under or violation of
the Articles of Organization or bylaws of the Company, any agreement, indenture,
mortgage, deed of trust or other material instrument or undertaking by which the
Company is bound or to which it or any of its properties are subject, or, to the
best knowledge of the Company, a violation of any law, administrative
regulation, or court decree binding upon the Company, or (ii) result in the
creation or imposition of any material lien, charge or encumbrance upon any
property or assets of the Company.
-3-
<PAGE>
2.06 Authorization. The Company has the corporate power and authority to
-------------
enter into this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement by the Company have been
duly authorized by all necessary corporate action, and this Agreement
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as such may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditor's rights. No consent, approval,
authorization or order of any court or governmental agency or board is required
to consummate the same, except for acceptance for filing by the Secretary of the
Commonwealth of Massachusetts of the Articles of Amendment.
2.07 Finders. No person is entitled, directly or indirectly, to
-------
compensation from the Company by reason of any contract or understanding or
contact with the Company, as a finder or broker in connection with the sale and
purchase of the Shares contemplated by this Agreement.
2.08 Taxes. The Company has filed all necessary federal and state
-----
property, income and franchise tax returns and has paid all taxes shown as due
thereon or otherwise owed by it to any taxing authority except those contested
in good faith and for which appropriate amounts have been reserved in accordance
with generally accepted principles; and there is no tax deficiency which has
been, or to the knowledge of the Company might be, asserted against the Company
which would materially affect the business or operations of the Company.
2.09 Litigation. There is not now pending or, to the knowledge of the
----------
Company, threatened, any litigation, action, suit or proceeding to which the
Company is or will be a party before or by any court or governmental agency or
body, which might result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Company, or which might
materially and adversely affect the property or assets of the Company; nor, to
the knowledge of the Company is there any basis for any of the foregoing; and no
labor disturbance by the employees of the Company exists or is imminent which
might be expected materially to affect the conduct of the business, operations,
financial condition or income of the Company.
2.10 Properties. The Company has good and marketable title to all of its
----------
real and tangible personal properties and assets shown on the balance sheet
included in the Financial Statements, free and clear of all liens, charges, and
encumbrances except as set forth on said balance sheet.
2.11 Compliance with Law. To the knowledge of the Company, the Company
---------- ---- ---
has complied in all material respects with all applicable statutes and
regulations of the United States and of all states, municipalities and agencies
and of all foreign countries in respect of the conduct of its business.
-4-
<PAGE>
2.12 Subsidiaries, Joint Ventures. The Company does not have any
------------- ----- --------
investment or other ownership interest in any other corporation, joint venture,
general partnership, limited partnership or other business entity.
2.13 Contracts and Commitments. The Company is not a party to any written
--------- --- -----------
or oral contract or agreement which is materially adverse to its present or
proposed business. Except for the Hologic License Agreement and the Hologic
Management Agreement, the Company is not a party to or bound by any agreements
which obligate the Company to pay (in the case of each agreement) in excess of
$25,000, or (in the aggregate) in excess of $50,000, or which are otherwise
material to the conduct and operation of its business (as conducted and proposed
to be conducted) and its properties, including without limitation all employment
and consulting agreements and employee benefit plans and arrangements to which
the Company is a party or by which it is bound. All of such agreements and
contracts are valid, binding and in full force and effect, and true and complete
copies thereof have been delivered to counsel to the Investors.
2.14 Outstanding Indebtedness. The Company has no indebtedness for
----------- ------------
borrowed money which the Company had directly or indirectly created, incurred,
assumed or guaranteed, or with respect to which the Company has otherwise become
directly or indirectly liable. The Company has no material liability or
obligation, absolute or contingent, which is not shown or provided for in the
Financial Statements or disclosed in the Exhibits to this Agreement.
2.15 Patents, Trademarks. The License and Technology Agreement dated June
-------- ----------
22, 1989 between the Company and Hologic, Inc. (the "Hologic License") is in
full force and effect and the Company is in compliance therewith. To the best
knowledge of the Company, the Hologic License provides to the Company all
intellectual property rights held by any third party reasonably necessary to
enable the company to develop the product described in the Business Plan. In
addition, the Company owns or possesses, or can obtain by payment of royalties
in amounts which, in the aggregate, do not materially adversely affect the
proposed business and the prospects of the Company, all of the patents,
trademarks, service marks, trade names, copyrights and licenses, or rights to
the foregoing, necessary for the conduct of the Company's business as proposed
to be conducted. To the best of the Company's knowledge, and subject to the
Hologic License, the business proposed by the Company will not cause the Company
to infringe rights of others under patents, trademarks, service marks, trade
names, copyrights and licenses.
2.16 Conflicting Agreements. To the best of the Company's knowledge,
----------- ----------
except for the Hologic Management Agreement, no officer, director, key employee,
prospective key employee or principal shareholder of the Company is a party to
or bound by any agreement, contract or commitment, or subject to any
restrictions
-5-
<PAGE>
in connection with any previous or current employment of any such person, which
materially and adversely affect, the proposed business or operations of the
Company or such person's ability to perform his duties as an officer, director
or employee or to own stock in the Company.
2.17 Compliance with Securities Act of 1933. Within the past twelve
---------- ---- ---------- --- -- ----
months, neither the Company nor any person acting on behalf of the Company has,
directly or indirectly, offered any capital stock, including the Shares or any
part thereof, or any rights, warrants or options to purchase any capital stock
of the Company, for sale to, or solicited any offers to buy any of the same
from, or negotiated with respect to any of the foregoing with, any person other
than the Investors and existing holders of Common Stock and options to purchase
Common Stock.
Neither the Company nor any person acting on behalf of the Company has,
directly or indirectly, taken or will take any action which would subject the
issuance or sale of the Shares to the registration requirements of the
Securities Act. All shares of capital stock of the Company heretofore sold and
issued by it were sold and issued in compliance with all applicable Federal and
state securities laws.
2.18 Disclosure. Neither this Agreement, the Business Plan of the
----------
Company, nor any financial statement, certificate, list, exhibit or other
written statement pertaining to the Company or to any officer, director, key
employee or principal shareholder, made or delivered to the Investors by the
Company or by its officers, directors, shareholders or employees, or the
authorized agents thereof, contains (when read together) any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements contained therein not misleading in light of the circumstances
under which they were made., except that the total proceeds to the Company from
this offering is $1,000,000 less than the amount reflected by the Business Plan
required to achieve positive cash flow, and the Company may require further
funding as described in the Business Plan. There exists no fact or circumstance
which, to the knowledge of any officer of the Company, materially and adversely
affects or will affect (so far as such persons can now reasonably foresee) the
business, properties or assets, or condition, financial or otherwise, of the
Company, both at the present and as proposed.
2.19 Closing Date. The representations and warranties of the Company
------- ----
contained in this Agreement and all information contained in any exhibit,
schedule or attachment hereto will be true and correct in all material respects
on the Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout this Agreement, except as
affected by the transactions expressly contemplated by this Agreement.
3. Representations and Warranties of Founders. S. David Ellenbogen
--------------- --- ---------- -- --------
("Ellenbogen") and Jay A. Stein ("Stein") (individually, the "Founder") each
represents and warrants to each Investor as follows:
-6-
<PAGE>
3.01 Conflicting Agreements. Such Founder is not in violation of any term
----------- ----------
of any employment contract, patent or other proprietary information disclosure
or assignment agreement or any other contract, agreement, or any judgment,
decree or order of any court or administrative agency relating to or affecting
the right of such Founder to be employed by the Company because of the nature of
the business conducted or proposed to be conducted by the Company or for any
other reason. No such term, judgment, decree, or order conflicts with such
Founder's obligation to use his best efforts to promote the interests of the
Company nor does the execution and delivery of this Agreement, nor the carrying
on of the Company's business as an officer of the Company, conflict with any
such term, judgment, decree or order.
3.02 Conflicts of Interests. Such Founder, the members of such Founder's
--------- -- ---------
immediate family and any corporations, partnership or other business entity in
which such Founder and such persons have, in the aggregate, more than a five
percent (5%) equity or income interest are not a party to any transaction,
agreement or understanding to which the Company is also a party and do not have
any interest in any Person with whom the Company does or intends to do business,
other than Hologic.
While employed by the Company, such Founder will devote such time to the
business of himself to the Company as may be appropriate and, except for his
employment by Hologic, on a full-time basis and will not engage in any other
business activity, either on a full-time or part-time basis, as an employee, a
consultant or in any other capacity, and whether or not he receives any
compensation therefor; provided, however, that nothing herein shall prohibit
such Founder from making and managing passive investments, which activities do
not, in the aggregate, materially interfere with such Founder's performance of
his duties to the Company.
4. Representations and Warranties of Investors.
--------------- --- ---------- -- ---------
4.01 Investment Intent. Each Investor hereby represents and warrants to
---------- ------
the Company that he or it is purchasing or acquiring the Securities for his or
its own account for investment and not with a present view to, or for sale in
connection with, any distribution thereof in violation of the Securities Act.
Each Investor hereby consents to the imposition of a legend substantially
similar to the following on each certificate representing the Securities, and
each Investor agrees that he will abide by the restrictions contained therein:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended
(the "Act") and may not be sold, transferred or assigned
unless such shares are registered under the Act or an
opinion of counsel, satisfactory to the corporation, is
obtained to the effect that such sale, transfer or
assignment is exempt
-7-
<PAGE>
from the registration requirements of the Act."
4.02 Authorization. Each Investor has the power and authority to enter
-------------
into this Agreement and to perform all of his or its obligations hereunder, and
no consent, approval, authorization or order of any court or governmental agency
or board is required to consummate the same.
4.03 Restricted Securities. Each Investor is experienced in evaluating
---------- ----------
and investing in young, high technology companies such as the Company. Each
Investor understands that the Shares and Conversion Stock have not been
registered under the Securities Act by reason of a specific exemption from the
registration provision of the Securities Act which depends upon, among other
things, the bona fide nature of his or its investment intent as expressed
herein. Each Investor acknowledges that the Shares and Conversion Stock when
received, must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Each Investor has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act, which rule permits limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions, contained therein. Each Investor understands that Rule 144
is not presently available for the resale of his or its Shares.
4.04 Finders. No person is entitled, directly or indirectly, to
-------
compensation from any Investor by reason of any contract or understanding or
contact with such Investor, as a finder or broker in connection with the sale
and purchase of the Shares contemplated by this Agreement.
5. Covenants of the Company.
--------- -- --- -------
So long as any Investor is the owner of any of the Securities or any other
security of the Company or of any successor issued in exchange for the
Securities, but not after the Company has filed a report with the Securities and
Exchange Commission pursuant to Section 13(a) of the Exchange Act by reason of
the Company having registered its Common Stock pursuant to Section 12(g) or
15(d) of the Exchange Act, the Company agrees that:
5.01 Compliance with Law. It will not knowingly contravene any material
---------- ---- ---
governmental laws, domestic or foreign, applicable to it, unless their validity
is contested reasonably and in good faith, and it will maintain and cause each
of its Subsidiaries to maintain, in good standing, their respective rights and
qualifications to do business in all United States jurisdictions in which they
may from time to time conduct business and own their respective properties and
where failure to qualify would have a material adverse effect on their
operations or financial condition, to the extent necessary therefor. The
Company will at all times remain a corporation incorporated under the laws of
the United States or of one of the States thereof.
-8-
<PAGE>
5.02 Accounting System. It will maintain and cause each of its
---------- ------
Subsidiaries to maintain a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books and cause each of its operating Subsidiaries to
set aside on its books all such proper reserves as shall be required under
generally accepted accounted principles consistently applied.
5.03 Board of Directors.
----- -- ---------
(a) Representatives of Investors. The Company presently intends to
--------------- -- ---------
maintain the authorized number of members of its Board of Directors at not more
than seven (7). The Investors shall have the right to designate in writing (i)
up to three (3) nominees to be included among management's nominees to be
elected as directors of the Company if the authorized number of directors
exceeds five (5), and (ii) up to two (2) nominees to be so included if the
authorized number of directors equals five (5) or less. Two nominees shall be
designees of Burr, Egan, Deleage & Co. and the third designee, if any, shall be
selected by the Investors. The designees of the Investors shall be subject to
approval by the Company, which approval shall not be unreasonably withheld. The
Company hereby agrees to use its best efforts to cause such representatives to
be elected to the Company's Board of Directors and to be renominated and
reelected annually until the number of shares of capital stock then held by all
of the Investors represents less than five percent (5%) of the total voting
power of the Company. One of the initial designees of the Burr, Egan, Deleage &
Co. shall be Frank Kenny. The Company shall give notice of each meeting of the
Board of Directors to the Investors, shall permit a representative of the
Investors to attend such meeting as a guest of the Board of Directors and shall
provide to Investors who so request, copies of minutes of all action taken by
the Board of Directors, whether at meetings or by written consent.
(b) Voting Agreement. The Investors agree to vote the shares of
------ ---------
voting securities of the Company held or controlled by them, and will otherwise
use their best efforts to elect and maintain in office as a director of the
Company: (i) each of Ellenbogen and Stein, such agreement to terminate with
respect to each such person when the number of shares of capital stock then held
by such person represents less than five percent (5%) of the total voting power
of the Company or such person is no longer employed by the Company or a
Subsidiary; and (ii) one (1) additional designee of Ellenbogen and Stein, if the
authorized number of directors is five (5) or less, and two (2) additional
designees of Ellenbogen and Stein, if the authorized number of directors exceeds
five (5), until the voting agreement under clause (i) with respect to both
Ellenbogen and Stein has terminated. In any particular election of directors,
the foregoing agreement of the Investors will not apply to any of the Investors
unless Ellenbogen and Stein first vote in favor of themselves or each other and
their designees the shares of the Company's voting
-9-
<PAGE>
securities held or controlled by them. In addition, if in any particular
election of directors, the Investors exercise the foregoing right to designate
up to two (or three) persons to be included among management's nominees, then
the foregoing voting agreement of the Investors will not apply until the
Investors have first voted the shares of the voting securities of the Company
held or controlled by the Investors in favor of such designees to the Board of
Directors.
(c) Expenses of Directors. The representatives of the Investors who
-------- -- ---------
serve as Directors shall be reimbursed by the Company for reasonable out-of-
pocket travel and other expenses, if any, incurred by them in attending Board of
Directors' meetings and in performing their duties as Directors.
(d) Board Approval Requirement. The minimum number of votes required
----- -------- -----------
for the approval of actions and the adoption of resolutions by the Board of
Directors shall be a majority of the actual number of directors then in office.
5.04 Inspection. It shall permit each holder of Securities, or any
----------
authorized representative thereof, to visit and inspect the properties of the
Company and its Subsidiaries, including their respective corporate and financial
records, and to discuss the business and finances of the Company and its
Subsidiaries with their respective officers during normal business hours
following reasonable notice and as often as may be reasonably requested. Any
holder exercising his or its rights under this Section, and his or its
representatives, shall maintain the confidentiality of all financial,
confidential and proprietary information of the Company and its Subsidiaries
acquired by them in exercising such rights.
5.05 Financial Statements and Other Information. It will deliver to each
--------- ---------- --- ----- -----------
Investor:
(a) within 90 days after the end of each fiscal year of the Company,
an audited balance sheet of the Company as at the end of such year and audited
statements of operations and of changes in financial condition of the Company
for such year, certified (without qualification as to scope) by certified public
accountants of established national reputation selected by the Company, and
prepared in accordance with generally accepted accounting principles
consistently applied;
(b) within 30 days after then end of each month in each fiscal year
of the Company, an unaudited balance sheet of the Company as at the end of such
month and unaudited statements of operations and of changes in financial
condition of the Company for such month, together with a statement setting forth
a comparison between said actual balance sheet and statements and the projected
monthly balance sheet and statements of operations and financial condition for
such period previously delivered to the Investors under clause (c) hereof;
-10-
<PAGE>
(c) within 30 days of their review by the Company's Board of
Directors, but not later than the beginning of each fiscal year, projected
balance sheets of the Company as of the end of each fiscal month of said fiscal
year, and projected statements of operations and of changes in financial
condition of the Company, covering the same fiscal periods, all in reasonable
detail, or such other form of projected statements as approved by a majority of
the directors then if office (provided that the cash flow projections for the
first twelve months of operations of the Company contained in the Business Plan
shall be deemed to be the initial projected statements delivered hereunder);
(d) within 30 days of their review by the Company's Board of
Directors, any material revision of projected financial statements provided
under clause (c) above;
(e) with reasonable promptness, such other notices, information and
data with respect to the Company as the Company delivers to the holders of its
Common Stock, and such other information and data as such Investor may from time
to time reasonably request at such Investor's cost.
The foregoing financial statements shall be prepared on a consolidated and
consolidating basis if the Company then has any Subsidiaries; provided that any
consolidating statements required by clause (a) need not be audited. The
financial statements delivered pursuant to clauses (b) above shall be
accompanied by a certificate of the chief financial officer of the Company
stating that such statements have been prepared in accordance with generally
accepted accounting principles consistently applied and fairly present the
financial condition of the Company at the date thereof and for the period
covered thereby, subject only to nonrecurring year-end adjustments resulting
from an audit of the Company, which in the aggregate will not be materially
adverse.
5.06 Insurance. The Company will maintain workers' compensation insurance
---------
and such insurance with respect to its properties and business, including
insurance against loss, damage, fire, theft, public liability and other risks,
of the kinds and in the amounts which are standard for companies of similar size
engaged in the business in which the Company is engaged and intends to engage.
5.07 Proprietary Information Agreements. It will use its best efforts to
----------- ----------- ----------
enter into agreements, in a timely manner, with each of its employees and
consultants, requiring the assignment by them to the Company of all inventions
and discoveries of such employees and consultants during the course of their
employment or in connection with their activities as consultants, as the case
may be, and requiring that such persons maintain in confidence all proprietary
information of the Company and return to the Company, upon termination of
employment or engagement as a consultant, all proprietary information of the
Company then in their possession or under their control.
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<PAGE>
5.08 Material Changes and Litigation. The Company will promptly notify
-------- ------- --- ----------
the Investors of any material adverse change in the business, properties, assets
or condition, financial or otherwise, of the Company and of any litigation or
governmental proceeding or investigation pending or, to the best knowledge of
the Company, threatened against the Company, or against any officer, director,
key employee or principal shareholder of the Company materially affecting or
which, if adversely determined, would materially adversely affect its present or
proposed business, properties, or assets taken as a whole.
5.09 Executive Compensation. Services to the Company rendered by
--------- ------------
Ellenbogen and Stein shall be paid for pursuant to the Hologic Management
Agreement, and no compensation shall be paid or accrued directly to Ellenbogen
or Stein by the Company without the favorable vote of the Directors designated
by Burr, Egan, Deleage & Co.
5.10 Transactions with Affiliates. Except for the Hologic Management
------------ ---- ----------
Agreement and the Hologic License Agreement, without the unanimous written
consent of the Company's Board of Directors, or a vote by the Directors at a
meeting at which the Investors' representatives are present and vote in favor
such action (not including in either case, however, any Director having an
interest in the proposed transaction), the Company shall not engage in any
transaction with, nor enter into any contract, agreement or other arrangement
providing for the employment of, furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any 10% shareholder,
officer or director of the Company, nor any "affiliate" or "associate" of such
persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act), and in no event will any such transaction or
agreement be on terms which, at the time such transaction or agreement is
approved, are less favorable to the Company than would be similar transactions
or agreements with unrelated third parties.
5.11 Dividends. Without the unanimous written consent of the Company's
---------
Board of Directors, or a vote by the Directors at a meeting at which the
representatives of Burr, Egan, Deleage & Co. are present and vote in favor of
such action, it will not declare, set aside or pay any dividend on (other than a
dividend of capital stock of the Company), or declare or make any distri-bution
(other than liquidating distributions) with respect to, shares of the capital
stock of the Company junior in right of liquidation to the Series A Preferred.
5.12 Issuances of Stock. The Company has reserved 1,000,000 shares of
--------- -- -----
Common Stock for issuance to employees and consultants of the Company pursuant
to stock option or restricted stock arrangements, which vest such shares in
installments contingent on employment with the Company during a specified
period. The Board of Directors of the Company may authorize, from time to time,
the issuance of such shares, on such terms including price, payment and vesting
restrictions as the Directors deem appro-
-12-
<PAGE>
priate; provided that a representative affiliated with Burr, Egan, Deleage & co.
consents to such actions or is present and votes in favor thereof at a meeting
of the Board.
5.13 Merger; Sale of Assets. Without the prior approval in writing or
------- ---- -- ------
favorable vote at a duly called stockholders meeting by Investors holding a
majority of the shares of Series A Preferred, there shall be no merger or
consolidation of the Company with or into another entity, in which the Company
is not the surviving entity, nor shall there be a sale of all or substantially
all of the assets of the Company to another entity.
6. Conditions to Obligations of Investors at the Closing.
---------- -- ----------- -- --------- -- --- -------
The obligations of each Investor under this Agreement at the Closing are
subject to satisfaction of the following conditions at or prior to the Closing,
any of which may be waived by such Investor:
6.01 Representations and Warranties Correct. All of the representations
--------------- --- ---------- -------
and warranties of the Company contained in this Agreement shall be true and
correct on the Closing Date with the same effect as if made on the Closing Date.
6.02 Performance of Covenants and Agreements. All of the covenants and
----------- -- --------- --- ----------
agreements of the Company contained in this Agreement and required to be
performed on or before the Closing Date shall have been performed.
6.03 Opinion of Counsel to the Company. The Investors shall have received
------- -- ------- -- --- -------
an opinion of counsel to the Company, Brown, Rudnick, Freed & Gesmer, addressed
to the Investors, in form and substance reasonably satisfactory to the Investors
and dated the Closing Date, substantially to the following effect:
(a) This Agreement, the Articles of Amendment and the certificates
representing the Shares to be purchased at the Closing have been duly and
validly authorized, executed, and delivered by the Company and constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms, except as such may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights, and except that no opinion need by expressed
with respect to the availability of equitable remedies or the enforceability of
Section 9.07 hereof (to the extent that the Company agrees to indemnify
directors, officers and controlling persons for liabilities arising under the
Securities Act);
(b) All corporate proceedings required by law or by the provisions of
this Agreement to be taken by the Company at or prior to the Closing in
connection with the transactions contemplated by this Agreement have been duly
and validly taken;
-13-
<PAGE>
(c) The Company is validly existing and in good standing under the
laws of the Commonwealth of Massachusetts and has all requisite corporate power
and authority to own its properties and conduct its business;
(d) The Company has secured all governmental consents, approvals,
authorizations and, to the best knowledge of such counsel, has obtained such
other consents, approvals and authorizations, and has complied with all similar
requirements prescribed by any law, rule or regulation which must be obtained or
satisfied by the Company and which are necessary for the consummation of the
transactions contemplated by this Agreement at or prior to the Closing;
(e) The Company has the corporate right, power and authority to enter
into this Agreement and to issue, sell and deliver the Shares and to consummate
all other transactions contemplated hereby;
(f) The outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, and, to
the best knowledge of such counsel, there are no outstanding options for the
purchase of, or any agreements providing for the issuance of (contingent or
otherwise), or any commitments or claims of any character relat-ing to, any such
capital stock or any shares of stock or securi-ties convertible into or
exchangeable for any such capital stock;
(g) The Company is not in violation of its Articles of Organization,
as amended, or bylaws or, to the best knowledge of such counsel, in default in
the performance of any material obligation, agreement or condition contained in
any bond, debenture or other evidence of indebtedness or any indenture or loan
agreement of the Company. Neither the sale of the Shares, nor the execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated and the compliance with the terms of this Agreement do, or will,
(i) conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Articles of Organization, as amended, or the
bylaws of the Company, or, to the best knowledge of such counsel, any material
indenture, mortgage or other agreement or instrument of which they have
knowledge to which the Company is as party or by which it or any of its
properties are bound, or (ii) to the best knowledge of such counsel, result in
the creation or imposition of any material lien, charge or encumbrance upon any
property or assets of the Company;
(h) Holders of the shares of Series A Preferred and Series B
Preferred have the respective rights, preference and privileges set forth in the
Articles of Amendment, which have been duly and properly adopted and filed in
all places where they are required to be filed;
(i) Based on the accuracy of the representations of the Company and
of the Investors contained in this Agreement, the
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<PAGE>
offer, issuance and sale of the Shares to the Investors pursuant to this
Agreement are exempt from registration under the Securities Act of 1933, as
amended; and
(j) To the best knowledge of such counsel, there is no litigation or
governmental proceeding or investigation pending or threatened against the
Company, relating to the present or proposed business, property or assets of the
Company.
In rendering such opinion, such counsel may rely to a reasonable extent
upon certificates of public officials and upon certificates of officers of the
Company as to matters of fact. Such opinion may be based on existing laws, rules
and regulations.
6.04 Legal Action.
----- ------
(a) There shall not have been instituted or threatened any material
legal proceeding seeking to prohibit the consummation of the transactions
contemplated by this Agreement, or to obtain damages from any Investor with
respect thereto.
(b) None of the parties hereto shall be prohibited by any order,
writ, injunction or decree of any governmental body of competent jurisdiction
from consummating the transactions contemplated by this Agreement, and no
material action or proceeding shall then be pending which questions the validity
of this Agreement, any of the transactions contemplated hereby or any action
which has been taken by either of the parties in connection herewith or in
connection with any of the transactions contemplated hereby.
6.05 Filing of Articles of Amendment. The Articles of Amendment shall
------ -- -------- -- ---------
have been filed with the Secretary of the Commonwealth of Massachusetts; and
except as so amended, the Company's Articles of Organization will not have been
amended or modified.
6.06 Restricted Stock Agreements. Ellenbogen and Stein shall each have
---------- ----- ----------
executed and delivered to the Company a Restricted Stock Agreement in the form
of Exhibit C hereto (the "Restricted Stock Agreement").
6.07 Hologic License Agreement. The Company shall have entered into a
-------------------------
License and Technology Agreement with Hologic, Inc. in the form of Exhibit D
hereto.
6.08 Hologic Management Agreement. The Company shall have entered in a
----------------------------
Management Services Agreement with Hologic, Inc. in the form of Exhibit E
hereto.
6.09 Shareholders Agreement. Ellenbogen and Stein shall have executed
------------ ---------
and delivered to the Investors a Shareholder Agreement substantially in the form
of Exhibit F hereto (the "Shareholders Agreement").
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<PAGE>
6.10 Compliance Certificate. The Company shall have delivered to each
---------- -----------
Investor at the Closing, an officer's certificate dated the Closing Date and
signed by the President and the Vice President of the Company stating that (i)
the conditions specified in Sections 6.01, 6.02 and 6.04 through 6.09 have been
satisfied, (ii) they have made, or have caused to be made, such investigations
as are necessary in order to permit them to verify the accuracy of the
information set forth in such certificate, and (iii) to the best of their
knowledge, such certificate does not misstate any material fact or omit any fact
necessary to make the certificate not misleading in any material respect.
6.11 Proceedings Satisfactory. All corporate and other proceedings taken
----------- ------------
prior to or at the Closing in connection with the transactions contemplated by
this Agreement, and all documents and instruments incident thereto, shall be
reasonably satisfactory in form and substance to counsel for the Investors.
7. Conditions to Obligations of the Company at the Closing. The obligations of
---------- -- ----------- -- --- ------- -- --- -------
the Company under this Agreement at the Closing are subject to satisfaction of
the condition (which may be waived by the Company) that all of the
representations and warranties of the Investors contained in this Agreement
shall be true and correct on the Closing Date with the same effect as if made on
the Closing Date.
8. Participation in Future Offerings. In order to afford the Investors the
------------- -- ------ ---------
opportunity to maintain their percentage ownership interest in the Company, the
Company agrees to offer to the Investors, and to issue and sell to accepting
offerees, such other securities of the Company, that evidence shares of Common
Stock or other Voting Stock or that bear rights to acquire, convert into or be
redeemed or exchanged for shares of Common Stock or Voting Stock, including
without limitation, any rights, options, warrants or convertible debt or equity
instruments that provide any right to subscribe for, purchase or otherwise
acquire shares of Common Stock or other Voting Stock, as may be offered by the
Company from time to time after the Closing Date (any such shares being herein
referred to as "New Shares"), all pursuant to the terms and conditions of this
Section 8.
8.01 Eligible Offerings; Notice. The Company shall deliver written notice
-------- ---------- ------
to the Investors of the terms and conditions of each offering, borrowing or
other similar transaction, not intended to be registered under the Securities
Act, pursuant to which the Company intends to issue New Shares. Such notice
shall be delivered to the Investors not later than twenty (20) business days
prior to the date upon which any such transaction closes. By such notice, the
Company shall offer to sell to the Investors the applicable amount of securities
calculated pursuant to Section 8.03.
8.02 Acceptance. Each Investor may accept any such offer in whole or in
----------
part by delivering to the Company a written agreement to make such purchase,
executed by such Investor, specifying the
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<PAGE>
amount of the securities to be purchased by such Investor, not later than ten
(10) business days following the date of delivery of the offer to such Investor
by the Company. The terms and conditions, price, timing of closing and other
provisions of such agreement by such Investor shall be not less favorable to the
Company than those of the other agreement to purchase such New Shares.
8.03 Percentage Interest. The amount of New Shares to be offered to each
---------- --------
Investor for purchase pursuant to this Section 8 shall, with respect to each
transaction subject hereto, be calculated by multiplying (a) the aggregate
number of New Shares offered, times (b) the percentage ownership of Voting Stock
of the Company held by such Investor immediately after the Closing hereunder, as
set forth opposite such Investor's name on Exhibit A hereto.
8.04 Excluded Offerings. The provisions of this Article 8 shall not apply
-------- ---------
to any issuance by the Company of New Shares;
(a) in connection with an acquisition by the Company or any Subsidiary
of the assets or securities of another business entity or the merger of any
business entity with or into the Company or any Subsidiary; or
(b) to employees or consultants of the Company or any Subsidiary
pursuant to Section 5.12 hereof or otherwise;
provided, however, that any such issuance of New Shares and the terms thereof
have been approved by the Board of Directors of the Company by unanimous written
consent or at a meeting at which [a majority of] the representatives of the
Investors are present and vote in favor thereof.
8.05 No Accumulation. Each transaction or proposed issuance under this
-- ------------
Section 8 is a separate transaction. The failure of an Investor to exercise in
whole or in part any prior offer shall not increase his or its rights with
respect to any future transaction subject hereto and the rights of any Investor
under this Section 8 with respect to any transactions are reduced pro rata to
the extent that such Investor acquires securities of the Company by
participating directly in such transaction.
8.06 Rights Personal. The rights created by this Section 8 are personal to
------ --------
the Investors and may not be assigned, except in connection with a transfer of
Securities purchased hereunder by any Investor which is a corporation or
partnership to its respective shareholders or partners.
8.07 Termination of Rights. The rights provided to the Investors in this
----------- -- ------
Section 8 shall terminate upon the effectiveness of any Registration Statement
(as defined in Section 9.01 hereof) filed by the Company under the Securities
Act covering any shares of its Common Stock.
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<PAGE>
9. Registration Rights.
------------ ------
9.01 Certain Definitions. As used in this Agreement, the following terms
------- -----------
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
----------
other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
-------- ---
or any similar Federal statute, and the rules and regulations of the Commission
issued under the Act, as they each may, from time to time, be in effect.
"Securities Act" means the Securities Act of 1933, as amended, or any
---------- ---
similar Federal statute, and the rules and regulations of the Commission issued
under that Act, as they each may, from time to time, be in effect.
"Person" means an individual, a corporation, a partnership, a trust,
------
an unincorporated organization, and a government or any department, agency, or
political subdivision thereof.
"Registration Statement" means (a) a registration statement (other
------------ ---------
than a registration statement on Form S-1 solely with respect to employee
benefit plans, on Form S-8, or on Form S-4 solely with respect to Rule 145
transactions, or any successor form or forms used for the purpose specified by
such forms), or (b) an offering circular or offering statement pursuant to
Regulation A under the Securities Act (provided that if such form is not
available for the transaction for which it is proposed to be utilized, it shall
not be deemed to be a "Registration Statement"), in either event filed by the
Company with the Commission for a public offering and sale of securities of the
Company.
"Registration Expenses" means the expenses described in paragraph (f)
------------ --------
of this Section 9.
"Registrable Shares" means (i) the shares of Conversion Stock issued
----------- ------
or issuable to the Investors upon conversion of their Series B Preferred, and
(ii) any other shares of Common Stock of the Company issued in respect of such
shares because of stock splits, stock dividends, reclassifications,
recapitalizations, mergers, consolidations, or similar events); provided,
--------
however, that any shares previously sold by an Investor to the public pursuant
- -------
to a registered public offering or Rule 144 under the Securities Act shall cease
to be Registrable Shares. Whenever reference is made in this Agreement to a
request or consent in writing from the holders of a certain percentage of the
Registrable Shares, such reference shall include shares of Conversion Stock
issuable upon conversion of the Series B Preferred even though such conversion
has not then been effected.
"Stockholders" means the Investors and any persons or entities to whom
------------
shares of Series B Preferred or Conversion Stock
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<PAGE>
are transferred by an Investor or any subsequent transferee thereof.
9.02 Sale or Transfer of the Shares. The Shares shall not be sold or
---- -- -------- -- --- ------
transferred unless either (a) they first shall have been registered under the
Securities Act, (b) such shares are sold in compliance with Rule 144 under the
Securities Act, or (c) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company or its counsel,
stating that such sale or transfer is an exempted transaction under the
Securities Act and, unless such opinion states that such Shares may be
transferred by the transferee immediately after acquisition without registration
under the Securities Act, a written agreement by the transferee thereof not to
sell or transfer such Shares without complying with the requirements provided
for in this Section 9.02. The Company or its transfer agent may require, as a
condition to registration of transfer following any sale pursuant to Rule 144
under the Securities Act, that it be furnished with an opinion of counsel
satisfactory to it to the effect stated in the preceding sentence. The fees and
expenses of such counsel in routine Rule 144 transactions not involving unusual
circumstances shall be borne by the Company.
9.03 Required Registration.
-------- ------------
(a) At any time after five years from the date of this Agreement, a
Stockholder or Stockholders holding in the aggregate at least 51% of the
Registrable Shares may request the Company, in writing, to effect the
registration under the Securities Act of Registrable Shares having an aggregate
offering price of at least $5,000,000. Upon receipt of any such request, the
Company shall promptly give written notice of such proposed registration to all
Stockholders. Such Stockholders shall have the right, by giving written notice
to the Company within 20 days from receipt of the Company's notice, to elect to
have included in such registration such of their Registrable Shares as such
Stockholders may request in such notice of election. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration, on the requested form of Registration Statement, of all
Registrable Shares which the Company has been requested to register. If such
request is in connection with an underwritten public offering, the underwriters
will be selected by the Company, subject to the approval of a majority of the
requesting holders, which approval will not be unreasonably withheld.
The Company shall not be required to effect more than one registration
pursuant to this paragraph (a). In addition, the Company shall not be required
to effect any registration within six months after the effective date of any
other Registration Statement of the Company.
(b) If at the time of any request to register Registrable Shares
pursuant to paragraph (a), (i) the Company is engaged or has fixed plans to
engage within 30 days of the time
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<PAGE>
of the request in a registered public offering as to which the Stockholders may
include Registrable Shares pursuant to paragraph (a), or (ii) is engaged in any
other activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of six months from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any two year period. In an event
described in clause (i), the Company may, within the period stated therein, file
a Registration Statement, which Registration Statement, at the Company's option,
shall be deemed to be a Registration Statement filed under paragraph (b) of
Section 9.04 hereof.
9.04 Incidental Registrations.
---------- -------------
(a) If the Company at any time proposes to file a Registration
Statement covering any of its securities, whether of its own accord or at the
request or demand of any holder or holders of such securities, and if the
Registration Statement proposed to be used may be used for the registration of
Registrable Shares (an "Incidential Registration"), the Company will thereupon
give prompt written notice to all Stockholders of its intention to do so, and,
upon the written request of any such Stockholder made within 15 days after the
receipt of any such notice (which request will specify the Registrable Shares
intended to be disposed of by such Stockholder and state the intended method of
disposition thereof), the Company will use its best efforts to cause all such
Registrable Shares, the holders of which have so requested the registration
thereof, to be registered under the Securities Act to the extent requisite to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) by the holders of the Registrable Shares to be so registered;
provided, however, that the Company shall not be obligated to use its best
efforts to cause all Registrable Shares of requesting holders to be registered
unless the aggregate proposed selling price of such Registrable Shares is
$250,000.
(b) If an Incidental Registration is a primary registration on behalf
of the Company and is in connection with an underwritten public offering, and if
the managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration (whether
by the Company, the holders of Registrable Shares pursuant to paragraph (a) of
this Section 9.04 or other holders of securities pursuant to any other rights
granted by the Company to demand inclusion of any such securities which can be
sold in such offering, the Company will include in such registration the number
of securities requested to be included which in the opinion of such underwriters
can be sold in the following order (i) first, all of the shares the Company
proposes to sell, (ii) second, all of the Registrable Shares requested to be
included in such registration, pro rata among the holders of Registrable Shares,
and (iii)
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<PAGE>
third, any other securities requested to be included in such registration.
(c) If an Incidental Registration is a secondary registration on
behalf of holders of the Company's securities and is in connection with an
underwritten public offering, and if the managing underwriters advise the
Company in writing that in their opinion the number of securities requested to
be included in such registration (whether by such holders, by holders of
Registrable Shares pursuant to Section 9.03 of this Section 9 or by holders of
its securities pursuant to any other rights granted by the Company to demand
inclusion of securities in such registration) exceeds the number of securities
which can be sold in such offering, the Company will include in such offering
the number of securities requested to be included which in the opinion of such
underwriters can be sold in the following manner (i) first, the securities
requested to be included by the holders demanding such registration, and (ii)
second, any other securities (including the Registrable Shares, if the
Stockholders did not demand such registration pursuant to Section 9.03 requested
to be included in such registration, pro rata among the holders of all such
securities on the basis of the number of shares of such securities held by each
such holder.
(d) The rights given to the holders of Registrable Shares pursuant to
this Section 9.04 shall terminate, with respect to a particular holder, when
such holder may sell an unlimited number of Registrable Shares without regard to
any limitation on the number of securities to be sold, the manner of sale or any
other aspects of the proposed transfer, as such may be limited by Rule 144 or
any other similar rule or regulation of the Commission promulgated under the
Securities Act.
9.05 Registration Procedures. If and whenever the Company is required by
------------ ----------
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of not less than 90 days from the
effective date and to comply with the provisions of the Securities Act (to the
extent applicable to the Company) with respect to the disposition of all
Registrable Shares registered hereby in accordance with the intended methods of
disposition by the selling Stockholders thereof set forth in such Registration
Statement;
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<PAGE>
(c) as expeditiously as possible furnish to each selling Stockholder
such numbers of copies of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
instruments as the selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states or jurisdictions as each selling
Stockholder shall reasonably request, and do any and all other acts and things
that may be necessary or desirable to enable the selling Stockholder to
consummate the public sale or other disposition in such jurisdictions of the
Registrable Shares owned by the selling Stockholder; provided, however, that the
-------- -------
Company shall not be required in connection with this paragraph (d) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction.
(e) notify each selling Stockholder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act within the
period mentioned in paragraph (b) above, of the happening of any event as a
result of which the prospectus included in such Registration Statement, as then
in effect, include an 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 not misleading in light of the circumstances then existing, and as
expeditiously as possible prepare and furnish to such selling Stockholder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Shares, such prospectus will not include an
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 not misleading in
light of the circumstances then existing;
(f) cause all such Registrable Shares covered by such Registration
Statement to be listed on securities exchanges on which similar securities
issued by the Company are then listed, if any;
(g) provide a transfer agent for all such Registrable Shares covered
by such Registration Statement not later than the effective date of such
Registration Statement; and
(h) take such other customary actions as the holders of a majority of
Registrable Shares being sold may reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares.
If the number of holders requesting registration of Registrable Shares
exceeds three, the Company may, in its discretion,
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<PAGE>
require the holders who have requested registration to appoint an attorney-in-
fact to represent them in the registration proceedings and who shall have the
power to execute on their behalf the Registration Statement, any amendments to
the Registration Statement, the underwriting agreement, if any, and, to the
extent permitted by law, any other forms or letters required from such holders
by the Commission.
9.06 Allocation of Expenses. "Registration Expenses" shall mean all
---------- -- --------
expenses incurred by the Company in complying with this Section 9, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company and of one counsel for all selling
Stockholders, state securities or Blue Sky fees and expenses, and the expense of
any special audits incident to or required by any such registration, but
excluding underwriting discounts and selling commissions. The Company will pay
all Registration Expenses in connection with the registration pursuant to
paragraph (a) of Section 9.03 and in connection with all registrations pursuant
to Section 9.04.
9.07 Indemnification. In the event of any registration of any of the
---------------
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or arise
out of or are based upon the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and the Company will reimburse such seller, such underwriter,
and each such controlling person for any legal or any other expenses reasonably
incurred by such seller, underwriter, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
- -------- -------
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in the Registration Statement,
preliminary prospectus or prospectus, or the amendment or supplement in reliance
upon and in conformity with written information furnished to the Company through
an instrument duly executed by or on behalf of such seller or underwriter
specifically for use in the preparation thereof.
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<PAGE>
In the event of any registration of any of the Registrable Shares under the
Securities Act pursuant to this Agreement, each seller of the Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, to the same extent and
against the same losses, claims, damages, liabilities, costs and expenses
described in the preceding paragraph, in respect of any untrue statement (or
alleged untrue statement) in or omission (or alleged omission) from any
Registration Statement or preliminary or final prospectus, if the statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of such seller, specifically for use
in connection with the preparation of the Registration Statement or prospectus.
9.08 Indemnification with Respect to Underwritten Offering. In the event
--------------- ---- ------- -- ------------ --------
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 9.03, the Company agrees to enter into
an underwriting agreement containing customary representations and warranties
with respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including, without limiting the generality of the foregoing, customary
provisions with respect to indemnification by the Company of the underwriters of
such offering.
9.09 Rule 144 Reporting. With a view to making available the benefits of
---- --- ---------
certain rules and regulations of the Commission which may at any time permit the
sale of restricted securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effect date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) Use its best efforts to then file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as an Investor owns any restricted securities, as such
term is defined in Rule 144, to furnish to such Investor forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days after the effective
date of the first regisration statement filed by the Company for an offering of
its securities to the general public), and of the
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<PAGE>
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as an
Investor may reasonably request to avail himself or itself of any rule or
regulation of the Commission allowing an Investor to sell any such securities
without registration.
10. Definitions.
-----------
For purposes of this Agreement, the following terms have the respective
meanings set forth below:
10.01 "Affiliate" means any Person which directly or indirectly controls, is
---------
controlled by, or is under common control with, the indicated Person.
10.02 "Person" means an individual, a partnership, a joint venture, a
------
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
10.03 "Subsidiary" means any corporation at least a majority of the Voting
----------
Stock of which is, at the time as of which any determination is being made,
owned by the Company either directly or through Subsidiaries.
10.04 "Voting Stock" means any shares of stock having general voting power
------ -----
in electing the Board of Directors of the Company (irrespective of whether or
not at the time stock of any other class or classes has or might have voting
power by reason of the happening of any contingency).
11. Miscellaneous Provisions.
------------- ----------
11.01 Construction. This Agreement shall be construed and enforced in
------------
accordance with and governed by the laws of the Commonwealth of Massachusetts.
11.02 Notices. All notices, requests, demands and other communications
-------
called for or contemplated hereunder shall be in writing and shall be deemed
duly given when deposited in the U.S. mail, certified mail, or registered mail,
postage prepaid, with return receipt requested, or when transmitted by wire or
telex, addressed to the parties at the following addresses, or at such other
addresses as the parties may designate by written notice in the manner
aforesaid:
If to Investors: At the addresses listed on
Exhibit A hereto.
If to the Company: VIVITECH, Inc.
300 Bear Hill Road
Waltham, Massachusetts 02154
Attention: President
-25-
<PAGE>
11.03 Assignment. This Agreement shall be binding upon and shall inure to
----------
the benefit of the Company and the Investors and their respective successors and
assigns.
11.04 Succession to Rights. The rights and powers of each Investor
---------- -- ------
hereunder are granted to such Investor as an owner of the Shares. Consequently,
the parties agree that, except as limited by Section 8.05, such rights and
powers exist separately and distinctly with respect to each share of the
Securities and as to each such share shall pass with it so that any owner of any
shares of the Securities whether becoming such by transfer, assignment,
operation of law or otherwise, shall have all of the rights and powers of such
Investor hereunder, and shall be entitled to exercise them in full, with or
without the agreement or consent of other such owners, and no transfer or
assignment shall divest such Investor or any subsequent owner of such rights and
powers unless all shares of the Securities owned by such persons are transferred
or assigned.
11.05 Amendments and Waiver. This Agreement and all exhibits hereto set
---------- --- ------
forth the entire understanding of the parties with respect to the transactions
contemplated hereby, and no party shall be bound by or deemed to have made any
representations or warranties except those contained herein. The provisions of
this Agreement may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the holders of at least
60% of the Series A Preferred and 60% of the Series B Preferred (including for
purposes hereof Conversion Stock into which shares of Series B Preferred have
been converted). Notwithstanding anything to the contrary in this Section
11.05, no holder of Registrable Shares will be bound by any consent authorized
by this Section 11.05 to the extent that such consent relates to the rights of
such holder under Section 9 hereof, unless the holders of at least a majority of
the Registrable Shares then outstanding have so consented or agreed in writing
to be so bound. No breach of any covenant, agreement, warranty or
representation shall be deemed waived unless expressly waived in writing by the
party who might assert such breach.
11.06 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
11.07 Headings. The headings and the table of contents of this Agreement
--------
are for reference purposes only and shall not be deemed to have any substantive
effect.
11.08 Expenses. Whether or not the transactions contemplated by this
--------
Agreement are consummated, the Company shall pay the reasonable expenses and
legal fees of Hale and DorrHale and Dorr, counsel to the Investors, in
connection with the negotiation and drafting of this Agreement and the
transactions contemplated hereby.
-26-
<PAGE>
11.09 Confidential Information. Each of the Investors agrees that it will
------------ -----------
treat all proprietary information received by it at any time concerning the
Company or its present or proposed business as confidential information and that
it will not, directly or indirectly, disclose such information to any third
party.
11.10 Knowledge and Absence of Personal Liability of Certain Persons. In
--------- --- ------- -- -------- --------- -- ------- -------
any provision of this Agreement or any certificate or other instrument delivered
pursuant hereto in which a fact or matter is stated to be to the best of the
party's knowledge or that the party has no reason to believe the existence or
nonexistence of a fact or matter, such statements shall be deemed to be limited
to the actual knowledge and state of mind of the officer or employee executing
and/or initialing and delivering such agreement or instrument on behalf of such
party. Each officer or individual who executes and/or initials and delivers
this Agreement or any certificate or other instrument pursuant hereto on behalf
of any party hereto, shall be deemed to be acting in a representative capacity,
and no such individual shall have any personal liability hereunder as a result
of so acting in the absence of fraud or gross negligence on the part of such
officer or individual.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
VIVITECH, INC.
By:_________________________
S. David Ellenbogen,
President
For the purposes of Article 3 hereof only, each of the undersigned Founders
has executed this Agreement as of the date first written above.
_____________________________
S. David Ellenbogen
_____________________________
Jay A. Stein
-27-
<PAGE>
THE INVESTORS: ALTA III Limited Partnership
By: Alta III Management
Partners Limited
Partnership
By:____________________________
General Partner
GALLION PARTNERS II
By: Golden Coins, N.V.,
Investment General Partner
By: ABN Trustcompany (Curacao) N.V., Managing
Director
By:____________________________
Attorney-in-Fact
ALTA JAMI C.V.
By: Golden Coins N.V., Managing General
Partner
By: ABN Trustcompany (Curacao) N.V., Managing
Director
By:____________________________
Under Power of Attorney
C.V. SOFINNOVA PARTNERS FOUR
By: Sofinnova (International) Four N.V.,
General Partner
By:____________________________
Under Power of Attorney
PIONEER CAPITAL CORPORATION
By:____________________________
CLAFLIN CAPITAL IV
By:____________________________
-28-
<PAGE>
BETA PARTNERS LIMITED PARTNERSHIP
BY: Beta Management Limited
Partnership, General
Partner
By:____________________________
General Partner
MASSACHUSETTS CAPITAL RESOURCE
COMPANY
By:_____________________________
_______________________________
Christopher W. Lynch
-29-
<PAGE>
EXHIBIT A
------- -
INVESTORS
---------
Number of
Series A Aggregate Aggregate
Shares Considera- No. of Considera-
Name and Address Purchased tion Series B tion
- ------------------ --------- ---------- -------- ----------
Alta III
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan 70,875 $708,750 75,600 $47,250
Gallion Partners II
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan 11,250 $112,500 12,000 $ 7,500
Alta Jami C.V.
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan 12,375 $123,750 13,200 $ 8,250
C.V. Sofinnova
Partners Four
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan 18,000 $180,000 19,200 $12,000
Pioneer Ventures
Limited Partnership
60 State Street
Boston, MA 02109
Attn: Christopher Lynch 35,625 $356,250 38,000 $23,750
Claflin Capital IV
185 Devonshire Street
Boston, Ma 02110
Attn: Thomas J. Claflin 9,375 $ 93,750 10,000 $ 6,250
-30-
<PAGE>
Beta Partners Limited
Partnership
c/o Beta Partners, Inc.
One Post Office Square
Boston, MA 02109
Attn: Frank Kenny 37,500 $375,000 40,000 $25,000
Massachusetts Capital
Resource Company
545 Boylston Street
Boston, MA 02116
Attn: Richard W. Anderson 37,500 $375,000 40,000 $25,000
Christopher W. Lynch
c/o Pioneer Capital
Corporation
60 State Street
Boston, MA 02109 1,875 $ 18,750 2,000 $ 1,250
-31-
<PAGE>
EXHIBIT 10.12
VIVID TECHNOLOGIES, INC.
SERIES C AND SERIES D PREFERRED STOCK PURCHASE AGREEMENT
January 25, 1991
<PAGE>
TABLE OF CONTENTS
----- -- --------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Authorization; Purchase and Sale of Securities........ 1
1.01 Authorization of the Securities................. 1
1.02 Sale of the Securities.......................... 1
1.03 The Closing..................................... 2
1.04 Use of Proceeds................................. 2
2. Representations and Warranties of the Company......... 2
2.01 Organization and Good Standing.................. 2
2.02 Capitalization.................................. 2
2.03 Financial Statements............................ 3
2.04 Absence of Changes.............................. 3
2.05 Compliance with Other Instruments............... 4
2.06 Authorization................................... 4
2.07 Finders......................................... 4
2.08 Taxes........................................... 4
2.09 Litigation...................................... 5
2.10 Properties...................................... 5
2.11 Compliance with Law............................. 5
2.12 Subsidiaries, Joint Ventures.................... 5
2.13 Contracts and Commitments....................... 5
2.14 Outstanding Indebtedness........................ 5
2.15 Patents, Trademarks............................. 6
2.16 Conflicting Agreements.......................... 6
2.17 Compliance with Securities Act of 1933.......... 6
2.18 Disclosure...................................... 6
2.19 Closing Date.................................... 7
3. Representations and Warranties of Founders............ 7
3.01 Conflicting Agreements.......................... 7
3.02 Conflict of Interests........................... 7
4. Representations and Warranties of Investor............ 8
4.01 Investment Intent............................... 8
4.02 Authorization................................... 8
4.03 Restricted Securities........................... 8
4.04 Finders......................................... 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
5. Covenants of the Company.............................. 9
5.01 Compliance with Law............................. 9
5.02 Accounting System............................... 9
5.03 Board of Directors.............................. 9
(a) Representatives of Preferred
Shareholders................................ 9
(b) Voting Agreement............................ 10
(c) Expense of Directors........................ 10
(d) Board Approval Requirements................. 10
5.04 Inspection...................................... 10
5.05 Financial Statements and Other
Information..................................... 11
5.06 Key Man and Other Insurance..................... 12
5.07 Proprietary Information Agreements.............. 12
5.08 Material Changes and Litigation................. 12
5.09 Executive Compensation.......................... 12
5.10 Transactions with Affiliates.................... 13
5.11 Dividends....................................... 13
5.12 Issuance of Stock............................... 13
5.13 Merger; Sale of Assets.......................... 13
6. Conditions to Obligations of Investors at
the Closing......................................... 13
6.01 Representations and Warranties Correct.......... 14
6.02 Performance of Covenants and Agreements......... 14
6.03 Opinion of Counsel to the Company............... 14
6.04 Legal Action.................................... 16
6.05 Filing of Articles of Amendment................. 16
6.06 Shareholders Agreement.......................... 16
6.07 Compliance Certificate.......................... 16
6.08 Proceedings Satisfactory........................ 16
7. Conditions to Obligations of the Company
at the Closing...................................... 16
8. Participation in Future Offerings..................... 17
8.01 Eligible Offerings; Notice...................... 17
8.02 Acceptance...................................... 17
8.03 Percentage Interest............................. 17
8.04 Excluded Offerings.............................. 17
8.05 No Accumulation................................. 18
8.06 Rights Personal................................. 18
8.07 Termination of Rights........................... 18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
9. Registration Rights................................... 18
9.01 Certain Definitions............................. 18
9.02 Sale or Transfer of the Shares.................. 19
9.03 Required Registration........................... 20
9.04 Incidental Registrations........................ 20
9.05 Registration Procedures......................... 22
9.06 Allocation of Expenses.......................... 23
9.07 Indemnification................................. 23
9.08 Indemnification with Respect to
Underwritten Offering........................... 24
9.09 Rule 144 Reporting.............................. 25
10. Definitions........................................... 25
11. Miscellaneous Provisions.............................. 26
11.01 1989 Investor Consent and Waiver............... 26
11.02 Construction................................... 26
11.03 Notices........................................ 26
11.04 Assignment..................................... 27
11.05 Succession to Rights........................... 27
11.06 Amendments and Waiver.......................... 27
11.07 Counterparts................................... 28
11.08 Headings....................................... 28
11.09 Expenses....................................... 28
11.10 Confidential Information....................... 28
11.11 Knowledge and Absence of Personal
Liability of Certain Persons................... 28
Exhibits
- --------
List of Investors..................................... Exhibit A
Articles of Amendment................................. Exhibit B
Amended Shareholders Agreement........................ Exhibit C
</TABLE>
<PAGE>
SERIES C AND SERIES D PREFERRED STOCK PURCHASE AGREEMENT
--------------------------------------------------------
This Agreement, made and entered into the 25th day of January, 1991 by and
among VIVID TECHNOLOGIES, INC., a corporation organized and existing under the
laws of the Commonwealth of Massachusetts (the "Company"), and the investors
listed on Exhibit A hereto (the "Investors"), which Investors shall include,
under the circumstances set forth in Section 1.02 below, Massachusetts Capital
Resource Company ("MCRC").
The parties hereto hereby agree as follows:
1. Authorization; Purchase and Sale of Securities.
----------------------------------------------
1.01 Authorization of the Securities. The Company will on or before the
-------------------------------
Closing Date (as defined in Section 1.04 below) file with the Secretary of the
Commonwealth of Massachusetts Articles of Amendment to the Articles of
Organization of the Company in the form of Exhibit B hereto (the "Articles of
Amendment"), authorizing 2,500,000 additional shares of Common Stock, $.01 par
value, and 313,333 additional shares of Preferred Stock, $.01 par value, of the
Company and establishing and designating the relative rights and preferences of
the Series C Preferred Stock (the "Series C Preferred") and the Series D
Preferred Stock (the "Series D Preferred") of the Company; and the Company will
have authorized the issuance to the Investors, pursuant to this Agreement, of up
to 180,000 shares of Series C Preferred and 133,333 shares of Series D
Preferred.
1.02 Sale of the Securities. Subject to the terms and conditions hereof,
----------------------
the Company hereby agrees to sell to each of the Investors, and each of the
Investors agrees to purchase from Company on the Closing Date, the number of
Shares of Series C Preferred and Series D Preferred set forth opposite his or
its name under "Closing Date" on Exhibit A hereto. The obligation of MCRC to
purchase the Shares of Series C Preferred and Series D Preferred set forth
opposite its name on Exhibit A hereto shall be conditioned upon and subject to
the approval of such purchase by the Investment Committee of MCRC on or before
February 28, 1991; and upon such approval, MCRC shall, on or before March 7,
1991, pay to the Company the purchase price for such Shares. If MCRC shall
notify the Company that the purchase of the Shares has not been approved by
MCRC's Investment Committee or MCRC shall, in any event, fail to pay for the
Shares on or before March 7, 1991, then the Company shall promptly notify each
of the other Investors, and each such other Investor hereby agrees to purchase
the number of additional Shares of Series C Preferred and Series D Preferred set
forth opposite his or its name on Exhibit A-1 hereto, payment for such Shares to
be made within ten (10) business days of such notice. Thereafter, for all
purposes under this Agreement, the Investors and the number of Shares purchased
by each Investor shall be as set forth on Exhibit A-2 hereto. The purchase
price for each share of Series C Preferred sold pursuant to this Agreement will
be $10.00. The purchase price
<PAGE>
for each share of Series D Preferred sold pursuant to this Agreement will be
$1.50.
1.03 The Closing. The closing of the transactions contemplated by this
-----------
Agreement (herein referred to as the "Closing") shall take place at the offices
of Brown, Rudnick, Freed & Gesmer, One Financial Center, Boston, Massachusetts
at 10:00 A.M., on January 25, 1991, or at such other place or on such other date
or time as shall be mutually agreed to by the Company and counsel to the
Investors (hereinafter referred to as the "Closing Date"). At the Closing, the
Company will deliver to each Investor who is purchasing Shares at the Closing
certificates, in such denominations and registered in such name as each Investor
may designate by notice to the Company, representing the shares of Series C
Preferred and Series D Preferred to be purchased on the Closing Date by each
Investor from the Company, against payment of the purchase price for such Shares
in cash or by certified or bank cashier's check payable to the order of the
Company.
1.04 Use of Proceeds. Not less than 95% of the proceeds to the Company
---------------
from the sale of the Shares shall be used by the Company for the development,
manufacturing and marketing of products described in the Company's Business Plan
dated December 1990 (the "Business Plan").
2. Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to each Investor as follows:
2.01 Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Company has all requisite corporate power
and authority, and holds all licenses, permits and other required authorizations
from governmental authorities, necessary to conduct its business as now
conducted and the business contemplated by this Agreement, and is duly qualified
and in good standing in each jurisdiction in the United States where the failure
to qualify would have a material adverse effect on its operations or financial
condition. The Company has delivered to counsel to the Preferred shareholder
true, correct and complete copies of the Company's Articles of Organization and
bylaws in effect on the date hereof.
2.02 Capitalization. The Company's authorized capitalization consists of
--------------
5,000,000 shares of Common Stock, $.01 par value, of which 1,505,950 shares are
issued and outstanding and 484,375 shares of Preferred Stock, $.01 par value, of
which 484,375 shares are issued and outstanding. After giving effect to the
transactions contemplated hereby, the authorized capital of the Company will
consist of (i) 797,708 shares of Preferred Stock, $.01 par value, of which (a)
234,375 shares will be designated Series A Preferred Stock and will be
outstanding, (b) 250,000 shares will be designated Series B Preferred Stock and
<PAGE>
will be outstanding; (c) 180,000 shares will be designated as Series C Preferred
Stock and will be outstanding; and (d) 133,333 shares will be designated as
Series D Preferred Stock and will be outstanding; and (ii) 7,500,000 shares of
Common Stock, of which 1,505,950 shares will be outstanding. All of the
outstanding shares of the Company's stock have been duly and validly authorized
and issued, and the issuance of the Shares pursuant to the terms of this
Agreement shall be, on the Closing Date, duly and validly authorized, and no
further approval or authority of the shareholders or the directors of the
Company or of any governmental authority or agency will be required by the
Company for the issuance and sale of the Shares as contemplated by this
Agreement. When issued and sold to the Investors, the Shares will be duly and
validly issued, fully paid and non-assessable, and the Articles of Amendment and
the certificates representing the Shares will be duly and validly authorized,
executed and delivered by the Company and will constitute valid and legally
binding obligations in accordance with their respective terms. Except for the
1989 Agreement, the holders of the capital stock of the Company are not entitled
to any preemptive rights with respect to the sale of the Shares or any other
equity securities of the Company and are not entitled to any registration
rights, with respect to the capital stock held by them, for registration under
the Securities Act. Except for options to purchase 386,300 shares under the
Company's 1989 Combination Stock Option Plan, there are no outstanding options,
warrants or other rights or commitments, written or oral, to purchase or
otherwise acquire any authorized but unissued shares of the capital stock of the
Company, or any security directly or indirectly convertible into or exchangeable
for shares of the capital stock of the Company, or any restricted stock
arrangements.
2.03 Financial Statements. The Company has furnished to counsel for the
--------------------
Investors balance sheets dated as of September 30, 1989 and 1990 and December
31, 1990, and statements of operations and of changes in financial condition for
the period from the Company's incorporation (May 11, 1989) through September 30,
1989, from October 1, 1989 to September 30, 1990, and from October 1, 1990 to
December 31, 1990) (which balance sheet and statements are hereinafter referred
to as the "Financial Statements"). The Financial Statements were prepared in
accordance with generally accepted accounting principles, are correct and
complete in all material respects and fairly present the financial condition and
operations of the Company at the date thereof and for the period covered
thereby.
2.04 Absence of Changes. Subsequent to the date of the December 31, 1990
------------------
balance sheet contained in the Financial Statements (the "Statement Date"),
there has not been any material adverse change in the condition (financial or
otherwise), net worth or results of operations of the Company, nor, to the
knowledge of the Company, has there occurred any event which would require
disclosure in the Company's financial statements in order that they may
correctly, completely and fairly present its finan-
<PAGE>
cial condition in accordance with generally accepted accounting principles.
2.05 Compliance with Other Instruments. The Company is not in default in
---------------------------------
the performance of any material obligation, agreement or condition contained in
any bond or debenture or any other evidence of indebtedness or any indenture or
loan agreement of the Company which default affords to any Person the
unconditional right to accelerate any material indebtedness or terminate any
material right or agreement of the Company, and the Company is not in violation
of its Articles of Organization or bylaws. Neither the sale of the Shares, nor
the execution and delivery of this Agreement, nor the fulfillment of the terms
herein set forth and the consummation of the transactions contemplated hereby,
will (i) conflict with or constitute a breach of, default under or violation of
the Articles of Organization or bylaws of the Company, any agreement, indenture,
mortgage, deed of trust or other material instrument or undertaking by which the
Company is bound or to which it or any of its properties are subject, or, to the
best knowledge of the Company, a violation of any law, administrative
regulation, or court decree binding upon the Company, or (ii) result in the
creation or imposition of any material lien, charge or encumbrance upon any
property or assets of the Company.
2.06 Authorization. The Company has the corporate power and authority to
-------------
enter into this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement by the Company have been
duly authorized by all necessary corporate action, and this Agreement
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as such may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditor's rights. No consent, approval,
authorization or order of any court or governmental agency or board is required
to consummate the same, except for acceptance for filing by the Secretary of the
Commonwealth of Massachusetts of the Articles of Amendment.
2.07 Finders. No person is entitled, directly or indirectly, to
-------
compensation from the Company by reason of any contract or understanding or
contact with the Company, as a finder or broker in connection with the sale and
purchase of the Shares contemplated by this Agreement.
2.08 Taxes. The Company has filed all necessary federal and state
-----
property, income and franchise tax returns and has paid all taxes shown as due
thereon or otherwise owed by it to any taxing authority except those contested
in good faith and for which appropriate amounts have been reserved in accordance
with generally accepted principles; and there is no tax deficiency which has
been, or to the knowledge of the Company might be, asserted against the Company
which would materially affect the business or operations of the Company.
<PAGE>
2.09 Litigation. There is not now pending or, to the knowledge of the
----------
Company, threatened, any litigation, action, suit or proceeding to which the
Company is or will be a party before or by any court or governmental agency or
body, which might result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Company, or which might
materially and adversely affect the property or assets of the Company; nor, to
the knowledge of the Company is there any basis for any of the foregoing; and no
labor disturbance by the employees of the Company exists or is imminent which
might be expected materially to affect the conduct of the business, operations,
financial condition or income of the Company.
2.10 Properties. The Company has good and marketable title to all of its
----------
real and tangible personal properties and assets shown on the balance sheet
included in the Financial Statements, free and clear of all liens, charges, and
encumbrances except as set forth on said balance sheet.
2.11 Compliance with Law. To the knowledge of the Company, the Company has
-------------------
complied in all material respects with all applicable statutes and regulations
of the United States and of all states, municipalities and agencies and of all
foreign countries in respect of the conduct of its business.
2.12 Subsidiaries, Joint Ventures. The Company does not have any
----------------------------
investment or other ownership interest in any other corporation, joint venture,
general partnership, limited partnership or other business entity.
2.13 Contracts and Commitments. The Company is not a party to any written
-------------------------
or oral contract or agreement which is materially adverse to its present or
proposed business. Except for the Hologic License Agreement and the Hologic
Management Agreement, the Company is not a party to or bound by any agreements
which obligate the Company to pay (in the case of each agreement) in excess of
$25,000, or (in the aggregate) in excess of $50,000, or which are otherwise
material to the conduct and operation of its business (as conducted and proposed
to be conducted) and its properties, including without limitation all employment
and consulting agreements and employee benefit plans and arrangements to which
the Company is a party or by which it is bound. All of such agreements and
contracts are valid, binding and in full force and effect, and true and complete
copies thereof have been delivered to counsel to the Investors.
2.14 Outstanding Indebtedness. The Company has no indebtedness for
------------------------
borrowed money which the Company had directly or indirectly created, incurred,
assumed or guaranteed, or with respect to which the Company has otherwise become
directly or indirectly liable. The Company has no material liability or
obligation, absolute or contingent, which is not shown or provided for in the
Financial Statements or disclosed in the Exhibits to this Agreement.
<PAGE>
2.15 Patents, Trademarks. The License and Technology Agreement dated June
-------------------
22, 1989 between the Company and Hologic, Inc. (the "Hologic License") is in
full force and effect and the Company is in compliance therewith. To the best
knowledge of the Company, the Hologic License provides to the Company all
intellectual property rights held by any third party reasonably necessary to
enable the company to develop the product described in the Business Plan. In
addition, the Company owns or possesses, or can obtain by payment of royalties
in amounts which, in the aggregate, do not materially adversely affect the
proposed business and the prospects of the Company, all of the patents,
trademarks, service marks, trade names, copyrights and licenses, or rights to
the foregoing, necessary for the conduct of the Company's business as proposed
to be conducted. To the best of the Company's knowledge, and subject to the
Hologic License, the business proposed by the Company will not cause the Company
to infringe rights of others under patents, trademarks, service marks, trade
names, copyrights and licenses.
2.16 Conflicting Agreements. To the best of the Company's knowledge,
----------------------
except for the Hologic Management Agreement, no officer, director, key employee,
prospective key employee or principal shareholder of the Company is a party to
or bound by any agreement, contract or commitment, or subject to any
restrictions in connection with any previous or current employment of any such
person, which materially and adversely affect the proposed business or
operations of the Company or such person's ability to perform his duties as an
officer, director or employee or to own stock in the Company.
2.17 Compliance with Securities Act of 1933. Within the past twelve
--------------------------------------
months, neither the Company nor any person acting on behalf of the Company has,
directly or indirectly, offered any capital stock, including the Shares or any
part thereof, or any rights, warrants or options to purchase any capital stock
of the Company, for sale to, or solicited any offers to buy any of the same
from, or negotiated with respect to any of the foregoing with, any person other
than the Investors and existing holders of Common Stock and options to purchase
Common Stock.
Neither the Company nor any person acting on behalf of the Company has,
directly or indirectly, taken or will take any action which would subject the
issuance or sale of the Shares to the registration requirements of the
Securities Act. All shares of capital stock of the Company heretofore sold and
issued by it were sold and issued in compliance with all applicable Federal and
state securities laws.
2.18 Disclosure. Neither this Agreement, the Business Plan of the Company,
----------
nor any financial statement, certificate, list, exhibit or other written
statement pertaining to the Company or to any officer, director, key employee or
principal shareholder, made or delivered to the Investors by the Company or by
its officers, directors, shareholders or employees, or the authorized agents
thereof, contains (when read together) any untrue state-
<PAGE>
ment of a material fact or omits to state any material fact necessary in order
to make the statements contained therein not misleading in light of the
circumstances under which they were made. There exists no fact or circumstance
not previously disclosed in writing to the Investors which, to the knowledge of
any officer of the Company, materially and adversely affects or will affect (so
far as such persons can now reasonably foresee) the business, properties or
assets, or condition, financial or otherwise, of the Company, both at the
present and as proposed.
2.19 Closing Date. The representations and warranties of the Company
------------
contained in this Agreement and all information contained in any exhibit,
schedule or attachment hereto will be true and correct in all material respects
on the Closing Date as though then made and as though the Closing Date were
substituted for the date of this Agreement throughout this Agreement, except as
affected by the transactions expressly contemplated by this Agreement.
3. Representations and Warranties of Founders. S. David Ellenbogen
------------------------------------------
("Ellenbogen") and Jay A. Stein ("Stein") (individually, the "Founder") each
represents and warrants to each Investor as follows:
3.01 Conflicting Agreements. Such Founder is not in violation of any term
----------------------
of any employment contract, patent or other proprietary information disclosure
or assignment agreement or any other contract, agreement, or any judgment,
decree or order of any court or administrative agency relating to or affecting
the right of such Founder to be employed by the Company because of the nature of
the business conducted or proposed to be conducted by the Company or for any
other reason. No such term, judgment, decree, or order conflicts with such
Founder's obligation to use his best efforts to promote the interests of the
Company nor does the execution and delivery of this Agreement, nor the carrying
on of the Company's business as an officer of the Company, conflict with any
such term, judgment, decree or order.
3.02 Conflicts of Interests. Such Founder, the members of such Founder's
----------------------
immediate family and any corporations, partnership or other business entity in
which such Founder and such persons have, in the aggregate, more than a five
percent (5%) equity or income interest are not a party to any transaction,
agreement or understanding to which the Company is also a party and do not have
any interest in any Person with whom the Company does or intends to do business,
other than Hologic.
While employed by the Company, such Founder will devote such time to the
business of the Company as may be appropriate consistent with the terms of the
Hologic Management Agreement and, except for his employment by Hologic, will not
engage in any other business activity, either on a full-time or part-time basis,
as an employee, a consultant or in any other capacity, and whether or not he
receives any compensation therefor; provided, however, that nothing herein shall
prohibit such Founder from
<PAGE>
making and managing passive investments, which activities do not, in the
aggregate, materially interfere with such Founder's performance of his duties to
the Company.
4. Representations and Warranties of Investors.
-------------------------------------------
4.01 Investment Intent. Each Investor hereby represents and warrants to
-----------------
the Company that he or it is purchasing or acquiring the Securities for his or
its own account for investment and not with a present view to, or for sale in
connection with, any distribution thereof in violation of the Securities Act.
Each Investor hereby consents to the imposition of a legend substantially
similar to the following on each certificate representing the Securities, and
each Investor agrees that he will abide by the restrictions contained therein:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act") and may not be sold, transferred or assigned unless
such shares are registered under the Act or an opinion of
counsel, satisfactory to the corporation, is obtained to the
effect that such sale, transfer or assignment is exempt from
the registration requirements of the Act."
4.02 Authorization. Each Investor has the power and authority to enter
-------------
into this Agreement and to perform all of his or its obligations hereunder, and
no consent, approval, authorization or order of any court or governmental agency
or board is required to consummate the same.
4.03 Restricted Securities. Each Investor is experienced in evaluating and
---------------------
investing in young, high technology companies such as the Company. Each
Investor understands that the Shares and Conversion Stock have not been
registered under the Securities Act by reason of a specific exemption from the
registration provision of the Securities Act which depends upon, among other
things, the bona fide nature of his or its investment intent as expressed
herein. Each Investor acknowledges that the Shares and Conversion Stock when
received, must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Each Investor has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act, which rule permits limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions, contained therein. Each Investor understands that Rule 144
is not presently available for the resale of his or its Shares.
4.04 Finders. No person is entitled, directly or indirectly, to
-------
compensation from any Investor by reason of any contract or understanding or
contact with such Investor, as a finder or
<PAGE>
broker in connection with the sale and purchase of the Shares contemplated by
this Agreement.
5. Covenants of the Company.
------------------------
So long as any Preferred Shareholder is the owner of any securities of the
Company or of any successor entity whose shares are issued in exchange for any
security of the Company, but not after the Company has filed a report with the
Securities and Exchange Commission pursuant to Section 13(a) of the Exchange Act
by reason of the Company having registered its Common Stock pursuant to Section
12(g) or 15(d) of the Exchange Act, the Company agrees that:
5.01 Compliance with Law. It will not knowingly contravene any material
-------------------
governmental laws, domestic or foreign, applicable to it, unless their validity
is contested reasonably and in good faith, and it will maintain and cause each
of its Subsidiaries to maintain, in good standing, their respective rights and
qualifications to do business in all United States jurisdictions in which they
may from time to time conduct business and own their respective properties and
where failure to qualify would have a material adverse effect on their
operations or financial condition, to the extent necessary therefor. The
Company will at all times remain a corporation incorporated under the laws of
the United States or of one of the States thereof.
5.02 Accounting System. It will maintain and cause each of its
-----------------
Subsidiaries to maintain a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books and cause each of its operating Subsidiaries to
set aside on its books all such proper reserves as shall be required under
generally accepted accounted principles consistently applied.
5.03 Board of Directors.
------------------
(a) Representatives of Preferred Shareholders. The Company presently
-----------------------------------------
intends to maintain the authorized number of members of its Board of Directors
at not more than seven (7). The Preferred Shareholders shall have the right to
designate in writing (i) up to three (3) nominees to be included among
management's nominees to be elected as directors of the Company if the
authorized number of directors exceeds five (5), and (ii) up to two (2) nominees
to be so included if the authorized number of directors equals five (5) or less.
Two nominees shall be designees of Burr, Egan, Deleage & Co. and the third
designee, if any, shall be selected by the Preferred Shareholders. The
designees of the Preferred Shareholders shall be subject to approval by the
Company, which approval shall not be unreasonably withheld. The Company hereby
agrees to use its best efforts to cause such representatives to be elected to
the Company's Board of Directors and to be renominated and reelected annually
until the number of shares of capital stock then held by all of the Preferred
Shareholders represents less than five percent (5%) of
<PAGE>
the total voting power of the Company. One of the initial designees of Burr,
Egan, Deleage & Co. shall be Frank Kenny. The Company shall give notice of each
meeting of the Board of Directors to the Preferred Shareholders, shall permit a
representative of the Preferred Shareholders to attend such meeting as a guest
of the Board of Directors and shall provide to Preferred Shareholders who so
request, copies of minutes of all action taken by the Board of Directors,
whether at meetings or by written consent.
(b) Voting Agreement. The Preferred Shareholders agree to vote the
----------------
shares of voting securities of the Company held or controlled by them, and will
otherwise use their best efforts to elect and maintain in office as a director
of the Company: (i) each of Ellenbogen and Stein, such agreement to terminate
with respect to each such person when the number of shares of capital stock then
held by such person represents less than five percent (5%) of the total voting
power of the Company or such person is no longer employed by the Company or a
Subsidiary; and (ii) one (1) additional designee of Ellenbogen and Stein, if the
authorized number of directors is five (5) or less, and two (2) additional
designees of Ellenbogen and Stein, if the authorized number of directors exceeds
five (5), until the voting agreement under clause (i) with respect to both
Ellenbogen and Stein has terminated. In any particular election of directors,
the foregoing agreement of the Preferred Shareholders will not apply to any of
the Preferred Shareholders unless Ellenbogen and Stein first vote in favor of
themselves or each other and their designees the shares of the Company's voting
securities held or controlled by them. In addition, if in any particular
election of directors, the Preferred Shareholders exercise the foregoing right
to designate up to two (or three) persons to be included among management's
nominees, then the foregoing voting agreement of the Preferred Shareholders will
not apply until the Preferred Shareholders have first voted the shares of the
voting securities of the Company held or controlled by the Preferred
Shareholders in favor of such designees to the Board of Directors.
(c) Expenses of Directors. The representatives of the Preferred
---------------------
Shareholders who serve as Directors shall be reimbursed by the Company for
reasonable out-of-pocket travel and other expenses, if any, incurred by them in
attending Board of Directors' meetings and in performing their duties as
Directors.
(d) Board Approval Requirement. The minimum number of votes required
--------------------------
for the approval of actions and the adoption of resolutions by the Board of
Directors shall be a majority of the actual number of directors then in office.
5.04 Inspection. It shall permit each holder of Securities, or any
----------
authorized representative thereof, to visit and inspect the properties of the
Company and its Subsidiaries, including their respective corporate and financial
records, and to discuss the business and finances of the Company and its
Subsidiaries with their respective officers during normal business hours
fol-
<PAGE>
lowing reasonable notice and as often as may be reasonably requested. Any holder
exercising his or its rights under this Section, and his or its representatives,
shall maintain the confidentiality of all financial, confidential and
proprietary information of the Company and its Subsidiaries acquired by them in
exercising such rights.
5.05 Financial Statements and Other Information. It will deliver to each
------------------------------------------
Preferred Shareholder:
(a) within 90 days after the end of each fiscal year of the Company,
an audited balance sheet of the Company as at the end of such year and audited
statements of operations and of changes in financial condition of the Company
for such year, certified (without qualification as to scope) by certified public
accountants of established national reputation selected by the Company, and
prepared in accordance with generally accepted accounting principles
consistently applied;
(b) within 30 days after then end of each month in each fiscal year of
the Company, an unaudited balance sheet of the Company as at the end of such
month and unaudited statements of operations and of changes in financial
condition of the Company for such month, together with a statement setting forth
a comparison between said actual balance sheet and statements and the projected
monthly balance sheet and statements of operations and financial condition for
such period previously delivered to the Preferred shareholder under clause (c)
hereof;
(c) within 30 days of their review by the Company's Board of
Directors, but not later than the beginning of each fiscal year, projected
balance sheets of the Company as of the end of each fiscal month of said fiscal
year, and projected statements of operations and of changes in financial
condition of the Company, covering the same fiscal periods, all in reasonable
detail, or such other form of projected statements as approved by a majority of
the directors then if office (provided that the cash flow projections for the
first twelve months of operations of the Company contained in the Business Plan
shall be deemed to be the initial projected statements delivered hereunder);
(d) within 30 days of their review by the Company's Board of
Directors, any material revision of projected financial statements provided
under clause (c) above;
(e) with reasonable promptness, such other notices, information and
data with respect to the Company as the Company delivers to the holders of its
Common Stock, and such other information and data as such Preferred Shareholder
may from time to time reasonably request at such Preferred Shareholder's cost.
The foregoing financial statements shall be prepared on a consolidated and
consolidating basis if the Company then has any Subsidiaries; provided that any
consolidating statements required by clause (a) need not be audited. The
financial statements
<PAGE>
delivered pursuant to clauses (b) above shall be accompanied by a certificate of
the chief financial officer of the Company stating that such statements have
been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial condition of the Company
at the date thereof and for the period covered thereby, subject only to
nonrecurring year-end adjustments resulting from an audit of the Company, which
in the aggregate will not be materially adverse.
5.06 Key Man and Other Insurance. The Company will obtain, within ninety
---------------------------
(90) days from the date hereof, policies of term life insurance on the lives of
each of Ellenbogen and Stein in amounts not less than $1,000,000 each; provided
that at such time as the aggregate amount of Series A Preferred and Series C
Preferred required to be redeemed is less than $2,000,000, the amount of each
policy may be reduced by an amount equal to the Series A and Series C Redemption
Price (as such term is defined in Section 4 of the Articles of Amendment) paid
from time to time to the Series A and Series C Preferred Shareholders. The
Company will maintain workers' compensation insurance and such insurance with
respect to its properties and business, including insurance against loss,
damage, fire, theft, public liability and other risks, of the kinds and in the
amounts which are standard for companies of similar size engaged in the business
in which the Company is engaged and intends to engage.
5.07 Proprietary Information Agreements. It will use its best efforts to
----------------------------------
enter into agreements, in a timely manner, with each of its employees and
consultants, requiring the assignment by them to the Company of all inventions
and discoveries of such employees and consultants during the course of their
employment or in connection with their activities as consultants, as the case
may be, and requiring that such persons maintain in confidence all proprietary
information of the Company and return to the Company, upon termination of
employment or engagement as a consultant, all proprietary information of the
Company then in their possession or under their control.
5.08 Material Changes and Litigation. The Company will promptly notify the
-------------------------------
Preferred Shareholders of any material adverse change in the business,
properties, assets or condition, financial or otherwise, of the Company and of
any litigation or governmental proceeding or investigation pending or, to the
best knowledge of the Company, threatened against the Company, or against any
officer, director, key employee or principal shareholder of the Company
materially affecting or which, if adversely determined, would materially
adversely affect its present or proposed business, properties, or assets taken
as a whole.
5.09 Executive Compensation. Services to the Company rendered by
----------------------
Ellenbogen and Stein shall be paid for pursuant to the Hologic Management
Agreement, and no compensation shall be paid or accrued directly to Ellenbogen
or Stein by the Company without the favorable vote of the Directors designated
by Burr, Egan, Deleage & Co.
<PAGE>
5.10 Transactions with Affiliates. Except for the Hologic Management
----------------------------
Agreement and the Hologic License Agreement, without a vote by the Board of
Directors at a meeting at which the representatives of Burr, Egan Deleage & Co.
are present and vote in favor such action (not including in either case,
however, any Director having an interest in the proposed transaction), the
Company shall not engage in any transaction with, nor enter into any contract,
agreement or other arrangement providing for the employment of, furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any 10% shareholder, officer or director of the Company, nor any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), and in no event
will any such transaction or agreement be on terms which, at the time such
transaction or agreement is approved, are less favorable to the Company than
would be similar transactions or agreements with unrelated third parties.
5.11 Dividends. Without a vote by the Board of Directors at a meeting at
---------
which the representatives of Burr, Egan, Deleage & Co. are present and vote in
favor of such action, it will not declare, set aside or pay any dividend on
(other than a dividend of capital stock of the Company), or declare or make any
distribution (other than liquidating distributions) with respect to, shares of
the capital stock of the Company junior in right of liquidation to the Series A
Preferred or the Series C Preferred.
5.12 Issuances of Stock. The Company has reserved 1,000,000 shares of
------------------
Common Stock for issuance to employees and consultants of the Company pursuant
to stock option or restricted stock arrangements, which vest such shares in
installments contingent on employment with the Company during a specified
period. The Board of Directors of the Company may authorize, from time to time,
the issuance of such shares, on such terms including price, payment and vesting
restrictions as the Directors deem appropriate; provided that a representative
affiliated with Burr, Egan, Deleage & Co. consents to such actions or is present
and votes in favor thereof at a meeting of the Board.
5.13 Merger; Sale of Assets. Without the prior approval in writing or
----------------------
favorable vote at a duly called stockholders' meeting by Preferred Shareholders
holding a majority of the shares of Series A Preferred and Series C Preferred,
there shall be no merger or consolidation of the Company with or into another
entity, in which the Company is not the surviving entity, nor shall there be a
sale of all or substantially all of the assets of the Company to another entity.
6. Conditions to Obligations of Investors at the Closing.
-----------------------------------------------------
The obligations of each Investor under this Agreement at the Closing are
subject to satisfaction of the following conditions at or prior to the Closing,
any of which may be waived by such Investor:
<PAGE>
6.01 Representations and Warranties Correct. All of the representations
--------------------------------------
and warranties of the Company contained in this Agreement shall be true and
correct on the Closing Date with the same effect as if made on the Closing Date.
6.02 Performance of Covenants and Agreements. All of the covenants and
---------------------------------------
agreements of the Company contained in this Agreement and required to be
performed on or before the Closing Date shall have been performed.
6.03 Opinion of Counsel to the Company. The Investors shall have received
---------------------------------
an opinion of counsel to the Company, Brown, Rudnick, Freed & Gesmer, addressed
to the Investors, in form and substance reasonably satisfactory to the Investors
and dated the Closing Date, substantially to the following effect:
(a) This Agreement, the Articles of Amendment and the certificates
representing the Shares to be purchased at the Closing have been duly and
validly authorized, executed, and delivered by the Company and constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms, except as such may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights, and except that no opinion need by expressed
with respect to the availability of equitable remedies or the enforceability of
Section 9.07 or 9.08 hereof (to the extent that the Company agrees to indemnify
directors, officers and controlling persons for liabilities arising under the
Securities Act);
(b) All corporate proceedings required by law or by the provisions of
this Agreement to be taken by the Company at or prior to the Closing in
connection with the transactions contemplated by this Agreement have been duly
and validly taken;
(c) The Company is validly existing and in good standing under the
laws of the Commonwealth of Massachusetts and has all requisite corporate power
and authority to own its properties and conduct its business;
(d) The Company has secured all governmental consents, approvals,
authorizations and, to the best knowledge of such counsel, has obtained such
other consents, approvals and authorizations, and has complied with all similar
requirements prescribed by any law, rule or regulation which must be obtained or
satisfied by the Company and which are necessary for the consummation of the
transactions contemplated by this Agreement at or prior to the Closing;
(e) The Company has the corporate right, power and authority to enter
into this Agreement and to issue, sell and deliver the Shares and to consummate
all other transactions contemplated hereby;
<PAGE>
(f) The outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable, and, to
the best knowledge of such counsel, except as set forth in Section 2.02, there
are no outstanding options for the purchase of, or any agreements providing for
the issuance of (contingent or otherwise), or any commitments or claims of any
character relating to, any such capital stock or any shares of stock or
securities convertible into or exchangeable for any such capital stock;
(g) The Company is not in violation of its Articles of Organization,
as amended, or bylaws or, to the best knowledge of such counsel, in default in
the performance of any material obligation, agreement or condition contained in
any bond, debenture or other evidence of indebtedness or any indenture or loan
agreement of the Company. Neither the sale of the Shares, nor the execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated and the compliance with the terms of this Agreement do, or will,
(i) conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Articles of Organization, as amended, or the
bylaws of the Company, or, to the best knowledge of such counsel, any material
indenture, mortgage or other agreement or instrument of which they have
knowledge to which the Company is as party or by which it or any of its
properties are bound, or (ii) to the best knowledge of such counsel, result in
the creation or imposition of any material lien, charge or encumbrance upon any
property or assets of the Company;
(h) Holders of the shares of Series C Preferred and Series D Preferred
have the respective rights, reference and privileges set forth in the Articles
of Amendment, which have been duly and properly adopted and filed in all places
where they are required to be filed;
(i) Based on the accuracy of the representations of the Company and of
the Investors contained in this Agreement, the offer, issuance and sale of the
Shares to the Preferred shareholder pursuant to this Agreement are exempt from
registration under the Securities Act; and
(j) To the best knowledge of such counsel, there is no litigation or
governmental proceeding or investigation pending or threatened against the
Company, relating to the present or proposed business, property or assets of the
Company.
In rendering such opinion, such counsel may rely to a reasonable extent upon
certificates of public officials and upon certificates of officers of the
Company as to matters of fact. Such opinion may be based on existing laws,
rules and regulations.
6.04 Legal Action.
------------
(a) There shall not have been instituted or threatened any material
legal proceeding seeking to prohibit the consumma-
<PAGE>
tion of the transactions contemplated by this Agreement, or to obtain damages
from any Investor with respect thereto.
(b) None of the parties hereto shall be prohibited by any order, writ,
injunction or decree of any governmental body of competent jurisdiction from
consummating the transactions contemplated by this Agreement, and no material
action or proceeding shall then be pending which questions the validity of this
Agreement, any of the transactions contemplated hereby or any action which has
been taken by either of the parties in connection herewith or in connection with
any of the transactions contemplated hereby.
6.05 Filing of Articles of Amendment. The Articles of Amendment shall have
-------------------------------
been filed with the Secretary of the Commonwealth of Massachusetts; and except
as so amended, the Company's Articles of Organization will not have been amended
or modified.
6.06 Shareholders Agreement. Ellenbogen and Stein shall have executed and
----------------------
delivered to the Preferred Shareholders an Amended Shareholder Agreement
substantially in the form of Exhibit C hereto (the "Shareholders Agreement").
6.07 Compliance Certificate. The Company shall have delivered to each
----------------------
Investor at the Closing, an officer's certificate dated the Closing Date and
signed by the President and the Vice President of the Company stating that (i)
the conditions specified in Sections 6.01, 6.02 and 6.04 through 6.06 have been
satisfied, (ii) they have made, or have caused to be made, such investigations
as are necessary in order to permit them to verify the accuracy of the
information set forth in such certificate, and (iii) to the best of their
knowledge, such certificate does not misstate any material fact or omit any fact
necessary to make the certificate not misleading in any material respect.
6.08 Proceedings Satisfactory. All corporate and other proceedings taken
------------------------
prior to or at the Closing in connection with the transactions contemplated by
this Agreement, and all documents and instruments incident thereto, shall be
reasonably satisfactory in form and substance to counsel for the Investors.
7. Conditions to Obligations of the Company at the Closing. The obligations of
-------------------------------------------------------
the Company under this Agreement at the Closing are subject to satisfaction of
the condition (which may be waived by the Company) that all of the
representations and warranties of the Investors contained in this Agreement
shall be true and correct on the Closing Date with the same effect as if made on
the Closing Date.
8. Participation in Future Offerings. In order to afford the Preferred
---------------------------------
Shareholders the opportunity to maintain their percentage ownership interest in
the Company, the Company agrees to offer to the Preferred Shareholders, and to
issue and sell to accepting offerees, such other securities of the Company, that
evidence shares of Common Stock or other Voting Stock or that
<PAGE>
bear rights to acquire, convert into or be redeemed or exchanged for shares of
Common Stock or Voting Stock, including without limitation, any rights, options,
warrants or convertible debt or equity instruments that provide any right to
subscribe for, purchase or otherwise acquire shares of Common Stock or other
Voting Stock, as may be offered by the Company from time to time after the
Closing Date (any such shares being herein referred to as "New Shares"), all
pursuant to the terms and conditions of this Section 8.
8.01 Eligible Offerings; Notice. The Company shall deliver written notice
--------------------------
to the Preferred Shareholders of the terms and conditions of each offering,
borrowing or other similar transaction, not intended to be registered under the
Securities Act, pursuant to which the Company intends to issue New Shares. Such
notice shall be delivered to the Preferred Shareholders not later than twenty
(20) business days prior to the date upon which any such transaction closes. By
such notice, the Company shall offer to sell to the Preferred Shareholders the
applicable amount of securities calculated pursuant to Section 8.03.
8.02 Acceptance. Each Preferred Shareholder may accept any such offer in
----------
whole or in part by delivering to the Company a written agreement to make such
purchase, executed by such Preferred Shareholder specifying the amount of the
securities to be purchased by such Preferred Shareholder not later than ten (10)
business days following the date of delivery of the offer to such Preferred
Shareholder by the Company. The terms and conditions, price, timing of closing
and other provisions of such agreement by such Preferred Shareholder shall be
not less favorable to the Company than those of the other agreement to purchase
such New Shares.
8.03 Percentage Interest. The amount of New Shares to be offered to each
-------------------
Preferred Shareholder for purchase pursuant to this Section 8 shall, with
respect to each transaction subject hereto, be calculated by multiplying (a) the
aggregate number of New Shares offered, times (b) the percentage ownership of
Voting Stock of the Company held by such Preferred Shareholder immediately after
the Closing hereunder, as set forth opposite such Preferred Shareholder's name
on Exhibit A hereto.
8.04 Excluded Offerings. The provisions of this Article 8 shall not apply
------------------
to any issuance by the Company of New Shares:
(a) in connection with an acquisition by the Company or any Subsidiary
of the assets or securities of another business entity or the merger of any
business entity with or into the Company or any Subsidiary; or
(b) to employees or consultants of the Company or any Subsidiary
pursuant to Section 5.12 hereof or otherwise;
provided, however, that any such issuance of New Shares and the terms thereof
have been approved by the Board of Directors of the
<PAGE>
Company by unanimous written consent or at a meeting at which a majority of the
representatives of the Preferred Shareholders are present and vote in favor
thereof.
8.05 No Accumulation. Each transaction or proposed issuance under this
---------------
Section 8 is a separate transaction. The failure of a Preferred Shareholder to
exercise in whole or in part any prior offer shall not increase his or its
rights with respect to any future transaction subject hereto and the rights of
any Preferred Shareholder under this Section 8 with respect to any transactions
are reduced pro rata to the extent that such Preferred Shareholder acquires
securities of the Company by participating directly in such transaction.
8.06 Rights Personal. The rights created by this Section 8 are personal to
---------------
the Preferred Shareholders and may not be assigned, except in connection with a
transfer of Securities purchased hereunder by any Preferred Shareholder which is
a corporation or partnership to its respective shareholders or partners.
8.07 Termination of Rights. The rights provided to the Preferred
---------------------
Shareholders in this Section 8 shall terminate upon the effectiveness of any
Registration Statement (as defined in Section 9.01 hereof) filed by the Company
under the Securities Act covering any shares of its Common Stock.
9. Registration Rights.
-------------------
9.01 Certain Definitions. As used in this Section 9, the following terms
-------------------
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
----------
other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
-------- ---
or any similar Federal statute, and the rules and regulations of the Commission
issued under the Act, as they each may, from time to time, be in effect.
"Securities Act" means the Securities Act of 1933, as amended, or any
---------- ---
similar Federal statute, and the rules and regulations of the Commission issued
under that Act, as they each may, from time to time, be in effect.
"Person" means an individual, a corporation, a partnership, a trust,
------
an unincorporated organization, and a government or any department, agency, or
political subdivision thereof.
"Registration Statement" means (a) a registration statement (other
----------------------
than a registration statement on Form S-1 solely with respect to employee
benefit plans, on Form S-8, or on Form S-4 solely with respect to Rule 145
transactions, or any successor form or forms used for the purpose specified by
such forms), or (b) an offering circular or offering statement pursuant to
<PAGE>
Regulation A under the Securities Act (provided that if such form is not
available for the transaction for which it is proposed to be utilized, it shall
not be deemed to be a "Registration Statement"), in either event filed by the
Company with the Commission for a public offering and sale of securities of the
Company.
"Registration Expenses" means the expenses described in paragraph (f)
---------------------
of this Section 9.
"Registrable Shares" means (i) the shares of Conversion Stock issued
------------------
or issuable to the Preferred Shareholders upon conversion of their Series B
Preferred or Series D Preferred, and (ii) any other shares of Common Stock of
the Company issued in respect of such shares because of stock splits, stock
dividends, reclassifications, recapitalizations, mergers, consolidations, or
similar events); provided, however, that any shares previously sold by a
-------- -------
Preferred Shareholder to the public pursuant to a registered public offering or
Rule 144 under the Securities Act shall cease to be Registrable Shares.
Whenever reference is made in this Agreement to a request or consent in writing
from the holders of a certain percentage of the Registrable Shares, such
reference shall include shares of Conversion Stock issuable upon conversion of
the Series B Preferred or Series D Preferred, even though such conversion has
not then been effected.
"Stockholders" means the Preferred Shareholders and any persons or
------------
entities to whom shares of Series B Preferred, Series D Preferred or Conversion
Stock are transferred by an Preferred Shareholder or any subsequent transferee
thereof.
9.02 Sale or Transfer of the Shares. The Shares shall not be sold or
------------------------------
transferred unless either (a) they first shall have been registered under the
Securities Act, (b) such shares are sold in compliance with Rule 144 under the
Securities Act, or (c) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company or its counsel,
stating that such sale or transfer is an exempted transaction under the
Securities Act and, unless such opinion states that such Shares may be
transferred by the transferee immediately after acquisition without registration
under the Securities Act, a written agreement by the transferee thereof not to
sell or transfer such Shares without complying with the requirements provided
for in this Section 9.02. The Company or its transfer agent may require, as a
condition to registration of transfer following any sale pursuant to Rule 144
under the Securities Act, that it be furnished with an opinion of counsel
satisfactory to it to the effect stated in the preceding sentence. The fees and
expenses of such counsel in routine Rule 144 transactions not involving unusual
circumstances shall be borne by the Company.
9.03 Required Registration.
---------------------
(a) At any time after June 22, 1994, a Stockholder or Stockholders
holding in the aggregate at least 51% of the Registrable Shares may request the
Company, in writing, to effect the
<PAGE>
registration under the Securities Act of Registrable Shares having an aggregate
offering price of at least $5,000,000. Upon receipt of any such request, the
Company shall promptly give written notice of such proposed registration to all
Stockholders. Such Stockholders shall have the right, by giving written notice
to the Company within 20 days from receipt of the Company's notice, to elect to
have included in such registration such of their Registrable Shares as such
Stockholders may request in such notice of election. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration, on the requested form of Registration Statement, of all
Registrable Shares which the Company has been requested to register. If such
request is in connection with an underwritten public offering, the underwriters
will be selected by the Company, subject to the approval of a majority of the
requesting holders, which approval will not be unreasonably withheld.
The Company shall not be required to effect more than one registration
pursuant to this paragraph (a). In addition, the Company shall not be required
to effect any registration within six months after the effective date of any
other Registration Statement of the Company.
(b) If at the time of any request to register Registrable Shares
pursuant to paragraph (a), (i) the Company is engaged or has fixed plans to
engage within 30 days of the time of the request in a registered public offering
as to which the Stockholders may include Registrable Shares pursuant to
paragraph (a), or (ii) is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a period not
in excess of six months from the effective date of such offering or the date of
commencement of such other material activity, as the case may be, such right to
delay a request to be exercised by the Company not more than once in any two
year period. In an event described in clause (i), the Company may, within the
period stated therein, file a Registration Statement, which Registration
Statement, at the Company's option, shall be deemed to be a Registration
Statement filed under paragraph (b) of Section 9.04 hereof.
9.04 Incidental Registrations.
------------------------
(a) If the Company at any time proposes to file a Registration
Statement covering any of its securities, whether of its own accord or at the
request or demand of any holder or holders of such securities, and if the
Registration Statement proposed to be used may be used for the registration of
Registrable Shares (an "Incidental Registration"), the Company will thereupon
give prompt written notice to all Stockholders of its intention to do so, and,
upon the written request of any such Stockholder made within 15 days after the
receipt of any such notice (which request will specify the Registrable Shares
intended to be disposed of by such Stockholder and state the intended
<PAGE>
method of disposition thereof), the Company will use its best efforts to cause
all such Registrable Shares, the holders of which have so requested the
registration thereof, to be registered under the Securities Act to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) by the holders of the Registrable Shares to be so
registered; provided, however, that the Company shall not be obligated to use
its best efforts to cause all Registrable Shares of requesting holders to be
registered unless the aggregate proposed selling price of such Registrable
Shares is $250,000.
(b) If an Incidental Registration is a primary registration on behalf
of the Company and is in connection with an underwritten public offering, and if
the managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration (whether
by the Company, the holders of Registrable Shares pursuant to paragraph (a) of
this Section 9.04 or other holders of securities pursuant to any other rights
granted by the Company to demand inclusion of any such securities which can be
sold in such offering, the Company will include in such registration the number
of securities requested to be included which in the opinion of such underwriters
can be sold in the following order (i) first, all of the shares the Company
proposes to sell, (ii) second, all of the Registrable Shares requested to be
included in such registration, pro rata among the holders of Registrable Shares,
and (iii) third, any other securities requested to be included in such
registration.
(c) If an Incidental Registration is a secondary registration on
behalf of holders of the Company's securities and is in connection with an
underwritten public offering, and if the managing underwriters advise the
Company in writing that in their opinion the number of securities requested to
be included in such registration (whether by such holders, by holders of
Registrable Shares pursuant to Section 9.03 of this Section 9 or by holders of
its securities pursuant to any other rights granted by the Company to demand
inclusion of securities in such registration) exceeds the number of securities
which can be sold in such offering, the Company will include in such offering
the number of securities requested to be included which in the opinion of such
underwriters can be sold in the following manner (i) first, the securities
requested to be included by the holders demanding such registration, and (ii)
second, any other securities (including the Registrable Shares, if the
Stockholders did not demand such registration pursuant to Section 9.03 requested
to be included in such registration, pro rata among the holders of all such
securities on the basis of the number of shares of such securities held by each
such holder.
(d) The rights given to the holders of Registrable Shares pursuant to
this Section 9.04 shall terminate, with respect to a particular holder, when
such holder may sell an unlimited number of Registrable Shares without regard to
any limitation on the number of securities to be sold, the manner of
<PAGE>
sale or any other aspects of the proposed transfer, as such may be limited by
Rule 144 or any other similar rule or regulation of the Commission promulgated
under the Securities Act.
9.05 Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of not less than 90 days from the
effective date and to comply with the provisions of the Securities Act (to the
extent applicable to the Company) with respect to the disposition of all
Registrable Shares registered hereby in accordance with the intended methods of
disposition by the selling Stockholders thereof set forth in such Registration
Statement;
(c) as expeditiously as possible furnish to each selling Stockholder
such numbers of copies of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
instruments as the selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states or jurisdictions as each selling
Stockholder shall reasonably request, and do any and all other acts and things
that may be necessary or desirable to enable the selling Stockholder to
consummate the public sale or other disposition in such jurisdictions of the
Registrable Shares owned by the selling Stockholder; provided, however, that the
-------- -------
Company shall not be required in connection with this paragraph (d) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction.
(e) notify each selling Stockholder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act within the
period mentioned in paragraph (b) above, of the happening of any event as a
result of which the prospectus included in such Registration Statement, as then
in effect, include an 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 not misleading in light of the circumstances then existing, and as
expeditiously as possible
<PAGE>
prepare and furnish to such selling Stockholder a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Shares, such
prospectus will not include an 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 not misleading in light of the circumstances then existing;
(f) cause all such Registrable Shares covered by such Registration
Statement to be listed on securities exchanges on which similar securities
issued by the Company are then listed, if any;
(g) provide a transfer agent for all such Registrable Shares covered
by such Registration Statement not later than the effective date of such
Registration Statement; and
(h) take such other customary actions as the holders of a majority of
Registrable Shares being sold may reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares.
If the number of holders requesting registration of Registrable Shares
exceeds three, the Company may, in its discretion, require the holders who have
requested registration to appoint an attorney-in-fact to represent them in the
registration proceedings and who shall have the power to execute on their behalf
the Registration Statement, any amendments to the Registration Statement, the
underwriting agreement, if any, and, to the extent permitted by law, any other
forms or letters required from such holders by the Commission.
9.06 Allocation of Expenses. "Registration Expenses" shall mean all
----------------------
expenses incurred by the Company in complying with this Section 9, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company and of one counsel for all selling
Stockholders, state securities or Blue Sky fees and expenses, and the expense of
any special audits incident to or required by any such registration, but
excluding underwriting discounts and selling commissions. The Company will pay
all Registration Expenses in connection with the registration pursuant to
paragraph (a) of Section 9.03 and in connection with all registrations pursuant
to Section 9.04.
9.07 Indemnification. In the event of any registration of any of the
---------------
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities
<PAGE>
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse such seller, such underwriter, and each such controlling
person for any legal or any other expenses reasonably incurred by such seller,
underwriter, or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or omission made in the Registration Statement, preliminary prospectus or
prospectus, or the amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by or on behalf of such seller or underwriter specifically for use in
the preparation thereof.
In the event of any registration of any of the Registrable Shares under the
Securities Act pursuant to this Agreement, each seller of the Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, to the same extent and
against the same losses, claims, damages, liabilities, costs and expenses
described in the preceding paragraph, in respect of any untrue statement (or
alleged untrue statement) in or omission (or alleged omission) from any
Registration Statement or preliminary or final prospectus, if the statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of such seller, specifically for use
in connection with the preparation of the Registration Statement or prospectus.
9.08 Indemnification with Respect to Underwritten Offering. In the event
-----------------------------------------------------
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 9.03, the Company agrees to enter into
an underwriting agreement containing customary representations and warranties
with respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including, without limiting the generality of the foregoing, customary
provisions with respect to indemnification by the Company of the underwriters of
such offering.
9.09 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission
<PAGE>
which may at any time permit the sale of restricted securities to the public
without registration, after such time as a public market exists for the Common
Stock of the Company, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effect date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) Use its best efforts to then file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as a Preferred Shareholder owns any restricted securities,
as such term is defined in Rule 144, to furnish to such Preferred shareholder
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of said Rule 144 (at any time after 90 days
after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as a
Preferred Shareholder may reasonably request to avail himself or itself of any
rule or regulation of the Commission allowing a Preferred Shareholder to sell
any such securities without registration.
10. Definitions.
-----------
For purposes of this Agreement, the following terms have the respective
meanings set forth below:
10.01 "Affiliate" means any Person which directly or indirectly controls, is
---------
controlled by, or is under common control with, the indicated Person.
10.02 "Conversion Stock" means the total number of shares of the Company's
----------------
Common Stock, and any other securities issued or issuable upon conversion of the
Series B Preferred and the Series D Preferred.
10.03 "1989 Agreement" means the Series A and Series B Preferred Stock
--------------
Purchase Agreement dated June 22, 1989 by and among the Company, the Founders
and the Investors.
10.04 "1989 Investors" means investors who were parties to the 1989
--------------
Agreement.
<PAGE>
10.05 "Person" means an individual, a partnership, a joint venture, a
------
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
10.06 "Preferred Shareholders" means the holders of shares of Series A
----------------------
Preferred, Series B Preferred, Series C Preferred and Series D Preferred.
10.07 "Series A Preferred" means shares of Series A Preferred Stock, $.01
------------------
par value, of the Company.
10.08 "Series B Preferred" means shares of Series B Preferred Stock, $.01
------------------
par value, of the Company.
10.09 "Shares" means the shares of Series C Preferred and Series D Preferred
------
being purchased hereunder.
10.10 "Subsidiary" means any corporation at least a majority of the Voting
----------
Stock of which is, at the time as of which any determination is being made,
owned by the Company either directly or through Subsidiaries.
10.11 "Voting Stock" means any shares of stock having general voting power
------------
in electing the Board of Directors of the Company (irrespective of whether or
not at the time stock of any other class or classes has or might have voting
power by reason of the happening of any contingency).
11. Miscellaneous Provisions.
------------------------
11.01 1989 Investor Consent and Waiver. The 1989 Investors hereby agree
--------------------------------
that (a) effective upon the execution of this Agreement, Sections 5, 8 and 9 in
their entirety of the 1989 Agreement are amended and superseded in full by
Sections 5, 8 and 9 respectively of this Agreement; and (b) any and all
preemptive rights that each 1989 Investor has or may have pursuant to Section 8
of the 1989 Agreement are hereby waived with respect to the issuance of the
Series C Preferred Stock and Series D Proposed Stock to be issued hereunder.
Each of the 1989 Investors hereby consents to the granting of registration
rights to the Series D Preferred holders pursuant to Section 9 of this Agreement
(in accordance with Section 9 of the 1989 Agreement), and, (ii) the execution
and delivery of the Amended Shareholder Agreement.
11.02 Construction. This Agreement shall be construed and enforced in
------------
accordance with and governed by the laws of the Commonwealth of Massachusetts.
11.03 Notices. All notices, requests, demands and other communications
-------
called for or contemplated hereunder shall be in writing and shall be deemed
duly given when deposited in the U.S. mail, certified mail, or registered mail,
postage prepaid, with return receipt requested, or when transmitted by wire or
telex, addressed to the parties at the following addresses, or at such
<PAGE>
other addresses as the parties may designate by written notice in the manner
aforesaid:
If to Preferred Shareholders: At the addresses listed on
Exhibit A hereto.
If to the Company: Vivid Technologies, Inc.
590 Lincoln Street
Waltham, Massachusetts 02154
Attention: President
11.04 Assignment. This Agreement shall be binding upon and shall inure to
----------
the benefit of the Company and the Preferred Shareholders and their respective
successors and assigns.
11.05 Succession to Rights. The rights and powers of each Preferred
--------------------
Shareholder hereunder are granted to such Preferred Shareholder as an owner of
the Shares. Consequently, the parties agree that, except as limited by Section
8.05, such rights and powers exist separately and distinctly with respect to
each share of the Securities and as to each such share shall pass with it so
that any owner of any shares of the Securities whether becoming such by
transfer, assignment, operation of law or otherwise, shall have all of the
rights and powers of such Preferred Shareholder hereunder, and shall be entitled
to exercise them in full, with or without the agreement or consent of other such
owners, and no transfer or assignment shall divest such Preferred Shareholder or
any subsequent owner of such rights and powers unless all shares of the
Securities owned by such persons are transferred or assigned.
11.06 Amendments and Waiver. This Agreement and all exhibits hereto set
---------------------
forth the entire understanding of the parties with respect to the transactions
contemplated hereby, and no party shall be bound by or deemed to have made any
representations or warranties except those contained herein. The provisions of
this Agreement may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the holders of at least
60% of the Series B Preferred and 60% of the Series D Preferred (including for
purposes hereof Conversion Stock into which shares of Series B Preferred and
Series D Preferred have been converted). Notwithstanding anything to the
contrary in this Section 11.05, no holder of Registrable Shares will be bound by
any consent authorized by this Section 11.05 to the extent that such consent
relates to the rights of such holder under Section 9 hereof, unless the holders
of at least a majority of the Registrable Shares then outstanding have so
consented or agreed in writing to be so bound. No breach of any covenant,
agreement, warranty or representation shall be deemed waived unless expressly
waived in writing by the party who might assert such breach.
11.07 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and
<PAGE>
all of which together shall constitute one and the same instrument.
11.08 Headings. The headings and the table of contents of this Agreement
--------
are for reference purposes only and shall not be deemed to have any substantive
effect.
11.09 Expenses. Whether or not the transactions contemplated by this
--------
Agreement are consummated, the Company shall pay the reasonable expenses and
legal fees of Hale and Dorr, counsel to the Preferred Shareholders, in
connection with the negotiation and drafting of this Agreement and the
transactions contemplated hereby.
11.10 Confidential Information. Each of the Preferred Shareholders agrees
------------------------
that it will treat all proprietary information received by it at any time
concerning the Company or its present or proposed business as confidential
information and that it will not, directly or indirectly, disclose such
information to any third party.
11.11 Knowledge and Absence of Personal Liability of Certain Persons. In
--------------------------------------------------------------
any provision of this Agreement or any certificate or other instrument delivered
pursuant hereto in which a fact or matter is stated to be to the best of the
party's knowledge or that the party has no reason to believe the existence or
nonexistence of a fact or matter, such statements shall be deemed to be limited
to the actual knowledge and state of mind of the officer or employee executing
and/or initialing and delivering such agreement or instrument on behalf of such
party. Each officer or individual who executes and/or initials and delivers
this Agreement or any certificate or other instrument pursuant hereto on behalf
of any party hereto, shall be deemed to be acting in a representative capacity,
and no such individual shall have any personal liability hereunder as a result
of so acting in the absence of fraud or gross negligence on the part of such
officer or individual.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
VIVID TECHNOLOGIES, INC.
By:_________________________
S. David Ellenbogen,
President
For the purposes of Article 3 hereof only, each of the undersigned Founders
has executed this Agreement as of the date first written above.
_____________________________
S. David Ellenbogen
_____________________________
<PAGE>
Jay A. Stein
<PAGE>
THE INVESTORS AND THE ALTA III Limited Partnership
1989 INVESTORS By: Alta III Management
Partners Limited
Partnership
By:____________________________
General Partner
GALLION PARTNERS II
By: Golden Coins, N.V.,
Investment General Partner
By: ABN Trustcompany (Curacao) N.V., Managing
Director
By:____________________________
Attorney-in-Fact
ALTA JAMI C.V.
By: Golden Coins N.V., Managing General
Partner
By: ABN Trustcompany (Curacao) N.V., Managing
Director
By:____________________________
Under Power of Attorney
C.V. SOFINNOVA PARTNERS FOUR
By: Sofinnova (International)
Four N.V., General Partner
By:____________________________
Under Power of Attorney
PIONEER VENTURES LIMITED
PARTNERSHIP
By:____________________________
CLAFLIN CAPITAL IV
By:____________________________
CLAFLIN CAPITAL V
<PAGE>
BY:_____________________________
BETA PARTNERS LIMITED PARTNERSHIP
BY: Beta Management Limited
Partnership, General
Partner
By:_____________________________
General Partner
MASSACHUSETTS CAPITAL RESOURCE
COMPANY
By:_____________________________
Richard W. Anderson,
Senior Vice President
LPP PARTNERSHIP
By:_____________________________
Christopher W. Lynch, Partner
<PAGE>
EXHIBIT A
---------
INVESTORS
---------
<TABLE>
<CAPTION>
Number of No. of
Series C Aggregate Series D Aggregate
Shares Considera- Shares Considera-
Name and Address Purchased tion Purchased tion
- ---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Alta III 51,030 $510,300 37,800 $56,700
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Gallion Partners II 8,100 $ 81,000 6,000 $ 9,000
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Alta Jami C.V. 8,910 $ 89,100 6,600 $ 9,900
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
C.V. Sofinnova 12,960 $ 129,600 9,600 $ 14,400
Partners Four
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Pioneer Ventures 25,650 $256,500 19,000 $28,500
Limited Partnership
60 State Street
Boston, MA 02109
Attn: Christopher Lynch
Claflin Capital IV 9,000 $ 90,000 6,666 $ 9,999
77 Franklin Street
Boston, MA 02110
Attn: Thomas J. Claflin
Claflin Capital V 9,000 $ 90,000 6,667 $10,001
77 Franklin Street
Boston, MA 02110
Attn: Thomas J. Claflin
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Beta Partners Limited 27,000 $270,000 20,000 $30,000
Partnership
c/o Beta Partners, Inc.
One Post Office Square
Boston, MA 02109
Attn: Frank Kenny
Massachusetts Capital
Resource Company 27,000 $270,000 20,000 $30,000
420 Boylston Street
Boston, MA 02116
Attn: Richard W. Anderson
LPP Partnership 1,350 $ 13,500 1,000 $ 1,500
c/o Pioneer Capital
Corporation
60 State Street
Boston, MA 02109
======= ======== =======
180,000 $1,800,000 133,333 $200,000
</TABLE>
<PAGE>
EXHIBIT A-1
-----------
INVESTORS
---------
<TABLE>
<CAPTION>
Number of No. of
Series C Aggregate Series D Aggregate
Shares Considera- Shares Considera-
Name and Address Purchased tion Purchased tion
- ---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Alta III 9,006 $90,060 6,670 $10,005
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Gallion Partners II 1,429 $14,290 1,060 $ 1,590
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Alta Jami C.V. 1,572 $15,720 1,164 $ 1,746
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
C.V. Sofinnova 2,287 $22,870 1,694 $ 2,541
Partners Four
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Pioneer Ventures 4,527 $45,270 3,354 $ 5,031
Limited Partnership
60 State Street
Boston, MA 02109
Attn: Christopher Lynch
Claflin Capital IV 1,588 $15,880 1,176 $ 1,764
77 Franklin Street
Boston, MA 02110
Attn: Thomas J. Claflin
Claflin Capital V 1,588 $15,880 1,176 $ 1,764
77 Franklin Street
Boston, MA 02110
Attn: Thomas J. Claflin
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Beta Partners Limited 4,765 $47,650 3,530 $ 5,295
Partnership
c/o Beta Partners, Inc.
One Post Office Square
Boston, MA 02109
Attn: Frank Kenny
LPP Partnership 238 $ 2,380 176 $ 264
c/o Pioneer Capital
Corporation
60 State Street
Boston, MA 02109
====== ======= ======
27,000 $ 270,000 20,000 $ 30,000
</TABLE>
<PAGE>
EXHIBIT A-2
-----------
INVESTORS
---------
<TABLE>
<CAPTION>
Number of No. of
Series C Aggregate Series D Aggregate
Shares Considera- Shares Considera-
Name and Address Purchased tion Purchased tion
- ---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Alta III 60,036 $600,360 44,470 $66,705
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Gallion Partners II 9,529 $ 95,290 7,060 $10,590
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Alta Jami C.V. 10,482 $104,820 7,764 $11,646
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
C.V. Sofinnova 15,247 $152,470 11,294 $16,941
Partners Four
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Pioneer Ventures 30,177 $301,770 22,354 $33,531
Limited Partnership
60 State Street
Boston, MA 02109
Attn: Christopher Lynch
Claflin Capital IV 10,588 $105,880 7,842 $11,763
77 Franklin Street
Boston, MA 02110
Attn: Thomas J. Claflin
Claflin Capital V 10,588 $105,880 7,843 $11,765
77 Franklin Street
Boston, MA 02110
Attn: Thomas J. Claflin
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Beta Partners Limited 31,765 $317,650 23,530 $35,295
Partnership
c/o Beta Partners, Inc.
One Post Office Square
Boston, MA 02109
Attn: Frank Kenny
LPP Partnership 1,588 $ 15,880 1,176 $ 1,764
c/o Pioneer Capital
Corporation
60 State Street
Boston, MA 02109
======= ========= =======
180,000 $1,800,000 133,333 $200,000
</TABLE>
<PAGE>
EXHIBIT 10.13
CONVERSION AGREEMENT
--------------------
AGREEMENT entered into as of the 2nd day of February, 1994, by and among
Vivid Technologies, Inc., a Massachusetts corporation (the "Company"), and the
purchasers listed on Exhibit A hereto (collectively, the "Investors").
---------
WHEREAS, pursuant to a Convertible Subordinated Demand Note and Warrant
Purchase Agreement dated as of March 18, 1992, as amended by the First Amendment
to Convertible Subordinated Demand Note and Warrant Purchase Agreement dated as
of May 12, 1992 and the Second Amendment to Convertible Subordinated Demand Note
and Warrant Purchase Agreement dated as of July 8, 1992 (the "Purchase
Agreement"), the Company has issued to the Investors convertible notes (the
"Convertible Notes") and warrants (the "Original Warrants") to purchase shares
of Company Series D Common Stock, $.01 par value (the "Common Stock");
WHEREAS, the number of shares of Common Stock subject to purchase under the
Original Warrants was subject to increase each month that the Convertible Notes
remained outstanding as set forth in the Purchase Agreement;
WHEREAS, the Company and the Investors desire that the Convertible Notes
cease to accrue additional interest as of July 13, 1993 and be converted in
Series C Preferred Stock, $.01 par value (the "Series C Preferred Stock"), and
Series D Preferred Stock, $.01 par value (the "Series D Preferred Stock"), as
set forth herein.
WHEREAS, the Company and the Investors further desire that the Original
Warrants cease to accrue additional shares as of July 15, 1993 and be restated
as set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. Conversion of Convertible Notes.
-------------------------------
(a) Outstanding Balance of Convertible Notes. The parties agree that
----------------------------------------
the aggregate outstanding balance of the Convertible Notes, including all
interest accrued thereon as of July 13, 1993, was $1,818,773, consisting of the
aggregate initial principal amount of $1,700,000 and accrued and unpaid interest
of $118,773, allocated among the Investors as set forth on Exhibit A. The
---------
parties further agree that interest shall have ceased to have accrued on the
Convertible Notes as of July 13, 1993.
<PAGE>
(b) Conversion. The parties agree that the Convertible Notes,
----------
including with all interest accrued thereon as of July 13, 1993, shall be
converted into (i) an aggregate of 163,690 shares of Series C Preferred Stock
(the "Series C Shares") at a purchase price of approximately $10.00 per share
(an aggregate of approximately $1,636,900) and (ii) an aggregate of 121,252
shares of Series D Preferred Stock (the "Series D Shares"; collectively with the
Series C Shares, the "Shares") at a purchase price of approximately $1.50 per
share (an aggregate of approximately $181,878), such that each Investor will
receive the number of Series C Preferred Shares and Series D Preferred Shares as
set forth opposite such Investor's name on Exhibit A.
---------
2. Restatement of Warrants.
-----------------------
(a) Warrant Accruals. The parties agree that the aggregate number of
----------------
shares of Common Stock subject to purchase under the Original Warrants, as
adjusted as of July 15, 1993, was 361,000 shares, allocated among the Investors
as set forth on Exhibit A. The parties further agree that the Original
---------
Warrants shall have ceased to have accrued additional shares from and after July
15, 1993.
(b) Restatement of Warrants. The parties agree that in order to
-----------------------
simplify the Company's capital structure, the outstanding warrants held by each
Investor shall be combined into one Warrant Agreement for that Investor in the
form set forth as Exhibit B (the "Replacement Warrants") covering that number of
---------
shares of Common Stock set forth opposite such Investors name as set forth on
Exhibit A.
- ---------
3. Closing. The Closing of the purchase and sale of the Notes
-------
contemplated by this Agreement (herein the "Closing") shall take place at the
offices of Brown, Rudnick, Freed & Gesmer, One Financial Place, Boston,
Massachusetts 02111, simultaneously with the execution and delivery of this
Agreement, or at such other time and place as shall be mutually agreed by the
Investors and the Company. At the Closing, the Company shall deliver to each
Investor certificates representing the Series C Shares and the Series D Shares,
and the Replacement Warrant to be issued to such Investor as set forth in
Sections 1 and 2 above, against delivery by the Investor to the Company for
cancellation of the Convertible Notes and the Original Warrants.
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Investor as follows:
-2-
<PAGE>
(a) Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts.
(b) Capitalization. As of the date hereof, after giving effect to the
--------------
transactions to be effected hereby, the authorized capital stock of the Company
consists of 7,500,000 shares of Common Stock of which 1,545,750 shares are
issued and outstanding, and 1,082,650 shares of Preferred Stock, $.01 par value,
of which 234,375 shares are designated Series A Preferred Stock (the "Series A
Preferred Stock") all of which are issued and outstanding, 250,000 shares are
designated Series B Preferred Stock (the "Series B Preferred Stock") all of
which are issued and outstanding, 343,690 shares are designated Series C
Preferred Stock all of which are issued and outstanding, and 254,585 shares are
designated Series D Preferred Stock, all of which are issued and outstanding.
All of such issued and outstanding shares are validly issued, fully paid and
nonassessable. The Company has duly authorized and reserved for issuance (a)
1,212,520 shares of Common Stock for issuance upon conversion of the Series D
Shares and (b) 361,000 shares of Common Stock for issuance for issuance upon
exercise of the Replacement Warrants. The shares of Common Stock so reserved,
upon conversion or exercise, as the case may be, will be validly issued and
outstanding, fully paid and nonassessable.
(c) Authorization of Transaction. The execution, delivery and
----------------------------
performance of this Agreement, and the Replacement Warrants have been duly
authorized by all necessary corporate or other action of the Company and they
are the valid and binding obligations of the Company, enforceable in accordance
with their terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and general principals of equity.
(d) Approvals; Compliance With Laws. The Company is not in violation
-------------------------------
of its Articles of Organization or by-laws. The execution, delivery and
performance of this Agreement, the Replacement Warrants and the transactions
contemplated hereby and thereby (i) do not require any approval or consent of,
or filing with, any governmental agency or authority in the United States of
America or otherwise which has not been obtained and which is not in full force
and effect as of the date hereof, (ii) will not conflict with or constitute a
breach or violation of the respective Articles of Organization or by-laws of the
Company, or of any agreement, instrument, judgement, decree, order, statute,
rule or governmental regulation applicable to the Company, or result in the
creation of any mortgage, lien, charge or encumbrance upon any of the properties
or assets of the Company pursuant to any such term.
-3-
<PAGE>
(e) Finders. No person is entitled, directly or indirectly, to
-------
compensation from the Company by reason of any contract or understanding or
contact with the Company, as a finder or broker in connection with the
transactions contemplated by this Agreement.
5. Representations and Warranties of Investors. Each Investor hereby
-------------------------------------------
represents, individually and not jointly, to the Company, as follows:
(a) Investment Intent. Each Investor is purchasing or acquiring the
-----------------
Shares and the Replacement Warrant to be acquired by it hereunder for its own
account for investment and not with a present view to, or for sale in connection
with, any distribution thereof in violation of the Act. Each Investor hereby
consents to the imposition of a legend substantially similar to the following on
each certificate for Shares and on the Replacement Warrant, and each share of
Common Stock issued upon conversion of the Series D Preferred Shares or the
exercise of the Replacement Warrant, and each Investor agrees to abide by the
restrictions contained therein:
[This Warrant] [The shares represented by this certificate
have] not been registered under the Securities Act of 1933, as
amended (the "Act") and may not be sold, transferred or
assigned unless registered under the Act or an opinion of
counsel, satisfactory to the corporation, is obtained to the
effect that such sale, transfer or assignment is exempt from
the registration requirements of the Act.
Nothing herein shall restrict the transfer of the Shares, the Replacement
Warrant, or the shares of Common Stock issuable upon the conversion or exercise
thereof, or any portion thereof by an Investor to any partner of the Investor,
any partnership affiliated with the Investor, or to any partner of such
affiliated partnership, provided such transfer may be made in compliance with
applicable federal and state securities laws.
(b) Authorization. Each Investor has the power and authority to enter
-------------
into this Agreement and to perform all of its obligations hereunder, and no
consent, approval, authorization or order of any court or governmental agency or
board is required to consummate the same.
(c) Restricted Securities. Each Investor understands that neither the
---------------------
Shares nor the Replacement Warrants, nor the shares of Common Stock issued upon
conversion or exercise thereof
-4-
<PAGE>
have been registered under the Act by reason of a specific exemption from the
registration provision of the Act which depends upon, among other things, the
bona fide nature of Investor's investment intent as expressed herein. Each
Investor acknowledges that the Shares, the Replacement Warrants and the shares
of Common Stock received upon conversion or exercise, when received, must be
held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. Each Investor has been advised of
or is aware of the provisions of Rule 144 promulgated under the Act, which rule
permits limited resale of securities purchased in a private placement subject to
the satisfaction of certain conditions contained therein.
(d) Access to Information. Each Investor has had an opportunity to ask
---------------------
questions of and receive answers from the Company or its officers and directors,
or any person or persons acting on its behalf, concerning the terms and
conditions of this investment and to obtain any additional information, to the
extent that the Company possesses such information or could acquire it without
unreasonable efforts or expense, necessary to verify the accuracy of the
information otherwise obtained by or furnished to the Investor in connection
with the offering of the Shares and the Replacement Warrants.
(e) Finders. No person is entitled, directly or indirectly, to
-------
compensation from any Investor by reason of any contract or understanding or
contact with such Investor, as a finder or broker in connection with the
transactions contemplated by this Agreement.
6. Coordination with Preferred Stock Purchase Agreement.
----------------------------------------------------
(a) Definition of Preferred Stock Purchase Agreement. For purposes of
------------------------------------------------
this Agreement, the term Preferred Stock Purchase Agreement shall mean the
Company's Series C and Series D Preferred Stock Purchase Agreement dated January
25, 1991 (the "1991 Agreement").
(b) Pre-Emptive Rights. The Company hereby grants to the Investors the
------------------
right to maintain its percentage ownership interest in the Company to the same
extent and in the same manner afforded to the Preferred Shareholders (as defined
in the 1991 Agreement) pursuant to Article 8 of the 1991 Agreement. For the
purposes said Article 8, each Investor's and Preferred Shareholders percentage
interest shall be determined immediately following the Closing hereunder.
(c) Registration Rights. The Company hereby grants to the Investors
-------------------
the Registration Rights set forth in Article 9 of
-5-
<PAGE>
the 1991 Agreement. In connection therewith, the shares of Common Stock to be
issued upon conversion of the Series D Shares and the exercise of the
Replacement Warrants shall be deemed to be "Registrable Shares" for all purposes
of the 1991 Agreement. Whenever reference is made in the 1991 Agreement to a
request or consent in writing from the holders of a certain percentage of the
Registrable Shares, such reference shall include shares of Common Stock issuable
upon conversion or exercise of the Series D Shares and the Replacement Warrants,
as the case may be, even though such conversion or exercise has not then been
effected.
(d) 1991 Investor Consents and Agreements. Each Investor, in its
-------------------------------------
capacity as "Investors" under the 1991 Agreement (the "1991 Investors") hereby
(i) consents to the granting of the pre-emptive and registration rights pursuant
to Sections 6(b) and 6(c) hereof, respectively, (ii) agrees that any and all
preemptive rights that each Investor has or may have pursuant to Section 8 of
the 1991 Agreement are hereby waived with respect to the issuance of the Shares,
the Replacement Warrants and the shares of Common Stock issuable upon the
conversion or exercise thereof, and (iii) agrees that for purposes of the
Amended Shareholders Agreement dated January 25, 1991 with two holders of Common
Stock of the Company, namely S. David Ellenbogen and Jay A. Stein, as further
amended by such stockholders as an addendum to that certain Waiver and Consent
dated January 31, 1992 (the "Amended Shareholders Agreement"), that the
Investor's pro rata share of the Company's capital stock shall be deemed to
include (A) the number of shares of Common Stock for which the Replacement
Warrants are exercisable and (B) the number of shares of Common Stock for which
shares of the Series D Preferred Stock issuable, all as of the date of any
transaction to which the provisions of the Amended Shareholders Agreement are
applicable.
(e) Small Business Investment Corporation. If any Investor is a Small
-------------------------------------
Business Investment Corporation ("SBIC"), the Replacement Warrant issued to such
Investor shall be modified to provide that the expiration date of the Warrant
will in no event be later than six years after the date hereof. The Company
shall also execute such other documents as may be reasonably requested by such
an Investor to comply with the rules and regulations regarding SBIC investments,
provided that such documents do not materially alter the transactions
contemplated herein to the detriment of the Company.
7. Miscellaneous.
-------------
(a) Termination of Purchase Agreement. The parties hereby agree that the
---------------------------------
Purchase Agreement is terminated and of no further force and effect; provided,
---------
however, that the representations and
- -------
-6-
<PAGE>
warranties set forth in the Purchase Agreement shall survive such termination.
(b) Survival of Representations and Covenants. All representations,
-----------------------------------------
warranties, covenants, agreements and obligations made herein or in any
schedule, exhibit, notice, certificate or other document executed in connection
herewith or delivered by any party to another party incident hereto shall be
deemed to have been relied upon by the other party hereto and survive the
execution and/or delivery thereof, and all statements contained in any such
schedules, exhibit, notice, certificate or other document delivered by the
Company hereunder or in connection herewith shall be deemed to constitute
representations and warranties made by the Company herein.
(c) Notices. All notices, requests, demands and other communications
-------
called for or contemplated hereunder shall be in writing and shall be deemed
duly given when deposited in the U.S. mail, certified mail, or registered mail,
postage prepaid, with return receipt requested, when mailed by nationally
recognized commercial courier such as Federal Express, or when transmitted by
wire or telex, addressed to the parties at the following addresses, or at such
other addresses as the parties may designate by written notice in the manner
aforesaid:
If to Investors: At the addresses listed on
Exhibit A hereto.
---------
If to the Company: Vivid Technologies, Inc.
590 Lincoln Street
Waltham, Massachusetts 02154
Attention: President
(d) Assignment. This Agreement shall be binding upon and shall inure
----------
to the benefit of the Company and the Investors and their respective successors
and assigns.
(e) Succession to Rights. The rights and powers of each Investor
--------------------
hereunder are granted to such Investor as an owner of the Shares, the
Replacement Warrants and the shares of Common Stock issued upon the conversion
or exercise thereof (the "Securities"). Consequently, the parties agree that,
except as limited by Section 6.05 of the 1991 Agreement, such rights and powers
exist separately and distinctly with respect to each share of the Securities and
as to each such share shall pass with it so that any owner of any shares of the
Securities whether becoming such by transfer, assignment, operation of law or
otherwise, shall have all of the rights and powers of such Investor hereunder,
and shall be entitled to exercise them in full, with or without the agreement or
consent of other such owners, and no
-7-
<PAGE>
transfer or assignment shall divest such Investor or any subsequent owner of
such rights and powers unless all shares of the Securities owned by such persons
are transferred or assigned.
(f) Confidential Information. Each of the Investors agrees that it
------------------------
will treat all proprietary information received by it at any time concerning the
Company or its present or proposed business as confidential information and that
it will not, directly or indirectly, disclose such information to any third
party.
(g) Entire Agreement. This Agreement (including all exhibits or
----------------
schedules appended to this Agreement and all documents delivered pursuant to or
referred to in this Agreement, all of which are hereby incorporated herein by
reference) constitutes the entire agreement between the parties, and all
promises, representations, understandings, warranties and agreements with
reference to the subject matter hereof and inducements to the making of this
Agreement relied upon by any party hereto, have been expressed herein or in the
documents incorporated herein by reference.
(h) Amendments and Waiver. Changes in or additions to this Agreement
---------------------
may be made or compliance with any term, covenant, agreement, condition or
provision set forth herein or therein may be omitted or waived (either generally
or in a particular instance and either retroactively or prospectively), upon
written consent of the Company and the Investors holding at least seventy
percent (70%) of the Series C Preferred Shares (including shares of Common Stock
into which such Shares have been converted). No breach of any covenant,
agreement, warranty or representation shall be deemed waived unless expressly
waived in writing by the party who might asset such breach. The provisions of
the 1991 Agreement shall control the amendment or waiver of any provisions of
that Agreement, including without limitation, Articles 8 and 9 thereof.
(i) Governing Law; Severability. This Agreement shall be deemed a
---------------------------
contract made under the laws of the Commonwealth of Massachusetts and, together
with the rights and obligations of the parties hereunder, shall be construed
under and governed by the laws of such Commonwealth. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision hereof.
(j) Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed in original but all of which
together shall constitute one and the same instrument.
-8-
<PAGE>
(k) Effect of Table of Contents and Headings. Any table of contents,
----------------------------------------
title of an article or section heading herein contained is for convenience or
reference only and shall not affect the meaning of construction of any of the
provisions hereof.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by
the parties hereto or their duly authorized representatives effective as of the
date first above written.
VIVID TECHNOLOGIES, INC.
By:_________________________
S. David Ellenbogen,
President
THE INVESTORS AND THE ALTA III Limited Partnership
1991 INVESTORS By: Alta III Management
Partners Limited
Partnership
By:____________________________
General Partner
GALLION PARTNERS II
By: Golden Coins, N.V.,
Investment General Partner
By: ABN Trustcompany (Curacao)
N.V., Managing Director
By:____________________________
Attorney-in-Fact
ALTA JAMI C.V.
By: Golden Coins N.V., Managing General
Partner
By: ABN Trustcompany (Curacao)
N.V., Managing Director
By:____________________________
Under Power of Attorney
-9-
<PAGE>
C.V. SOFINNOVA PARTNERS FOUR
By: Sofinnova (International)
Four N.V., General Partner
By:____________________________
Under Power of Attorney
PIONEER VENTURES LIMITED
PARTNERSHIP
By:____________________________
CLAFLIN CAPITAL IV
By:____________________________
CLAFLIN CAPITAL V
BY:_____________________________
BETA PARTNERS LIMITED PARTNERSHIP
BY: Beta Management Partners
general partner
By:_____________________________
General Partner
MASSACHUSETTS CAPITAL RESOURCE
COMPANY
By:_____________________________
Richard W. Anderson,
Senior Vice President
GENEVA PARTNERSHIP
By:_____________________________
-10-
<PAGE>
Christopher W. Lynch, Partner
-11-
<PAGE>
EXHIBIT A
---------
INVESTORS
---------
<TABLE>
<CAPTION>
Convertible Number of Number of Number of
Note Shares of Shares of Shares of
Principal Series C Series D Common Stock
and Interest Preferred Preferred Subject to
Name and Address Outstanding Stock Stock Warrants
- ---------------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Alta III $536,538 48,424 35,870 106,794
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Gallion Partners II $ 83,664 7,686 5,694 16,952
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Alta Jami C.V. $ 92,757 8,455 6,263 18,646
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
C.V. Sofinnova $138,227 12,298 9,110 27,122
Partners Four
c/o Burr, Egan,
Deleage & Co., Inc.
One Post Office Square
Boston, MA 02109
Attn: William P. Egan
Pioneer Ventures $269,178 24,340 18,030 53,680
Limited Partnership
60 State Street
Boston, MA 02109
Attn: Christopher Lynch
Claflin Capital IV $80,026 7,117 5,272 15,695
77 Franklin Street
Boston, MA 02110
</TABLE>
-12-
<PAGE>
Attn: Thomas J. Claflin
<PAGE>
<TABLE>
<CAPTION>
Convertible Number of Number of Number of
Note Shares of Shares of Shares of
Principal Series C Series D Common Stock
and Interest Preferred Preferred Subject to
Name and Address Outstanding Stock Stock Warrants
- ---------------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Claflin Capital V $32,738 2,847 2,109 6,278
77 Franklin Street
Boston, MA 02110
Attn: Thomas J. Claflin
Beta Partners Limited $285,547 25,621 18,978 56,504
Partnership
c/o Beta Partners, Inc.
One Post Office Square
Boston, MA 02109
Attn: Frank Kenny
Massachusetts Capital $285,547 25,621 18,978 56,504
Resource Company
420 Boylston Street
Boston, MA 02116
Attn: Richard W. Anderson
Geneva Partnership $14,550 1,282 949 2,827
c/o Pioneer Capital
Corporation
60 State Street
Boston, MA 02109 ------------ --------- --------- ------------
$1,818,773 163,690 121,252 361,000
============ ========= ========= ============
</TABLE>
<PAGE>
EXHIBIT 10.14
AMENDED SHAREHOLDER AGREEMENT
-----------------------------
In consideration of transactions previously entered into by VIVID
TECHNOLOGIES, a Massachusetts corporation ("the Company"), with certain
purchasers of 250,000 shares of the Company's Series B Preferred Stock, $.01 par
value (the "Series B Preferred") under a Series A and Series B Preferred Stock
Purchase Agreement, dated June 22, 1989, and in consideration of transactions to
be entered into by the Company with certain purchasers of 133,333 shares of the
Company's Series D Preferred Stock, par value $.01 per share, (the "Series D
Preferred") under the Series C and Series D Preferred Stock Purchase Agreement
dated January 25, 1991 (the Series B Preferred and Series D Preferred are
sometimes collectively referred to as the "Shares"), it is agreed with the
Series B Preferred purchasers and the Series D Preferred purchasers by the
undersigned holders of Common Stock, $.01 par value ("Common Stock") of the
Company, namely, S. David Ellenbogen and Jay A. Stein, as follows:
1. The undersigned will vote all shares of Common Stock held or
controlled by them (pursuant to voting trust or otherwise) presently or in the
future, and will otherwise use their best efforts: (a) to maintain the number
of directors of the Company at no more than seven (7); and (b) to elect and
maintain in office as a director or directors of the Company two persons (if the
number of authorized directors does not exceed five (5)) and three persons (if
the number of authorized directors exceeds five (5)) designated in writing by
the holders of at least 51% of the Shares and the shares of Common Stock into
which the Shares are convertible or have been converted ("Conversion Shares").
2. Neither of the undersigned shall sell, assign, or transfer, in one or
more transactions, in excess of 10% of the shares of Common Stock now or
hereafter held by him, other than as provided in paragraph 3, until the holders
of outstanding Shares and Conversion Shares have been notified of the proposed
transaction and have been given the opportunity, on a pro rata basis,
exercisable within 30 days after the date of such notice, at each such holder's
option (a) to sell to the proposed transferee upon the same terms and conditions
offered to the undersigned, that percentage of the total amount of Shares and
Conversion Shares that is equivalent to the percentage of the total amount of
Common Stock held by the undersigned which is proposed to be transferred, or (b)
to purchase such shares of Common Stock.
3. Notwithstanding the foregoing, the provisions of paragraph 2 shall be
inapplicable to a sale, assignment or transfer of Common Stock or of options to
purchase or securities convertible into Common Stock (i) by way of bequest or
inheritance
<PAGE>
upon death, (ii) to the spouse, issue or trusts for the benefit of the
undersigned, their spouses or issue, or (iii) pursuant to a public offering
registered under the Securities Act of 1933, or (iv) to the Company pursuant to
the restrictions on transfer of stock contained in agreements between certain of
the undersigned and the Company providing for repurchase of their Common Stock
by the Company upon certain events; provided that in the case of transactions
described in clauses (i) and (ii) above, any transferee of the undersigned shall
agree to be bound by this Agreement and shall so signify in writing.
4. The undersigned agree that no sale, assignment, or transfer of Common
Stock or securities convertible into, exchangeable for or carrying the right to
purchase, Common Stock may be made by them unless the proposed transferee has
agreed to purchase Shares and Conversion Shares from the holders thereof to the
extent required by the preceding paragraphs, and that, if any transfer of Common
Stock or securities convertible into, exchangeable for or carrying the right to
purchase, Common Stock is made by the undersigned or such transferee contrary to
the provisions of this Agreement, the holders of Shares and Conversion Shares
may enforce their rights hereunder by actions for specific performance to the
extent permitted by law, in addition to any other legal or equitable remedies
which they may have.
5. All certificates evidencing Common Stock or securities convertible
into or exchangeable for, or carrying the right to purchase, Common Stock
subject to this Agreement shall bear on their face, during the term of this
Agreement, a legend substantially as follows:
"The securities represented hereby are subject to the provisions of an
Amended Shareholder Agreement dated January 25, 1991 between the Company,
certain holders of its then outstanding Common Stock and certain purchasers
of Series B Preferred Stock and Series D Preferred Stock of the Company, as
amended from time to time, with respect to voting rights and transfers, and
no transfer hereof may be made except in accordance with the provision of
said agreement."
6. Any provision of this Agreement may be waived or modified by an
instrument in writing signed by the holders of at least 51% of the Shares and
the Conversion Shares and the holders of at least 51% of the Common Stock now or
hereafter held by the undersigned.
7. The term of this Agreement shall be from the date hereof until the
closing of a public offering of the Company's Common Stock resulting in gross
proceeds to the Company of not less than $5,000,000.
8. This Agreement shall be construed under and governed by Massachusetts
law and shall be binding upon the heirs, personal
-2-
<PAGE>
representatives, successors and assigns of the parties. A copy thereof shall be
promptly given to the Company. Notices hereunder shall be deemed to have been
duly given if mailed by registered or certified mail to the holders of Shares
and Conversion Shares at their addresses set forth in the stock records of the
Company and to the undersigned at their addresses specified below, or such other
addresses as the parties may subsequently notify each other of in this manner.
9. This Agreement constitutes the entire Agreement between the parties
and amends and supersedes all prior agreements between the parties as to the
subject matter herein.
IN WITNESS WHEREOF, this Agreement has been executed under seal by the
undersigned or their duly authorized representatives as of January 25, 1991.
______________________________
S. David Ellenbogen
9 Pauline Drive
Natick, MA 01760
_____________________________
Jay A. Stein
15 Carter Drive
Framingham, MA 01701
-3-
<PAGE>
EXHIBIT 10.15
MANAGEMENT SERVICES AGREEMENT
-----------------------------
AGREEMENT dated as of the 22nd day of June, 1989 by and between HOLOGIC,
INC. ("Hologic") and VIVITECH, INC. ("Vivitech"), both corporations organized
under the laws of the Commonwealth of Massachusetts and both having principal
offices at 300 Bear Hill Road, Waltham, Massachusetts 02154.
W I T N E S S E T H:
-------------------
WHEREAS, Vivitech was formed to develop a baggage inspection and security
system utilizing, in part, certain patents and technology of Hologic, and has
entered into a License and Technology Agreement with Hologic pursuant to which
it has agreed to pay royalties to Hologic based upon sales of this product; and
WHEREAS, Vivitech is in its development stage, and desires to obtain from
Hologic certain management services and advice from members of Hologic
management, certain administrative services from Hologic's administrative staff
and the use of certain office, manufacturing and support facilities of Hologic;
and
WHEREAS, Hologic is desirous of providing such assistance to Vivitech under
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties hereto agree as follows:
1. Engagement. Vivitech does hereby retain the services of Hologic to
----------
provide management, administrative and support facilities and services, and
Hologic does hereby agree to provide such services, all upon the terms and
conditions hereinafter set forth.
2. Term. The initial term of this Agreement shall be for a period of one
----
year, and shall continue thereafter unless terminated by either party on six
months' notice.
3. Duties. Hologic agrees to use its best efforts to provide management,
------
administrative and support facilities and services necessary in the day-to-day
operations of Vivitech. Such duties shall include the following:
(a) Providing, at Hologic's existing offices at 300 Bear Hill Road,
Waltham, Massachusetts, or at such other location as Hologic and Vivitech
may agree, sufficient office space and research and development space for
Vivitech to carry on its business activities;
(b) Providing and maintaining office furnishings and equipment,
telephone, telecopy and other communications devices, computer services and
all related materials and supplies, and arranging secretarial and
administrative sup-
<PAGE>
port services necessary for the business operations of Vivitech, as Hologic
and Vivitech may agree.
(c) Providing and maintaining financial support services as Hologic and
Vivitech may agree to permit Vivitech to keep proper books, journals and
files, including billing and collection records, correspondence, receipted
bills and vouchers, processing all payroll and maintaining all other
documents and papers pertaining to Vivitech or its operations.
(d) To provide Vivitech with the part-time management services of S.
David Ellenbogen, Jay A. Stein and such other management employees of
Hologic as Vivitech may reasonably request for the purpose of conducting
its business.
(e) To provide such other management, administrative and support
services and facilities as Vivitech may reasonably request.
4. Charges. As compensation for the services performed by Hologic
-------
hereunder, Vivitech shall pay Hologic the amount of all direct costs and charges
incurred by Hologic in rendering its services hereunder and, in addition, shall
pay that portion of Hologic's overhead cost, including the salary of employees
of Hologic rendering services to Vivitech hereunder, representing the pro rata
portion of such costs attributable to Vivitech. The amount of such charges
shall be determined by the management of Hologic exercising its good faith
judgment. In the event of any dispute regarding the allocation of overheard
charges or costs, such charges and costs shall be determined by Hologic's
independent certified public accountants, whose determination shall be binding
and conclusive on all parties. All charges will be billed by Hologic to
Vivitech monthly, and shall be paid by Vivitech within 15 days following receipt
of billing.
5. Potential Conflicts. Hologic shall use its best efforts to provide
-------------------
all services reasonably requested by Vivitech hereunder. However, Vivitech
recognizes and acknowledges that Hologic shall not be required to unreasonably
divert personnel or resources away from Hologic's existing business, and that
the services to be provided hereunder by Hologic shall be provided at such time
and by such personnel as Hologic shall deem appropriate.
6. Independent Contractor. The parties acknowledge that employees of
----------------------
Hologic are not, and shall not be deemed to be employees of Vivitech (unless
specifically designated as such), but are, at all times, employees of Hologic
and that Hologic's services hereunder are those of an independent contractor.
7. Assignment. Hologic may enter into subcontracts for the performance
----------
of its duties hereunder with qualified persons, but this Agreement shall
otherwise not be assignable by Hologic. This Agreement and all of the
provisions hereof shall be binding
-2-
<PAGE>
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except as otherwise provided herein.
8. Waiver. A waiver of any provision of this Agreement by any part
------
hereto will not be construed as a continuing waiver of such provision or a
waiver of any other provision.
9. Notices. All notices, demands and requests required or permitted to
-------
be given under the provisions of this Agreement shall be in writing and shall be
deemed to have been duly given when mailed, if mailed by certified mail, return
receipt requested, postage prepaid, or when delivered, if delivered personally,
to the following addresses:
(a) If to Hologic:
Hologic, Inc.
300 Bear Hill Road
Waltham, MA 02154
(b) If to Vivitech:
Vivitech, Inc.
300 Bear Hill Road
Waltham, MA 02154
or to such other address as either of the parties may furnish to the other from
time to time by notice pursuant to this Section.
10. Headings. All headings of the sections of this Agreement are for
--------
convenience of reference only and do not form a part hereof and in no way
modify, interpret or construe the intention of the parties.
11. Entire Agreement. This Agreement contains all of the terms agreed
----------------
upon by the parties with respect to the subject matter hereof. This Agreement
may not be amended or modified nor may any or these provisions be waived, except
by an instrument in writing signed by each party to be bound by such amendment,
or except as otherwise herein expressly provided.
12. Applicable Law. This Agreement and all disputes arising hereunder
--------------
shall be construed and interpreted pursuant to the laws of the Commonwealth of
Massachusetts.
EXECUTED as an instrument under seal as of the day and year first above
written.
HOLOGIC, INC.
By:_____________________________
VIVITECH, INC.
-3-
<PAGE>
By:_____________________________
-4-
<PAGE>
Exhibit 10.16
LICENSE AND TECHNOLOGY AGREEMENT
--------------------------------
THIS LICENSE AGREEMENT is entered into as of the 22nd day of June, 1989 by
and between:
Hologic, Inc., a corporation organized under the laws of the Commonwealth
of Massachusetts and having a usual place of business at 300 Bear Hill Road,
Waltham, Massachusetts 02154 ("Hologic") and
Vivitech, Inc., a corporation organized under the laws of the Commonwealth
of Massachusetts and having a usual place of business at 300 Bear Hill Road,
Waltham, Massachusetts 02154 ("Vivitech").
1. Introduction
------------
Hologic has developed the x-ray technology defined below and is the owner
of all patents, know-how, and other intellectual property rights relating
thereto. Vivitech desires to obtain rights to develop, manufacture, market, and
distribute an x-ray screening security system based on and embodying such
technology. Accordingly, in consideration of the mutual promises contained
herein, the parties agree to the terms and conditions set forth in this
Agreement.
2. Definitions
-----------
As used in this Agreement:
(a) "Affiliated Parties" of either party to this Agreement shall mean
entities that are owned or controlled by or which own or control such party to
this Agreement or which are owned or controlled by a person or entity that owns
or controls the party to this Agreement or with which the party to this
Agreement has entered into any agreement with respect to the design,
development, manufacture, marketing, or distribution of the Product or any
component thereof. An entity shall be deemed to be "owned or controlled" by the
person or entity having a direct or indirect right to vote fifty percent (50%)
or more of the subject entity's voting equity securities.
(b) "Base Technology" shall mean the information existing and known to
Hologic on the date of this Agreement or within two years thereafter that is
necessary or useful in the design, development, manufacture, or marketing of an
x-ray screening security system.
(c) "Know-how" shall mean trade secrets and other know-how relating to the
design, development, and manufacture of the Product that are existing and known
to Hologic on the date of this Agreement or that are developed by Hologic within
two years thereafter.
(d) "Net Sales Price" shall mean the total amount invoiced to purchasers of
the Product from Vivitech and its Affiliated Parties, exclusive of any amounts
attributable to:
<PAGE>
(i) discounts for quantity and prompt payment actually taken;
(ii) sales, use, excise, and similar taxes;
(iii) import and export taxes and customs duties;
(iv) packaging, crating, insurance, and transportation charges; and
(v) refunds, credits, allowances, and adjustments actually allowed
or made.
(e) "New Developments" shall mean technology, know-how, other information
derived from the Base Technology that is developed by Hologic more than two
years after the date of this Agreement or by Vivitech at any time after the date
of this Agreement.
(f) "Patents" shall mean U.S. Patent #4,811,373, issued on March 7, 1989,
and the patents, if any, issued with respect to U.S. Patent Application
#320,156, filed on March 7, 1989, copies of which are attached to this Agreement
as Exhibit A.
(g) "Product" shall mean any x-ray screening security system embodying the
Base Technology and/or the Patents that is capable of screening luggage and
cargo for particular types of contraband.
3. License
-------
(a) Subject to the terms and conditions set forth in this Agreement,
Hologic hereby grants Vivitech a perpetual, exclusive, worldwide license to
utilize the Base Technology, Patents, and Know-how to design, develop, improve,
enhance, manufacture, market, and sell the Product and for no other purpose.
(b) Subject to the terms and conditions set forth in this Agreement,
Hologic hereby grants Vivitech a non-exclusive, world-wide license to use the
trademarks and service marks set forth on the attached Exhibit B, which may be
amended by Hologic from time to time, in connection with Vivitech's marketing,
sales, and distribution of the Product. Hologic agrees not to license any other
entity to use the trademarks and service marks set forth on the attached Exhibit
B in connection with an x-ray screening security system.
4. New Developments
----------------
(a) Hologic and Vivitech each hereby grants the other party a non-
exclusive, royalty-free license to use any New Development developed by Hologic
or Vivitech, respectively, (i) in connection with such other party's research
and development activities and (ii) with respect to unpatented New Developments
only, in connection with such other party's commercial activities. The party
that develops the New Development agrees to provide the other party with
sufficient information and technical assistance with respect to such New
Development to enable the other party to understand such New Development as
promptly as practicable following its
-2-
<PAGE>
development. This Section 4(a) is not intended and shall not be construed to
authorize the receiving party to incorporate any of the other party's patented
New Developments into any commercial product or to make any other commercial use
of any such patented New Development.
(b) Each party (individually, as appropriate, the "Grantee") shall be
entitled to the grant of an exclusive license, on commercially reasonable terms,
for the commercial use, in connection with the Grantee's business as hereinafter
defined, of any New Development developed by the other party (individually, as
appropriate, the "Grantor") for which a U.S. or foreign Patent has been issued.
In the event that the parties are unable to agree to the terms of such a license
within 180 days following Grantee's request therefor, any disputed terms shall
be resolved by the decision of a sole arbitrator appointed by agreement of the
parties for such purpose. If the parties are unable to agree on the selection
of the arbitrator within 45 days following the end of the aforementioned 180-day
period or following any earlier date on which the parties determine that such an
arbitrator is required, any disputed terms shall be resolved by a panel of three
arbitrators appointed for such purpose, one of whom shall have been selected by
Hologic, one of whom shall have been selected by Vivitech, and the third of whom
shall have been selected by agreement of the other two. The decision of the
arbitrator or arbitrators, as appropriate, shall be made promptly and, in any
event, within 45 days following his, her, or their appointment. For purposes of
this Section 4(b), Vivitech shall be deemed to be in the business of developing,
manufacturing, marketing, selling, servicing, and otherwise dealing in x-ray
screening security systems and non-destructive testing systems and Hologic shall
be deemed to be in the business of doing everything that is not included in
Vivitech's business.
5. Royalties
---------
In consideration for the rights and privileges granted here-in, Vivitech
hereby agrees to pay Hologic royalties with respect to actual commercial sales
of the Product by Vivitech or any of Vivitech's Affiliated Parties in accordance
with the following schedule:
<TABLE>
<CAPTION>
Aggregate Net Sales Price Royalty Rate
------------------------- -------------
<S> <C>
$0 - $50,000,000.00 5%
$50,000,00.01 - $200,000,000.00 3%
Over $200,000,000.00 0
</TABLE>
Royalties computed pursuant to this Section 5 shall be payable within 60 days
following the end of each quarter of Vivitech's fiscal year.
-3-
<PAGE>
6. Technical Assistance
--------------------
Within 30 days following the execution of this Agreement, Hologic shall
deliver to Vivitech or its designee all technical information in its possession
with respect to the Base Technology as it currently exists. Technical
information pertaining to any portion of the Base Technology developed after the
date of this Agreement shall be delivered as promptly as practicable. Hologic
agrees to provide Vivitech or its designee with such support and technical
assistance as may be reasonable or appropriate to facilitate the transfer of the
Base Technology.
7. Intellectual Property Rights
----------------------------
(a) The Base Technology, Patents, and Know-how are and shall continue to be
the sole property of Hologic and may be used by Vivitech only subject to the
terms of this Agreement.
(b) Any patents, know-how, or other information developed by either party
with respect to the Product shall belong solely to the developing party, subject
to the other party's rights to any New Developments pursuant to Section 4.
(c) All Products manufactured by or for either party pursuant to this
Agreement shall be labeled with patent and other notices in form and content
sufficient to protect the other party's intellectual property rights therein to
the fullest extent possible.
8. Commercialization and Marketing
-------------------------------
(a) Vivitech agrees to undertake all expenses of developing and
commercializing the Product, including (but not limited to) funding capital
equipment requirements, packaging, and other production start-up expenses.
(b) Vivitech shall obtain Hologic's prior approval of each use of Hologic's
name, trademarks, or service marks and, to such end, shall submit a prototype of
each such use to Hologic for review. Hologic's approval of such uses shall not
be unreasonably withheld. Hologic shall be deemed to have approved a proposed
use of its name, trademarks, or service marks if it has not objected thereto in
writing within ten (10) days following its receipt of the prototype therefor.
9. Books and Records
-----------------
(a) Each payment of royalties pursuant to Section 5 of this Agreement,
above, shall be accompanied by a report detailing the number of units of the
Product sold during the fiscal quarter to which such royalty payment applies,
the Net Sales Price of such Products, the rates at which royalties were
computed, the amount of royalties due, and any additional details necessary to
show how such amounts were determined.
-4-
<PAGE>
(b) Vivitech shall keep true and accurate records, files, and books of
account containing all the data reasonably required for the full computation and
verification of royalty payments due under this Agreement for each quarter of
each of Vivitech's fiscal years during which the first $200,000,000 in net sales
of the Product occur. Such materials shall be retained for a period of at least
5 years following the end of the fiscal year to which they relate. Vivitech's
books of account shall be maintained in accordance with generally accepted
accounting principles consistently applied. Vivitech shall permit the
reasonable inspection and copying of such records, files, and books of account
by Hologic or its representatives during regular business hours at Vivitech's
regular place of business, provided that Hologic shall give Vivitech at least 7
days prior written notice of its election to inspect such records, files, and
books of account. Fees and expenses incurred in connection with such
inspections (including, but not limited to, professional fees and expenses paid
to accountants or other examiners retained by Hologic and the cost of copying
records, files, and books of account) shall be borne by Hologic, unless such
inspection shall reveal that an error in the amount of five percent (5%) or more
of any royalty payment was made, in which case the fees and expenses incurred in
connection with the inspection during which such error was discovered shall be
borne by Vivitech.
10. Confidentiality
---------------
(a) The parties agree to take reasonable steps to maintain the
confidentiality of all trade secrets or other confidential information relating
to the Patents, the Know-how, the Base Technology, and the New Developments and
to disclose such information only to a third party who has a need to know the
same and only after the execution of a non-disclosure agreement in substantially
the form annexed hereto as Exhibit C by such third party.
(b) Hologic and Vivitech shall each take all steps that are necessary or
reasonable to safeguard the secrecy and confidentiality of all proprietary
information regarding the other party of which they become aware, including
(without limitation) information regarding business plans, customer lists,
market strategies, product development, and information specifically identified
as "confidential."
(c) The obligation of confidentiality expressed in this Section 10 shall
not apply to:
(i) information that, at the time of the disclosure, is freely
available to the general public or that has been identically
disclosed in published literature or patents, provided that no
---------
combination of features shall be deemed to be within this
exception merely because its component features are freely
available to the general public or have been disclosed in
published literature or patents, but only if the combination
itself and its principles of operation are freely available to
the general public or disclosed in published literature or
patents;
(ii) information that is or becomes publicly known through no fault of
any party hereto; and
-5-
<PAGE>
(iii) disclosure that is required by a government authority or by
order of a court of competent jurisdiction, provided that such
disclosure is subject to all applicable governmental and
judicial protection available for like material.
(d) Each party will take whatever action is necessary or appropriate to
ensure that its employees, officers, and directors comply with the provisions of
this Section 10 both during and after the time they serve in such capacities.
In the event that any such individual makes an unpermitted disclosure of any
confidential information hereunder, the party with which such individual is
affiliated shall promptly take whatever action is necessary or appropriate to
minimize the adverse effect of such disclosure.
(e) The parties understand and agree that any breach of the obligation of
confidentiality expressed in this Section 10 may cause irreparable damage to the
business and property of the non-disclosing party. In the event of any such
breach or of the substantial likelihood that such a breach will occur, the
disclosing party understands that the other party may take legal action,
including seeking injunctive relief, to protect its interests and property. The
disclosing party hereby consents to the entry of an injunction in such
circumstances to enjoin the disclosure.
11. (a) Representations and Warranties
------------------------------
Hologic hereby represents and warrants to Vivitech that:
(i) it has the full authority to enter into this Agreement without
the prior consent, concurrence, or other authorization of any
court, agency, or other third party;
(ii) it is the sole owner of all right, title, and interest in and to
the Patents, the Base Technology, and the Know-how, free and
clear of any liens or encumbrances, and has no actual knowledge
of any conflicting patents, patent applications, or proprietary
rights of any third parties;
(iii) the undersigned officer has the full authority and approval of
the Board of Directors of Hologic to enter into this Agreement;
and
(iv) this Agreement does not violate the terms of any agreement,
order, stipulation, understanding, or other arrangement to which
it is subject or by which it is bound.
Hologic gives no warranty or representation, express or implied, except as
specifically stated herein.
(b) Vivitech hereby represents and warrants to Hologic that:
-6-
<PAGE>
(i) it has the full authority to enter into this Agreement without
the prior consent, concurrence, or other authorization of any
court, agency, or other third party;
(ii) the undersigned officer has the full authority and approval of
the Board of Directors of Vivitech to enter into this Agreement;
and
(iii) this Agreement does not violate the terms of any agreement,
order, stipulation, understanding, or other arrangement to which
it is subject or by which it is bound.
Vivitech gives no warranty or representation, express or implied, except as
specifically stated herein.
12. Term and Termination
--------------------
(a) This Agreement shall remain in effect from the date first written
above until terminated by mutual agreement of the parties or otherwise as
permitted in this Section 12.
(b) Hologic may terminate this Agreement by written notice to Vivitech if
Vivitech fails to pay the royalties required pursuant to Section 5, provided
Hologic has given Vivitech written notice that it has not received a required
quarterly payment and Vivitech has failed, within 45 days following the
effective date of such notice, either (i) to provide Hologic with Written notice
that no sales for which royalties were required were made during such quarter or
(ii) to make the required payment.
(c) Hologic may terminate this Agreement by written notice after the fifth
anniversary of the date hereof and prior to Vivitech's payment of royalties in
the aggregate amount of $7,000,000.00, if Vivitech or any of Vivitech's
Affiliated Parties begins marketing a product that competes with the Product or
that renders the Product obsolete, provided that Hologic has given Vivitech at
least 90 days prior written notice of Hologic's objection to the marketing of a
specific product and the marketing of such product has not been terminated
within such 90-day period and provided, further, that Vivitech has not paid
Hologic royalties in the amount of at least $200,000.00 for Vivitech's
immediately preceding fiscal year or, if a lesser amount was paid for such
fiscal year, Vivitech has not paid the difference between $200,000.00 and the
amount actually paid prior to the expiration of such 90-day notice period.
(d) Hologic may terminate this Agreement by written notice to Vivitech if
the aggregate amount of the royalty payments Vivitech makes pursuant to Section
5, above, does not equal or exceed (1) $100,000.00 on or before the third
anniversary of the date of this Agreement; (ii) $250,000.00 on or before the
fourth anniversary of the date of this Agreement; and (iii) $500,000.00 on or
before the fifth anniversary of the date of this Agreement, provided that
termination pursuant to this Section 12(d) may not take effect unless Hologic
shall have first given Vivitech written notice of the amount of any deficiency
in the required minimum royalty
-7-
<PAGE>
payments hereunder and Vivitech shall have failed to pay such deficiency within
45 days following the effective date of such notice.
(e) Either party may terminate this Agreement at any time for a default by
the other party consisting of anything other than a failure to pay royalties
pursuant to Section 5, effective on the date specified in a notice of
termination, provided that at least 60 days prior to giving such notice of
termination the terminating party shall have given the defaulting party written
notice identifying the nature of the default and the defaulting party shall have
failed to remedy the default within such 60-day period or, if such default is
not susceptible of being remedied within such period, shall have failed to
initiate action within such period that is reasonably calculated to remedy such
default as promptly as practicable or fails to pursue such action diligently to
completion.
(f) Upon termination of this Agreement for any reason, the licenses set
forth in Section 3, above, shall terminate. Each party shall return to the other
party all records of such other party's proprietary or confidential information
in its possession. Vivitech shall be entitled to assemble any units of the
Product for which components have been purchased or ordered and sell to any
third parties any Product, including such assembled Product, remaining in its
inventory.
(g) Sections 5, 9, 10, 12(f), 12(g), 13, 14, 16, 20, 23, 24, 25, 26, and
27 shall survive termination of this Agreement.
13. Indemnification
---------------
(a) Hologic agrees to indemnify and hold Vivitech and its officers,
directors, employees, licensees, and agents harmless from and against any
liabilities, costs, or other damages (including reasonable attorneys fees and
litigation costs, regardless of outcome) arising out of a breach of one or more
of Hologic's representations or warranties expressed in Section 11 of this
Agreement, provided Vivitech shall have taken reasonable actions to minimize
such liabilities, costs, or other damages and provided, further, that Vivitech
has complied with the procedures set forth in subsection (d), below.
(b) Vivitech agrees to indemnify and hold Hologic and its officers,
directors, employees, licensees, and agents harmless from and against any
liabilities, costs, or other damages (including reasonable attorneys fees and
litigation costs, regardless of outcome) arising out of the manufacture, use, or
sale of the Product or of any improvements or alterations thereto (providing
that the condition or circumstance that gave rise to such expense was not the
result of a breach of one of Hologic's representations or warranties pursuant to
Section 11 of this Agreement) or from a breach of any one or more of Vivitech's
representations or warranties expressed in Section 11 of this Agreement,
provided Hologic shall have taken reasonable actions to minimize such
liabilities, costs, or other damages and provided, further, that Hologic has
complied with the procedures set forth in sub-section (d), below.
(c) Each party (the "Indemnifying Party") agrees to indemnify and hold the
other party (the "Indemnified Party") and such other party's officers,
directors, employees, licensees,
-8-
<PAGE>
and agents harmless from and against any liabilities, costs, or other damages
(including reasonable attorneys fees and litigation costs, regardless of
outcome) arising out of the infringement of any third party's intellectual
property rights by the Base Technology (if Hologic is the Indemnifying Party) or
by any New Development developed by the Indemnifying Party, provided the
Indemnified Party shall have taken reasonable actions to minimize such
liabilities, costs, and other damages and provided, further, that the
Indemnified Party has complied with the procedures set forth in subsection (d),
below.
(d) If any claim, action, or other legal proceeding is asserted against a
party for which such party may have a right to indemnification pursuant to this
Section 13, such party (the "Indemnified Party") shall give the other party (the
"Indemnifying Party") prompt written notice of such claim or proceeding and the
Indemnifying Party may elect to control the defense to or settlement of such
dispute. In the event that the Indemnified Party cannot reasonably anticipate
that the Indemnifying Party will receive notice of such claim or proceeding at
least 20 days prior to the date by which any action needs to be taken to
preserve and protect the parties' rights, the Indemnified Party shall take such
action on behalf of the Indemnifying Party. The Indemnified Party shall
cooperate with the Indemnifying Party in any defense or settlement made by the
Indemnifying Party. The Indemnified Party shall not enter into any settlement
agreement or other voluntary resolution of any such claim or proceeding without
obtaining the Indemnifying Party's prior written consent thereto.
14. Infringement
------------
(a) If Hologic or Vivitech becomes aware that the Base Technology or any
New Development is being or may be infringed by a third party, the party who
learns of or suspects such infringement shall promptly notify the other party
thereof. Vivitech may at its own expense prosecute any action it deems
necessary to protect the rights of each of the parties to such Base Technology
or New Development under this Agreement. If, upon inquiry by Hologic, Vivitech
does not initiate any such action or confirm that it intends to do so promptly
and in a timely fashion, Hologic may initiate such an action in its own behalf.
If either party initiates an action pursuant to this subsection 14(a) and
recovers damages or lost profits or both as a result thereof, the recovering
party may retain the entire amount of such recovery, provided that the net
amount of any recovery hereunder by Vivitech, after deducting its expenses
associated with such action, shall be deemed to be income attributable to net
sales subject to royalties pursuant to Section 5 of this Agreement.
(b) In any action prosecuted, defended, or resolved by either party
pursuant to subsection 14(a), above, the other party shall provide such
assistance as may be reasonably necessary or appropriate and shall be entitled
to noncontrolling participation at its own expense, through counsel of its own
selection.
15. Assignment and Sublicensing
---------------------------
Vivitech may assign this Agreement or sublicense a third party to design,
manufacture, market, distribute, sell, and/or service the Product or any
component thereof, provided that the
-9-
<PAGE>
assignee agrees to be bound by all of the terms and conditions of this Agreement
or the sublicensee agrees: (i) to maintain the secrecy of confidential
information and to sign a Confidentiality Agreement substantially in the form
annexed hereto as Exhibit C; (ii) to maintain records, files, and books of
account containing all data reasonably required for the full computation of the
royalties due with respect to sales by such party and to permit the inspection
of such records, files, and books of account in accordance with the procedures
set forth in Section 9(b) of this Agreement; and (iii) to comply with and
perform the obligations delegated to it by Vivitech under this Agreement as if
this Agreement were binding on it.
16. Limitation of Liability
-----------------------
Neither party shall be liable to the other for special, incidental, or
consequential damages arising out of the transactions covered by this Agreement
or out of the use or sale of the Product.
17. Non-Competition
---------------
So long as this Agreement is in effect, Hologic shall not manufacture,
market, or distribute any product, whether now existing or hereafter developed,
that is used for a purpose that is the same as or substantially similar to the
purpose for which the Product is used.
18. USA Export Controls
-------------------
Vivitech agrees not to export, re-export, or permit the re-exportation of
any Product to any country now or hereafter included in the US Department of
Commerce's list of countries to which exportation of such Product is or may be
restricted or prohibited, unless that exportation or re-exportation is
authorized specifically by a special license issued to Vivitech by the Office of
Export Administration of the United States of America.
19. Force Majeure
-------------
Neither party shall be deemed to be in default pursuant to this Agreement
as long as its failure to perform any of its obligations hereunder is occasioned
solely by fire, labor disturbance, acts of civil or military authorities, acts
of God, or any similar cause beyond such party's control.
20. Further Assurances
------------------
Each party agrees to cooperate fully with the other party and to execute
such further instruments, documents, and agreements and to give such further
written assurances as may be reasonably requested by the other party to carry
into effect the intents and purposes of this Agreement.
-10-
<PAGE>
21. Counterparts
------------
This Agreement may be executed in separate counterparts, each of which
shall be deemed an original and, when executed, separately or together, shall
constitute a single original instrument, effective in the same manner as if the
parties 'hereto had executed one and the same instrument.
22. Waiver
------
No waiver of any term, provision, or condition of this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
be construed as, a further or continuing waiver of any such term, provision, or
condition or as a waiver of any other term, provision or condition of this
Agreement.
23. Notices
-------
All notices and other communications to be delivered or given hereunder
shall be in writing, shall specifically refer to this Agreement, and shall be
deemed to be duly given if delivered or sent by certified or registered mail,
postage prepaid and return receipt requested, by telecopy, or by delivery in
person, as follows:
if to HOLOGIC, to:
300 Bear Hill Road
Waltham, Massachusetts 02154
Attn: Chief Executive Officer
TELECOPY #: (617) 893-4931
and if to Vivitech, to:
300 Bear Hill Road
Waltham, Massachusetts 02154
Attn: Chief Executive Officer
TELECOPY #: (617) 893-4931
or to such other address as shall have been communicated in writing to the other
party. All notices shall be deemed to be effective on the date of actual receipt
or three days after deposited in the mail addressed as provided above, whichever
is sooner.
24. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts. The Commonwealth of Massachusetts
shall be the venue for any action arising with respect to this Agreement or the
relationship between the parties.
-11-
<PAGE>
25. Entire Agreement; Amendment and Modification
--------------------------------------------
This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof, and may be amended only by a writing
executed by each of the parties.
26. Binding Effect; Successors and Assigns
--------------------------------------
This Agreement and all of the terms and provisions hereof shall be binding
upon the parties hereto and their respective successors and permitted assigns,
and shall inure to the benefit of the aforementioned parties and their
respective successors and assigns.
27. Severability
------------
The invalidity or unenforceability of any provision hereof shall not affect
the validity or enforceability of any other provisions hereof.
28. Headings
--------
The section headings contained in this Agreement are for informational
purposes only and are not to be construed to affect the meaning or application
of any provision hereof.
29. Relationship
------------
Nothing contained in this Agreement is intended to or shall be construed to
create a partnership or joint venture between the parties, nor shall either
party be deemed to be an agent or employee of the other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
an instrument under seal as of the date first written above.
HOLOGIC, INC. VIVITECH, INC.
By: By:
-------------------------------- ------------------------------
S. David Ellenbogen
President
-12-
<PAGE>
EXHIBIT 11.01
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENT RE: EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------
1993 1994 1995 1995 1996
--------- ---------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $(858,559) $2,809,701 $ 2,014,075 $ 824,486 $ 736,077
--------- ---------- ----------- ------------- -------------
Weighted average common
shares
outstanding............ 1,527,386 1,615,169 1,663,066 1,660,595 1,676,427
Assumed conversion of
Series B and Series D
convertible preferred
stock ................. 4,138,951 5,045,850 5,045,850 5,045,850 5,045,850
Stock issued within
twelve months of
initial public
offering............... 148,419 148,419 148,419 148,419 148,419
Common stock equiva-
lents.................. -- 388,863 417,803 420,859 712,958
--------- ---------- ----------- ------------- -------------
Weighted average number
of common and common
equivalent shares
outstanding............ 5,814,756 7,198,301 7,275,138 7,275,723 7,583,654
--------- ---------- ----------- ------------- -------------
Net income (loss) per
share amount........... $ (0.15) $ 0.39 $ 0.28 $ 0.11 $ 0.10
========= ========== =========== ============= =============
</TABLE>
- --------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, stock, stock options and stock warrants issued at prices below the
initial public offering price during the 12-month period immediately
preceding the initial filing date of the Company's Registration Statement
of its initial public offering have been included as outstanding for all
periods presented. The dilutive effect of the common stock equivalents was
computed in accordance with the treasury stock method.
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
1. Vivid Technologies UK Ltd., a corporation formed under the laws of the
United Kingdom.
2. Vivid Foreign Sales Corporation, a corporation formed under the laws of the
United States Virgin Islands.
<PAGE>
EXHIBIT 24.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Boston, Massachusetts
October 17, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> $643,101
<SECURITIES> 0
<RECEIVABLES> 4,068,874
<ALLOWANCES> 0
<INVENTORY> 4,173,867
<CURRENT-ASSETS> 9,042,632
<PP&E> 2,034,593
<DEPRECIATION> 999,557
<TOTAL-ASSETS> 10,208,509
<CURRENT-LIABILITIES> 10,513,865
<BONDS> 0
0
5,046
<COMMON> 16,790
<OTHER-SE> (327,192)
<TOTAL-LIABILITY-AND-EQUITY> 10,208,509
<SALES> 10,162,868
<TOTAL-REVENUES> 10,162,868
<CGS> 4,361,717
<TOTAL-COSTS> 9,113,865
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,657
<INCOME-PRETAX> 1,051,077
<INCOME-TAX> 315,000
<INCOME-CONTINUING> 736,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 736,077
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
